What should be the optimal token unlocking plan?

Original: https://lstephanian.mirror.xyz/Vdaepc7jyIHa3ma8Eg9C_IVIo1knVv9A36iYd6OD4Zg

Token locking is a fundamental part of crypto venture capital.

We studied token vesting trends over the past few years to try and find the best vesting (gradual unlocking period) timeline for founders.

Most crypto projects require high capital expenditures to realize their vision, so many founders turn to venture capital. However, tokens are often more liquid than equity, so founders use token lockups to align incentives.

But how do you determine which locking structure is most effective? To find out, we analyzed over 150 early-stage token transactions involving staking over the past 5 years.

Gradual unlock schedules fall into one of two categories:

• Time-based, when progressive unlocking starts on some agreed date
• Based on a trigger event, the gradual unlocking begins after certain events occur - usually a mainnet launch or a listing on a major exchange

Trigger event based progressive unlocking is much more than time based.

Since 2018, the average lock time has increased by more than 2x.

Meanwhile, the length of the Cliff (a specific period of time after the first token launch) has fluctuated over the years, but averaged less than 1 year in 2022.

But what is optimal?

We decided to define the "best" vest schedule as the one that has the least impact on the token price.

We dug a little deeper into the data, normalizing it using the Bloomberg Galaxy Crypto Index to accommodate different market conditions.

There is a lot of noise in this limited dataset. However, there are some interesting highlights:

1. For a vest schedule that unlocks on a specific date (rather than unlocking linearly over time), 6 months of Cliff is preferable to 1 year, or no Cliff

2. Larger initial unlocks have less negative impact on price than smaller initial unlocks

3. Longer unlock intervals (up to 6 months), larger unlock sizes, and shorter total lock periods show better "maximum poor return"

4. A linear vest schedule is less volatile during the vest period than a date-specific vest schedule

5. Linear vests also have a better impact on price after the initial unlock event than date-specific vests

In a bear market, investor preferences come back, which means exploring the data in the hope that this information will empower more founders. We still recommend that anyone issuing a token discuss their token vest with investors, industry experts, and legal counsel.

The increasingly hostile regulatory environment in the U.S. could create a one-year minimum cliff and longer lock-up periods as issuers and investors face uncertainty over the future treatment of all crypto assets.