Token unlock is a mandatory activity that occurs for projects that have issued tokens. It is necessary to maintain smooth operations, but also has a significant impact on the token price when it experiences inflation.
Each project carefully structures its token release schedule to avoid market pressure and prevent a drop in token prices. Factors such as lack of liquidity and early profit-taking by investors can significantly affect the dynamics of the asset.
Now, to understand more about what token unlock is, starting from the process and strategy, its important role, its impact on token prices, the factors that cause price drops after token unlock, see the full review below.
What is Token Unlock?
Quoting the cryptorank.io page, Token Unlock refers to the process of unblocking tokens according to the terms of the fundraising round or other fundraising program of the project.
Each project carefully plans the release of its tokens to avoid excessive pressure from traders during the Token Unlock process and to prevent a drop in token prices.
In addition, most of the funding comes from early investors who buy tokens at the lowest price. In short, Token Unlock increases the number of tokens in circulation and is closely monitored due to its impact on the price.
Token Unlock Process and Strategy
The project team set several features for the upcoming Token Unlock to avoid a price drop:
- Cliff – the period during which the purchased coins will be locked once they are listed on the exchange.
- Vesting – stage of token distribution. For example, 5% of the tokens will be released every month so that the whole lot is distributed in 18 months and so on.
The Important Role of Unlock Tokens
Token distribution is an important process in the token management of a blockchain project. Token distribution is critical to many stakeholders, including investors, the team, users, and the community. Here are the important roles to know, among others:
1. For Investors
The token payout plan will help them determine when to change the token. supply. From there, they can analyze entry and exit points in investment activities.
2. For Project Teams
This is the token portion for the team aimed at motivating its members. The amount of tokens given can be locked for a certain period of time to ensure fairness and motivation for project members.
3. For Community and Users
Token distribution plays an important role as it is a way to create trust and support for the project from the community. For DeFi projects, native tokens also represent the community’s voting power for the projects they support.
4. For Project Sustainability
In some projects, native tokens are important in the operation of the network. Therefore, token issuance is also a way to promote the sustainable operation of the project.
5. Impact of Token Unlock on Token Price
The following are some of the impacts of token unlock on token price that are important to know, including:
1. Bearish Events
Token unlocks have historically been considered bearish, events indicating an increase in circulating supply. Newly released digital assets enter the circulating supply, creating selling pressure and thus lowering the existing price.
Based on the general rule of supply and demand, the more supply, the lower the demand, reflecting a decrease in price. The upcoming token release allows early investors, developers, or other holders to sell their assets while prices are still high.
Since the market is speculative, the price increases before the tokens are released. This positive momentum can be amplified by good news that token issuers have been holding back for months.
2. Price Increase before Unlock
On the other hand, another fundamental factor determines the direction in which the token price moves after the release. This factor is the allocation of where the released tokens will be distributed.
Tokens are distributed to the protocol treasury or for further project development, which usually means that they will remain within the ecosystem and will not be immediately sold for profit.
Meanwhile, tokens that are released and distributed to partners, advisors, or early investors in large numbers risk creating higher selling pressure and for more on how to analyze crypto fundamentals, you can read this article.
Factors Causing Price Drop after Token Unlock
Here are some factors that can cause the price to drop significantly after token unlock, including:
1. Low Entry Price and High Returns
Low entry price for investors and high returns during token unlock.
2. Poor Trading Liquidity
Poor trading pair Liquidity and small number of buy orders.
3. Large Unlock Volume vs Market Capitalization
Large volume of unlock tokens relative to market capitalization.
4. Speculators and Quick Sell Risk
The presence of “speculators” among investors – funds with a bad reputation that sell their coins immediately after token unlock.
5. Token Unlock to Watch Out For
Quoting the page id.beincrypto.com, the following are 5 (five) unlock tokens that need to be considered, including:
1. Optimism (OP)
Unlock date: May 31
Number of unlock tokens: 31,034,000 OP
Current circulating supply: 1,080,000,000 OP (OP IDR)
Optimism is the layer-2 (2L) scaling solution aimed at increasing speed and reducing transaction fees on the Ethereum mainnet.
The OP Token allows its holders to participate in the governance of the Optimism ecosystem by voting on proposals and decisions for the development and management of the network.
As of May 31, the project will have added more than 30,000,000 OP to its circulating supply. According to TokenUnlocks, this distribution is planned to allocate these tokens to key investors and contributors.
2. 1inch (1INCH)
Unlock date: June 1
Number of unlock tokens: 98,070,000 1INCH
Current circulating supply: 1,150,000,000 1INCH (INCH to IDR)
1inch is a decentralized DEX aggregator that aggregates liquidity from various DEXs to provide users with the best trading prices.
