Vesting is a mechanism that locks tokens for a defined period and gradually releases them according to a predetermined schedule. It is commonly used in cryptocurrency projects to prevent large holders — such as the founding team, advisors, and early investors — from dumping their tokens on the open market immediately after launch.
A typical vesting schedule includes two phases:
- Cliff period — an initial lock-up during which no tokens are released. This might last 6 to 12 months.
- Linear vesting — after the cliff, tokens are released incrementally, often monthly or quarterly, over a period of 1 to 4 years.
For example, a team allocation might have a 12-month cliff followed by 24 months of linear vesting. This means no team tokens enter circulation for the first year, and then they unlock gradually over the following two years.
Vesting schedules are important for several reasons:
- Price stability — gradual token releases reduce the risk of sudden sell-offs that could crash the price.
- Alignment of incentives — vesting ensures that team members remain committed to the project's long-term success.
- Investor confidence — transparent vesting signals that insiders are not looking for a quick exit.
When evaluating a project from an ICO, IDO, or launchpad sale, always review the vesting schedule. Projects with short or nonexistent vesting periods carry higher risk, as early holders may sell aggressively once tokens unlock.