Vesting — a practice that benefits the coin.
Vesting is the process of holding and gradually releasing tokens that are held for investors, team members, advisors. Those who contribute to the project over time.
The vesting process is a mechanism similar to a central bank reserve. The larger the reserve, the stronger the currency is, and conversely, the more the market is flooded with bills, the lower their value.
Precisely per analogiam, stopping tokens for a certain period of time (making it impossible to sell them on exchanges), increases their value and raises the price.
Vesting is used when the management is strongly interested in the growth of the token value and intends to develop the project intensively and quickly. It is a very good signal for investors, especially in uncertain times and low competitiveness of other investments.
From the very beginning…
Blockchain startups like ccFOUND sell tokens through investment rounds. Investors buy tokens and receive them in an amount equal to the amount they deposited immediately after the investment round closes. In the case of ccFOUND, records of token quantities are stored on the shop.ccfound.com platform. The investor has so far had the ability to claim any number of tokens (have them withdrawn to the cryptocurrency address they have specified).
and then vesting…
The purpose of vesting is to limit manipulation of the market price of a coin, as in the central bank reserve example above. When tokens are vested, it is possible to claim only a certain number of tokens from the pool held by the investor.
The point is not to “spoil” the coin by lowering its value in the sale. Allowing the sale of the entire pool of coins directly after the ICO usually leads to a rapid decline in price and lowering the value of the coin.
During the ICO funds are collected to enable the development of the project. and this requires time, which is why the vesting mechanism is introduced.
To allow the price of coins to rise, the startup “holds them” and releases them gradually.
TGE (token generation event) means the moment when some tokens are released in vesting.
Vesting as part of the ccFOUND change proposal (an example)
In the case of ccFOUND we plan to release tokens gradually so that on the one hand we allow investors interested in selling a coin to trade it on exchanges. On the other hand we will secure the value of the token against a fall that could occur if too many coins flood the market.
The ccFOUND project at the moment is in the phase of intensive work on portal development. We need time to show the market the value of our solution, which will positively affect the valuation of the coin on the market.
The initial token release schedule was discussed by Peter in the voting video on YouTube.
Prior to 2016, the typical vesting schedule for token investors was 24 months.Today, the vesting schedule is generally set for up to 48 months.
Vesting in a project — what does it indicate
Whether a project introduces vesting shows the degree of commitment of the startup’s management to the project. Providing a buffer of time to create value and deliver the expected results is not only a good practice, but also one of the basic measures of the project’s value.
It happens that boards themselves shorten vesting, because the project reaches earlier maturity and the value of the token is already high enough to safely release it to the market without worrying about its price and position.
Prior to 2016, the typical investor vesting schedule for a token was 24 months, now the vesting schedule is generally set to 48 months.
The advantage of extended time in vesting is another strong measure of a startup’s board commitment to the project, which strongly increases valuation in the eyes of investors.
Often boards themselves shorten vesting as the project reaches earlier maturity and the value of the token is multiplied.
The reason why the above vesting structure is beneficial to all ccFOUND investors is that if one or more entities controlled 20% of the tokens issued since the date of generation, they could easily cause fluctuations in the supply of coin, which would upset the token ecosystem and the price of coins on the exchange.
In the above situation, coin reset is a practice that is beneficial to investors.
What does ccFOUND’s DAO policy and care for the value of the token look like?
Cryptography Institute has acquired 20% of all issued ccFOUND tokens. To decentralize the coin they went down as much as 15% intentionally and locked their tokens to ensure the founder has the best intentions and they maintain a long-term vision for the project.
These and the remaining tokens are backed by smart contracts and will be paid out to ccFOUND’s advisors, partners and professional team over the years. 19.25% stays in the hands of private sale investors (up from 17%), and 20% of the tokens are reserved with the price doubled for investors in Airdrops to balance the token weighting.
Vesting ccFOUND has been distributed fairly and if it changes, it will be in the proportions already defined and in favor of investors.
Vesting, constructed wisely allows a company to go public via listing, in good shape and well prepared and the debut will translate into an increase in token value.
The more vested tokens that are already distributed, the more valuable the vesting tokens will become, especially when it is in the interest of each member of the community to create a successful product launch that will have many users, thus increasing the value of their tokens significantly.
In conclusion, the right timing of vesting, is one of the key metrics that, once the ICO is completed, helps lead the project to market success.
Instead of receiving the full portion of their tokens, after the ICO ends, management releases the tokens after regular periods, as determined by the project founders (as in vesting ccFOUND).
Why is vesting necessary?
Vesting has become the standard for most tokens because more and more investors are joining ICOs from outside the industry.
Vesting is a standard similar to angel funding, where a significant stake in the company is left in the hands of the founders to proverbially “prove the point” to the market and investors to profit.
What’s important today is that vesting eliminates unscrupulous businesspeople who can’t get away with tokens from a project without further contributions to the startup.
As the token vesting process becomes more complex and more tokens are reserved for investors, it is important for boards to clearly explain how tokens are allocated to founders, early investors and others in the project. Always, be clear about the timing details, as in the ccFOUND proposal presented.
Investors are entitled to and need to know that their startup has sufficient control over the entire structure of the project, without overly centralizing token control, and is operating within a framework of good practice and care for the outcome of all investors.