1inch aims to optimize and simplify trading activities by finding the most efficient transaction routes, minimizing slippage, and saving trading fees.
The next 1INCH token unlock is scheduled for June 1st. This release will include nearly 100,000,000 tokens, which will be distributed to developers, early investors, and venture capital funds.
3. dYdX (DYDX)
Unlock date: June 1
Number of unlock tokens: 33,033,000 DYDX
Current circulating supply: 279,800,000 DYDX (DYDX to IDR)
At the start of 2023, dYdX, the leading decentralized perpetual futures trading protocol, announced an adjustment in their initial tokenomics structure.
Under the update, 27.7% of the total dYdX supply will be allocated to initial investors, 26.1% to the treasury, 15.3% to the team, and 7.0% to future dYdX employees and consultants.
Most of the DYDX tokens that will be released on June 1 will be distributed to investors and the project team. As for the remaining tokens, they will be kept for future employees.
4. Sui (SUI)
Unlock date: June 1
Number of unlock tokens: 65,080,000 SUI
Current circulating supply: 2,033,000,000 SUI (SUI to IDR)
Sui is layer-1 (L1) blockchain that uses a proof-of-stake (PoS) consensus algorithm to ensure network operations and security.
The project was developed by Mysten Labs, a company founded in 2021 by former Novi Research employees who were previously involved in creating the Diem blockchain and Move programming language.
SUI Token token has an important role in facilitating governance. Token holders can vote on important proposals and shape the future of the platform. Furthermore, the next unlock agenda is scheduled for June 1.
On that date, a large number of tokens will be allocated to Series A and B participants, community reserves, and the Mysten Labs treasury.
5. Ethena (ENA)
Unlock date: June 1
Number of unlock tokens: 53,600,000 ENA
Current circulating supply: 1,470,000,000 ENA (ENA to IDR)
Ethena is a synthetic currency protocol built on the Ethereum blockchain, providing a native crypto asset solution independent of the traditional banking system.
In addition, Ethena provides global users with a US dollar-denominated saving instrument known as the “Internet Bond”.
The ENA Token. provides an opportunity for holders to participate in the decision-making process by voting on governance proposals.
On June 1, the project will hold a token unlock event with an amount of more than 50,000,000 ENA. These tokens will be dedicated to the development of the ecosystem.
Tips and Strategies for Token Unlock
The following are some tips and strategies for dealing with token unlocks that are important to know, including:
1. Investment Strategy
Consider identifying optimal entry and exit points carefully. Pay attention to market trends as well as fundamental and technical analysis to make better investment decisions.
Apart from knowing the right investment strategy, you can also learn about the type of investment in the following article.
2. Managing Risk
Make use of special orders such as stop–loss and take-profit to effectively manage risks. In addition, conduct in-depth risk analysis and consider factors such as market liquidity and volatility to reduce potential losses.
Conclusion
In conclusion, the benefit of token unlock planning is that it improves the long-term sustainability of the project. Good token unlock planning can help improve project sustainability by ensuring a gradual supply of tokens is available as per the project needs.
In addition, a transparent and fair token unlock arrangement can motivate the project team and encourage community engagement as it provides clarity on token allocation and usage.
As a disclaimer, before making any investment decisions or taking any steps related to token unlock, it is important to conduct in-depth research first to minimize future risks.
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FAQ about Token Unlock
- What is Token Unlock?
Token unlock is the process of releasing tokens that were previously blocked under the terms of a fundraising or other project funding program.
- Why Token Unlock is important?
Token unlocking is important because it increases the number of tokens in circulation, affects the price, and ensures fairness of distribution among investors, the team, and the community.
- What is Cliff and Vesting?
Cliff is the period where tokens remain locked after being listed on an exchange, while Vesting is the gradual distribution of tokens to reduce the negative impact on the price.
- How Token Unlock Affects Token Price?
Token unlocks are often considered bearish because they increase the circulating supply, creating selling pressure and potentially lowering token prices.
- Why Token Price Rises before Unlock?
Token prices can rise before the unlock as investors take advantage of this moment to sell assets while prices are still high, often supported by positive news from the project.
- Whar are the Factors Causing the Price Drop after Token Unlock?
Factors include low entry prices for early investors, poor trading liquidity, large unlock volumes, and the presence of speculators who sell tokens immediately after unlock.
- What are the Benefits of Token Unlock for Investors?
Investors can determine investment entry and exit strategies based on the unlock token schedule and better manage risks.
