How digital asset vault companies use locked tokens to boost valuations

Author: Steven Ehrlich Source: Unchained Translation: Shan Ouba, Golden Finance

Locked tokens have existed in the crypto industry for years. Similar to stock options subject to vesting periods, they were originally designed to limit token supply and align the incentives of core project executives and team members.

However, unlike "vesting stock options," which have a clear legal definition and can be confiscated, locked tokens lack a unified industry definition. Furthermore, these assets can often be transferred or operated in various ways before they are officially unlocked. Some digital asset treasury companies have found ways to exploit locked tokens for their own profit. How Digital Asset Treasury Firms Use Locked Tokens to Inflate Valuations Some treasury firms circumvent restrictions on "locked" or illiquid digital tokens, leveraging these assets to expand their balance sheets and generate higher profits. The rise of digital asset treasury firms (DATs) this year has sparked a "race to the bottom" among firms—a competition to accumulate tokens as quickly as possible. In many cases, this strategy involves acquiring billions of dollars worth of Bitcoin and Ethereum at spot prices. However, these firms also strategically use "locked" tokens to replenish their coffers, acquiring them in bulk at significant discounts. Examples of digital asset treasury firms employing this strategy include Sui Group (Sui), Ton Strategy Company (TON), Avalanche Treasury Company (AVAX), and StablecoinX (ENA). At first glance, these acquisitions of tokens, often from the issuing foundation, appear to be shrewd business moves—as market observers often overlook any transfer restrictions when purchasing the corresponding shares. One need only look at the exorbitant premiums received by various digital asset treasury companies for evidence of this investor frenzy. However, this market behavior isn't simply due to ignorance. Despite the name "lockup," these tokens are typically freely transferable between the seller and the buyer (the digital asset treasury company), and staking them on the network for passive income is also common. The only real restriction appears to be preventing them from entering actual circulation and being traded on the spot market. Unchained has identified multiple cases where digital asset treasury companies have issued shares backed by these "illiquid" tokens, shares that are either immediately tradable or have a vesting schedule that precedes the release of liquidity in the tokens themselves. This practice appears to defeat the core purpose of locking up tokens. More importantly, some might argue that acquiring liquid instruments backed by illiquid tokens constitutes unfair arbitrage, disadvantaging spot buyers. After all, the illiquid nature of these tokens allows them to be acquired at a discount. This practice also carries risks: blockchain and ecosystem builders may no longer have strong incentives to drive project success. Furthermore, if these companies face bankruptcy, the liquidation process raises important questions. To be fair, not all companies use locked tokens for high-risk operations; some employ these assets prudently and responsibly. However, in the wild-west landscape of digital asset treasury companies, investors need to carefully examine how each company utilizes locked tokens and the potential risks associated with these strategies. The Difference Between Locked and Vested Tokens The crypto space has a habit of borrowing terminology from traditional finance (TradFi) to make it easier for outsiders to understand. When it comes to locked tokens, the industry confuses the terms "vesting" and "locked." Anyone familiar with executive compensation strategies or holding options at venture-backed companies has heard of vesting. In this scenario, options are granted to the recipient over a period of time (usually several years), and the grant is sometimes contingent on meeting specific performance criteria or completing a project. Importantly, vested options can be forfeited. If an employee is fired or voluntarily resigns, they likely lose all unvested options. Locked tokens, on the other hand, have different properties. The most important point is that, unlike options, locked tokens are guaranteed to vest eventually; the only question is when. "Lockups refer to transfer restrictions, while vesting refers to potential forfeiture, which is common in employee equity or token grants," said Greg Xethalis, general counsel at Multicoin Capital, in an interview. The most famous example in the crypto space is Ripple Labs, the primary developer of the XRP ledger blockchain. When the company and the blockchain were founded more than a decade ago, 80 billion of the 100 billion XRP supply were gifted to the company, with vesting occurring quarterly. According to the company's May 2025 report, 37.1 billion XRP remain in escrow, valued at $89.5 billion at current prices. Regardless of the future, these tokens will flow into Ripple over the next few years. How Lockups Work There are several main ways to lock up tokens: The grantor (usually a foundation) holds the tokens in a wallet until they are ready to be distributed to contractors or employees. A third-party custodian (such as Anchorage, Coinbase, and BitGo) holds the tokens, releasing them only after a specified period of time. Tokens are transferred to a smart contract (which acts as an escrow account), which automatically distributes them according to pre-programmed instructions when preset key metrics are met. Two parties enter into a simple contract voluntarily placing transfer restrictions on a set of assets. "Locked" yet Liquid: Given the wide range of wiggle room in these settings, it's no surprise that locked tokens can and do frequently circulate. Last month, Unchained reported on a classic "bad example": Zero Gravity. Blockchain insiders transferred $300 million worth of ostensibly "locked" tokens to a digital asset treasury company in exchange for liquid shares (which would take effect upon completion of a business agreement). One industry expert commented at the time, "The trick is that you deposit tokens into the digital asset treasury company to obtain liquidity upfront, and then sell public shares after registration." Another industry expert noted, "Getting instant liquidity for assets that would otherwise take years to unlock is a major challenge facing the industry." ”

In addition to the above cases, investors also need to pay attention to other behaviors. A common practice is to stake locked tokens to the network to obtain passive income. Borrowing other terms from traditional finance, staking income is often referred to as the investment manager's "risk-free rate" or "hurdle rate" - this is similar to the logic of why ultra-safe US Treasury bonds are considered "risk-free rate" in the real world.

