Why project team token vesting is important for investor confidence in crypto projects.

Introduction to vesting

The concept of vesting is not new or unique to crypto. It is used in every venture-backed company to protect early-stage investors by aligning their interests with founder incentives.

Token vesting in crypto

When it comes to crypto projects, the early investors in the project are the token holders that purchase a token during the early stages of the project, including those that purchase through a presale event (IEO or similar) as well as those that buy early-stage project tokens on the secondary markets like CEX and DEX. It is these groups of investors that deserve, and who should actively seek out, projects that have implemented a vesting schedule for founders/teams to align their interests.

Benefits for investors

As mentioned above, the main benefit of implementing a vesting schedule for a project team's allocation of tokens is the long-term alignment of interests and security it provides early-stage investors. Some of the specific benefits have been identified below:

Prevents token dumping

Project teams are typically allocated anywhere between 10–40% of the supply of tokens which creates the potential for them to have a significant impact on the token price if they were to sell large quantities of tokens in a short period of time. Selling a large number of tokens in a short time frame would usually cause a price to plummet, token vesting schedules prevent this by locking up the project team's tokens.

Guarantees reduced circulating supply

Locking project team tokens in a vesting schedule provide greater certainty for investors of what the future circulating supply of tokens will be. This can be important for anticipating future token price movements and is beneficial for many investors.

Assures commitment of team long term

Token vesting schedules, give investors assurance that the project team will have a long-term commitment to working on the project and executing the vision set out in the project's whitepaper. Project team members only achieve their full allocation of tokens at the end of the vesting schedule so have an interest to stay committed for its duration.

Reduces the chance of a rug pull

Among other indicators like having a credible non-anonymous team, a project that is willing to lock founder tokens into a vesting schedule is a good indicator that they are less likely to perform a rug pull. After all most of the value, a project team hopes to gain from the project comes in the form of the price appreciating on their native token. Often a project team will launch their token at a fraction of a dollar and by delivering on their vision and growth in their community hope to see this appreciate many hundreds if not thousands of times.

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