- Multiple projects will release billions of tokens into the market this week, contributing to about $140 million in extra supply, including dYdX, Hedera, and Optimism.
- Token unlocks often follow the expiration of early investors’ vesting periods, potentially affecting prices and investor confidence.
- Monitoring token lockups is crucial, as sudden releases can impact prices, decentralization perception, liquidity, and more
Billions of tokens belonging to multiple projects are to be released into the market this week, leading to almost $140 million worth of extra supply. dYdX, Hedera, and Optimism are among the projects that will be unlocking troves of coins over the next seven days, fueling concerns over potential price drops for the projects concerned. Among the biggest unlocks will be Hedera and Optimism, which are releasing $99 million worth of tokens between them. Token unlocks usually occur when the ‘vesting’ period for early investors expires, allowing them to take possession of their coins months and sometimes years before during the early stages of a project.
Token Lockups Should be Monitored
Token lockups are an attractive way for new projects to attract investment, with vesting periods known to last up to three years. Such lockups are important to note when considering buying a coin, as the scope and timing of unlocks can be crucial to understanding the potential behind the future performance of a coin.
There are several reasons why token lockups should be monitored for coins you are considering buying. Firstly, and most importantly, if a large quantity of tokens is suddenly released, they can flood the market and create downward pressure on prices. Conversely, controlled and gradual releases might lead to scarcity, driving prices upward.
Secondly, investor confidence is directly affected, with the timing and size of unlocks potentially signaling the team’s commitment to the project; if too many tokens are sold off quickly, it can convey a lack of faith in the project’s future, potentially damaging trust.
Projects Have Realized the Impact of Unlocks
The public’s perception of a project’s decentralization can also be influenced by token unlocks. If a significant portion of tokens remains concentrated among a few entities, such as we saw with XRP years ago, concerns about centralization and governance could arise.
The liquidity of a project’s token is also impacted; carefully managed unlocks can enhance liquidity, but mishandling them can result in market illiquidity and instability. Finally, the development trajectory of a project can be affected if funds from token sales are not managed well.
Projects often employ strategies like vesting schedules, transparent communication of unlock plans, and even token burns to mitigate negative consequences. The unlocks taking place this week are examples of this, and taking note of the token’s performance around the release will show just how the unlocks are affecting the coin.