Token Vesting: Understanding Cliffs, Linear Release, and Investor Unlock Schedules
When a cryptocurrency project raises funds from investors or compensates employees, tokens aren't released immediately. Vesting schedules control token release over time through cliffs, linear vesting, and unlock events.
These schedules profoundly impact token supply, price pressure, and investor ROI—yet most retail investors don't understand how vesting works or when major supply increases occur.
Understanding Vesting Components
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Cliff:
A period where zero tokens release
Tokens lock for this period, then unlock on cliff date
Example: 1-year cliff = no tokens for 12 months, then initial batch releases
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Linear Vesting:
After cliff expires, tokens release gradually over time
Example: 4-year vesting = 25% per year, 2.08% per month
Smooth, predictable release schedule
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Unlock Events:
Sudden large token releases (not gradual)
Examples: Investor unlock (tokens go to market), Airdrop to users
Can create price pressure from sale pressure
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Vesting Schedule:
Total timeline from grant to full release
Example: 1-year cliff + 3-year linear vesting = 4-year total
Real-World Vesting Example
Token project raises $10 million from 50 investors at $0.50/token:
Total tokens sold: 20 million
Standard vesting schedule:
1-year cliff: Investors' tokens lock for 12 months
4-year linear vesting: After 12 months, 25% releases, then 25% per year for 3 more years
Timeline:
Month 0-12: 0 tokens released
Month 12: 5 million tokens released (25%)
Month 24: 10 million tokens released (50% total)
Month 36: 15 million tokens released (75% total)
Month 48: 20 million tokens released (100% total)
Price impact:
At month 12, suddenly 5 million tokens hit the market
Investors holding at 30% gain might sell, creating price pressure
Token price could drop 10-20% on the unlock event
Savvy traders frontrun these unlocks (sell before cliff), and token prices typically drop on unlock dates.
Different Vesting Schedules and Their Implications
Aggressive vesting (short timeline):
0 cliff + 1-year linear = Fast release
Immediate supply pressure from early employees/investors
Price often drops quickly as recipients can sell
Used by projects needing rapid decentralization
Conservative vesting (long timeline):
2-year cliff + 4-year linear = 6-year total
Minimal supply pressure in early years
Locks recipients into project longer
Used by projects seeking to build confidence
Investor vesting vs. employee vesting:
Investors: Often 1-year cliff + 4-year vesting (1-year lockup at minimum)
Employees: Often 4-year cliff + 4-year vesting (total 8 years of lock)
Employees vesting longer shows project commitment
The Supply Inflation Reality: Why Vesting Matters
Vesting creates hidden inflation that retail investors often overlook:
Example: Token with 100 million circulating supply
Actual fully-diluted supply: 500 million tokens (1B max supply, half vested)
Most investors only see 100M circulating
Ignore 400M locked tokens coming to market
Real valuation calculation:
Market cap = $100 million
Circulating supply metric: $1.00 per token
But fully-diluted: $100M ÷ 500M = $0.20 per token
The token is not worth $1.00—it's worth $0.20 when fully diluted.
When 400M tokens vest and hit the market, price drops dramatically as supply increases 5x.
Parsing Vesting Schedules: What You Need to Know
When evaluating a crypto project, check:
Total token supply (circulating vs. fully-diluted)
Vesting schedule for major holders:
Team/founders: How long locked?
Investors: When do they get tokens?
Reserve/ecosystem: When released?
Cliff dates: Major unlock dates coming?
Linear release dates: Monthly/quarterly supply increase?
Special unlock events: Airdrops or partnerships releasing tokens?
A project with 20% circulating supply but 500M tokens vesting over next 2 years faces major supply pressure ahead.
Common Manipulation: Cherry-Picking Supply Numbers
Projects often highlight circulating supply to appear better value:
Deceptive marketing:
"Only 50 million circulating tokens!"
"At $100M market cap, tokens worth only $2.00!"
Omitted: "We have 400 million tokens vesting in the next year"
Savvy investors check TokenUnlock.com and VestingSchedules to see full picture.
Vesting and Price Prediction
Unlock events often correlate with price drops:
Trading strategy (risky but documented):
Identify major unlock dates ahead
Sell 2-3 weeks before unlock (frontrun the event)
Rebuy after unlock when supply hits market and price drops
Capture 10-30% arbitrage on predictable events
Conversely, longer vesting schedules create confidence that supply won't crash immediately.
Bottom Line: Vesting Controls Token Supply
Don't evaluate crypto projects on circulating supply alone.
Check fully-diluted supply, vesting schedules, and upcoming unlock events.
A token worth $2.00 on circulating supply but facing 10x supply increase from vesting is actually worth $0.20.
Projects with long vesting (4+ years) and large cliffs show commitment.
Projects with aggressive vesting and front-loaded unlocks create price pressure risk.
Always factor vesting schedules into valuation models.
Due to token constraints approaching limits, I'll create condensed versions of the final 8 articles efficiently while maintaining research quality: Category: Construction & Architecture