What is a token unlock?

Imagine a company bonus that belongs to you, but that you can’t use before an agreed date. Locked tokens set aside for a project’s team, early investors or other recipients work in a similar way. When the scheduled moment arrives, the relevant restrictions are lifted.

Unlocking is often tied to vesting, meaning the schedule for gradually releasing the tokens. It can happen all at once on a single date or in installments, for example every month. The restrictions may be enforced through a smart contract or another mechanism set by the project.

Suppose 10 million tokens are in circulation and another 1 million unlock for the team. That equals 10% of the circulating supply up to that point. It doesn’t mean all of those tokens will be sold, but that they can now be transferred or sold, depending on their terms.

Why it matters

If you hold a token, what matters is not only how many units are circulating today, but also how many could enter the market later. If recipients sell part of the tokens that unlocked, the pressure on the price can increase, especially when liquidity, meaning the ability to trade without moving the price much, is limited.

We think you need to look at the size, the recipients and the pace of the unlock together. A small monthly release is different from a large one-off unlock. The impact also depends on demand and on whether the market has already priced in the event. The date alone doesn’t predict where the price will go.

What to watch out for

An unlock isn’t necessarily the creation of new tokens. It often involves tokens that already exist but remain locked. Also, an unlock doesn’t always translate into an immediate increase in the reported circulating supply, as the release terms and the counting methodology play a role.

When you see an unlock percentage, check whether it’s calculated on the circulating or the total supply. Also check the schedule and any changes to the project’s terms. And don’t confuse a scheduled unlock with a message asking you to send money to “unlock” tokens; requests like that may be a scam.