What is vesting?

Think of a work bonus that you don’t receive in full on day one, but in installments for as long as you stay with the company. Similarly, a development team or an early backer may be entitled to a project’s tokens without being able to transfer or sell them right away. Vesting determines when and under what conditions they gain access to them.

We often come across an initial waiting period, the cliff. Until it ends, no part of that allocation vests. At the end of it, a lump sum may vest or gradual vesting may begin, depending on the terms.

For example, imagine an allocation of 1,200 tokens with a six-month cliff and then vesting of 100 tokens a month for twelve months. Under this hypothetical schedule, the recipient gets nothing during the cliff. After that, they gain the right to each monthly installment. Other schedules release tokens daily or in larger installments.

Why it matters

The goal is usually to create incentives for long-term participation and to avoid entire allocations being sold off immediately. We find it useful to look at the vesting schedule together with who holds the tokens: an allocation spread across many people is one thing, a large percentage concentrated in a few hands is another.

If you hold the same token, the dates matter because more tokens may become available for circulation. An unlock doesn’t automatically mean a sale, nor does it predetermine the price move. Vesting describes the overall schedule, while a token unlock is an individual release.

What to watch out for

The terms matter more than the label. We check when vesting starts, what happens after the cliff and whether someone forfeits their unvested tokens when they leave the team.

The process can be executed by a smart contract or rely on an agreement and manual distributions. A schedule on a website doesn’t prove the tokens are technically locked. You also need to check who can change the terms or halt the distribution.