Token Lockup: Ensuring Long-Term Commitment in Crypto Projects

Token Lockup is a period of time during which cryptocurrency tokens cannot be exchanged or traded.

What is Token Lockup?

Token lockout (or vesting period) is a time period, usually following the sale of tokens, during what crypto project participants are prohibited from trading their tokens. The Blockchain Period gives opportunities to prevent liquidity problems and new projects are still building support base.

In the example of the FLOW, 1.25 billion FLOW was produced during the distribution and issuers’ period of the digital tokens. For about a year, the tokens were held under lock and key for about a year, while retaining value and the network remained functional. A lock-in period and transfer restrictions were introduced after the tokens were issued. This was done to provide a level of play field for investors, team members and community members.

Lock-in periods make the project more money as both demand and token value increase. However, the main reason for introducing a lock-in period is that it protects the market from an influx of too many tokens, which in turn leads to a lower token value due to increased sales.

The DeFi sector now faces two main challenges: to protect investors from fraudulent projects and to enable project creators to lock in their tokens and gain community trust. Given the growing incidence of fraud in the DeFi market, investors are asking developers to lock in their liquidity and limit the risk of fraud by founders.

In smart contracts, developers enter into smart contracts and deposit the required number of cryptocurrencies into an electronic cold bank, allowing it to be blocked for a set period of time, such as eight months. A public token blockchain profile for the community is created by the creators. It inspires trust, as it motivates the team to focus on long-term development rather than a market price of their coin. Additionally, it also improves the trust of the community supporting the project.

To maintain a healthy network and ecosystem, project developers must rigorously enforce token blocking requirements for team and consultants, private sale participants and public sale participants (IEO). One way to stabilise the price is token blockchain.

Locked tokens are not part of the negotiable offering. They are designed to stop withdrawals after the cryptocurrency debuts, so no team members or investors can purchase their tokens before the blockchain expires. This encourages the team to focus on the product rather than selling their stakes immediately after launch.

Large sell-offs are characteristic of initial coin offerings (ICOs), in which the initial investors or project founders sell their stakes immediately after the cryptocurrency is released on the market, leading to a massive drop in price. To prevent this, blockchain tokens are used to provide additional credibility to potential participants in the token sale. Due to the fact that blocked tokens are not part of the negotiable offering, they are not taken into account in the technical analysis conducted by investors and traders.