What Is Token Vesting and Why Investors Care

You find a promising crypto project. The fundamentals look good. The team is solid. The technology makes sense. You buy the token. Three months later, the price drops 40% with no bad news. What happened?

Token unlock. The team and early investors just had millions of tokens vest, and they sold them. You got diluted and dumped on because you didn't check the vesting schedule before buying.

This happens constantly. And it's one of the most predictable and avoidable mistakes in crypto investing.

What Is Vesting?

Vesting is a schedule that controls when tokens become available to their holders. Instead of giving team members, advisors, or early investors all their tokens at once, the tokens get released gradually over time.

A typical vesting schedule might look like this: 12 month cliff, then linear monthly vesting over 36 months. That means the holder gets nothing for the first 12 months. After that cliff period, they start receiving equal portions of their tokens each month for three years.

The concept comes from traditional startup equity. When you join a tech company and get stock options, they usually vest over four years with a one year cliff. Crypto borrowed the same idea and applied it to tokens.

Why Vesting Exists

Without vesting, project founders could launch a token, sell all their allocation on day one, and walk away. The project would be abandoned and token holders would be stuck with worthless tokens.

Vesting forces alignment. If the team's tokens vest over four years, they have an incentive to keep building for four years. If they abandon the project, their unvested tokens become worthless too.

Same for investors. If a VC buys 15% of a token's supply at a 90% discount to public price, instant selling would crash the price. Vesting prevents the dump by releasing tokens slowly.

In theory, vesting protects retail investors by preventing insiders from dumping. In practice, it often just delays the dump. When tokens unlock, insiders frequently sell. The question is whether the project has generated enough real demand by then to absorb the selling pressure.

The Anatomy of a Vesting Schedule

Every token has (or should have) a detailed vesting schedule for each allocation category. Here's what a typical token distribution looks like:

Team allocation (15% to 20%). Usually has the longest vesting. A common structure is a 12 month cliff followed by 24 to 36 months of linear vesting. Some projects use 48 month vesting for the team. Longer is better for investors.

Early investors/VCs (10% to 20%). Shorter vesting than team, typically 6 to 12 month cliff followed by 18 to 24 months linear. VCs want liquidity sooner, so they negotiate shorter vesting terms.

Community/ecosystem (20% to 40%). These tokens fund development, partnerships, and community rewards. They might vest over several years or be released based on milestones.

Public sale (5% to 15%). Tokens sold in the public sale are usually unlocked immediately or after a very short lockup. These are the tokens regular investors buy.

Liquidity (5% to 10%). Allocated for DEX and CEX liquidity. Usually unlocked at launch.

The numbers vary widely by project. The key thing to check is the ratio between immediately circulating supply and the total supply. If only 10% of tokens are circulating at launch and 90% will unlock over the next two years, that's a massive amount of future selling pressure hanging over the price.

How Token Unlocks Affect Price

The data on this is pretty clear. Large token unlocks tend to suppress prices. Not always dramatically, but the correlation is real.

Research from Token Unlocks (now tokenunlocks.app) shows that tokens experience an average 5% to 15% price decline in the two weeks surrounding a major unlock event. The larger the unlock relative to circulating supply, the bigger the impact.

A 1% unlock relative to circulating supply? Barely noticeable. A 10% unlock? That often causes a meaningful dip. A 25%+ unlock? That can crash the price significantly if demand doesn't absorb the new supply.

And it's not just the unlock day itself. Smart money often front runs the unlock. Traders who know a big unlock is coming will short the token or sell their holdings before the unlock date, anticipating that insiders will sell. This means the price impact can start days or even weeks before the actual unlock.

How to Check Vesting Schedules

Before buying any token, check its vesting schedule. Here's where to find this information.

Token Unlocks (tokenunlocks.app). The best dedicated tool for this. It shows upcoming unlock events, amounts, and dates for most major tokens. Their calendar view makes it easy to see when big unlocks are coming.

The project's documentation. Every legitimate project publishes its tokenomics, including the vesting schedule. Check the whitepaper, docs page, or tokenomics section of their website. If you can't find it, that's a red flag.

CoinGecko. The circulating supply vs total supply ratio gives you a quick snapshot. If circulating supply is 40% of total supply, that means 60% is still locked or unvested. Where is it, and when does it unlock?

On-chain verification. For complete transparency, check whether the vesting is actually enforced by a smart contract. Some projects just promise vesting without any on-chain enforcement. That means they could technically sell early. Vesting contracts on platforms like Sablier, Team Finance, or custom contracts provide actual enforcement.

Red Flags to Watch For

Extremely short vesting for insiders. If VCs have a 3 month cliff with 6 months of vesting, they could be fully liquid within 9 months of launch. That's not enough time for most projects to prove themselves. Prefer projects where insiders vest over at least 2 years.

Huge insider allocation. If the team and VCs together hold 50%+ of the supply, the future dilution is massive. Even with long vesting, that's a lot of tokens that will eventually hit the market.

No cliff period. A cliff means no tokens vest for the first X months. This ensures at least some commitment before insiders can sell. If insiders start receiving tokens from day one, the alignment is weaker.

Unclear or missing vesting info. If you can't find clear vesting details, assume the worst. Legitimate projects are transparent about their token distribution and vesting schedules. Projects that hide this information have something to hide.

TGE (Token Generation Event) unlock above 20%. If more than 20% of the total supply unlocks at launch, that's a lot of immediate selling pressure. Some projects have launched with 30% to 50% unlocked at TGE, and the price action is usually ugly in the first few weeks.

Using Vesting Data in Your Investment Strategy

Here's how I actually incorporate vesting analysis into my buying decisions:

1. Before buying, check the circulating supply as a percentage of total supply. Below 30%? Proceed with extra caution.
2. Look up the next major unlock on Token Unlocks. If a 10%+ unlock is happening within the next 30 days, I wait until after the unlock to buy.
3. Check who is unlocking. Team tokens unlocking is different from ecosystem tokens unlocking. Team and VC tokens are more likely to be sold.
4. Compare the unlock size to daily trading volume. If 50 million tokens are unlocking and the daily volume is only 5 million tokens, there's no way the market absorbs that without a price impact.
5. Track what insiders actually do after unlocks. Some teams hold through unlocks. Others sell immediately. Check the team wallets on Arkham or Etherscan after unlock dates.

Token vesting isn't exciting. It's not the kind of crypto alpha that gets thousands of likes on Twitter. But ignoring it is one of the easiest ways to lose money in this market. Spend five minutes checking the vesting schedule before you buy. That tiny amount of research can save you from buying into a wall of insider selling that was scheduled before you even knew the project existed.