Token sales, beyond traditional seed rounds, are perhaps the most common method for blockchain projects to raise additional capital. These funds are essential for accelerating development or building more innovative and ambitious components of the project. A crowdsale event allows blockchain projects to sell their tokens to the wider public. Individuals who wish to sup
port a new token can participate in the crowdfund, receiving tokens equivalent to the amount they contributed at the end of the crowdfunding campaign. In some cases, organisations may choose to vest a certain number of tokens.
What are Cliffs?
Cliffs refer to the period that must pass before the release of tokens begins. The duration of cliffs can vary depending on the purpose of the allocation. For example, the cliff for tokens awarded to a project's investors and advisers might be 16 months, while for marketing and collaborations, it could be as short as 3 months. The vesting period starts once the cliff period has concluded.
What is Vesting?
Vesting is the process by which assets, often tokens, are locked and gradually released over a specified period. A certain quantity of tokens is set aside for the team, partners, advisers, and others who contribute to the project's development.
For instance, a blockchain startup might reserve 15% of its tokens for the team. These tokens would be gradually distributed on a monthly, quarterly, or annual basis as the project progresses. Until these assets are unlocked, they cannot be sold, transferred, or transacted. This gradual release minimises market shocks that could occur if a large number of tokens were unlocked at once.
Vesting is typically used to demonstrate the team’s commitment to the project and their intent to continue working on its progress.
Example of a Vesting Schedule
A typical vesting schedule might release 20% of the vested tokens after six months, 50% after one year, and 100% after two years. This structure is beneficial because if a single entity or multiple companies held, say, 20% of all tokens created since the Token Generation Event (TGE), they could easily cause supply fluctuations that would be detrimental to the token ecosystem and its price. In simpler terms, this presents a clear risk to the token’s stability.
Why is Vesting Essential?
As the token vesting process becomes more intricate and more tokens are reserved for firms, it is crucial for projects to clearly outline how tokens will be distributed to founders, early investors, and other stakeholders. Investors need to be assured that the project team has sufficient commitment without holding excessive control over the token. Explicit details on founder vesting timelines and cliffs should be provided to maintain transparency.
Why Are We Telling You This?
Given the early-stage nature of many of the crypto, NFT, gaming, and blockchain clients we work with, they often choose to reward early employees who become crucial to the project's launch. We understand that this form of equity bonus may be unfamiliar to some of our valued candidates, so we wanted to share this straightforward explanation with you.
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