But staking is not risk-free. The core reason why assets need to be staked to the network to obtain returns is that these assets are collateral. If the staker fails to fulfill his obligations, these tokens may be confiscated by the network (i.e., "forfeiture").

In addition, staking involves transferring assets into smart contracts (i.e., automated computer programs). Smart contracts can and do suffer from hacking attacks. Just look at the case last month: Kiln, which provides staking services for the Ethereum and Solana blockchains, was hacked and the company lost millions of Solana Tokens, and then having to withdraw all the Ethereum to avoid similar risks. No wallet infrastructure is perfect, but such risks are significantly reduced in dedicated cold storage custodians that are completely disconnected from the internet.

In addition, investors need to pay attention to the specific risks and misconduct in individual transactions.

Sui Group's liquidity "mismatch"

Take Sui Group as an example. In its 8-K filing with the U.S. Securities and Exchange Commission (SEC) in July, Sui announced the establishment of a digital asset treasury company through a $450 million private placement, centered around $8.9 billion worth of Sui tokens. As part of the transaction, the company received a $25 million cash investment from the Sui Foundation, the nonprofit administrator of the blockchain, and acquired $140 million worth of locked tokens at a 15% discount to the spot price.

The SEC filing states: "The acquired Sui The tokens will be subject to transfer restrictions for two years after purchase. This statement immediately raised questions—it clearly contradicted the tokens' original lockup schedule. The document then added: "In connection with this offering, certain members of the company's management, lead investors, and foundation investors have entered into one-year lockup agreements, subject to limited exceptions. 50% of the securities held by the company's management will be unlocked six months after the completion of the offering." A reasonable interpretation of these statements is that the digital asset treasury company shares held by the Sui Foundation, backed by the locked tokens, will be unlocked one year in advance of the liquidity release of the tokens themselves. When asked about this liquidity mismatch, Sui Group Chairman Marius Barnett stated: "The lockup periods for management and foundation equity in SUIG (Sui Group) are significantly longer than typical for similar treasury instruments. We have confirmed this through comprehensive market analysis. Therefore, we do not believe this mismatch poses any significant issue." " He also noted in other comments that these locked tokens can also be staked during the transition period.

StablecoinX: Locked Tokens and Liquid Shares

StablecoinX also appears to be utilizing locked tokens in a unique way. According to its filing with the SEC, the company entered into a locked token acquisition agreement with the Ethena Foundation: the tokens will be deposited in a custodian (Anchorage), with an unlocking period of 4 years and a 12-month lock-up period (the "cliff period").

The specific terms are as follows: "The locked ENA tokens may not be transferred within 48 months of the signing of the Token Acquisition Agreement, but may be unlocked early and the transfer restrictions lifted under the following circumstances: (1) 25% of the locked ENA tokens are unlocked 12 months after the transaction is completed; (2) the remaining 75% of the locked ENA tokens are unlocked in equal monthly installments over the next 36 months. ” Currently, the company cannot pledge these locked tokens - because the Ethena project is still running on Ethereum and Anchorage does not yet support the token.

But according to a separate lock-up agreement filed with the 8-K, insiders appear to be able to sell their Digital Asset Treasury shares in advance before the tokens are fully unlocked. In fact, the filing shows that the promoter shares are only subject to a 6-month lock-up period.

“Holder hereby agrees that during the period from the closing date of the transaction to the earlier of the following dates (the “Lock-up Period”), without the prior written consent of the Company, they shall not: (A) 6 months from the closing date of the transaction (B) the date on which the Company consummates a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in the right of all shareholders to exchange their shares of the Company’s common stock for cash, securities or other assets; (i) sells, offers to sell, contracts or agrees to sell, pledges, hypothecates, grants an option to purchase, or otherwise disposes of or agrees to dispose of (directly or indirectly) any Restricted Security; or establishes or increases a put equivalent position, or liquidates or reduces a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder by the SEC.” In response to questions from Unchained, a StablecoinX spokesperson said: “(Our lock-up period) is actually much longer than other digital asset treasury companies, which generally do not impose any lock-up period requirements on their promoters. ”

Summary

There is nothing illegal about exploiting locked tokens in these ways. Venture capital firms have been acquiring tokens in bulk at discounts for years, often to the displeasure of retail investors who may become providers of exit liquidity.

In fact, Ted Chen, co-founder of StablecoinX, said in an interview that digital asset treasuries may offer better trading terms for locked tokens than venture capital firms. “VC firms have to ask for 30%, 40% or even 50% discounts because they are worried about liquidity risks on the back end,” Chen said, suggesting that digital asset treasuries receive smaller discounts. “Is there a better model? One where public digital asset treasuries can become the best bidder and play a more effective role by providing liquidity and efficiently raising funds for the foundation? He also stressed the need to establish a liquid market for digital asset treasury companies as soon as possible to avoid a sharp market drop when the first shares are unlocked.

These views have their merits, but in the wild west of DATs, investors must understand the illiquidity risks of token portfolios and ensure that the long-term interests of shareholders and executives are aligned, especially during periods of declining premiums.