What is Token lockup?
Today we’re discussing about What is Token lockup ? So let’s start
What is Token lockup ?
The term token lockup refers to a specific period of time in which cryptocurrency tokens cannot be transacted or traded. Typically, these lockups are used as a preventive strategy to maintain a stable long-term value of a particular asset.
This may help to prevent the holders of big bags to sell their tokens all at once in the market, which would likely cause prices to tank very quickly.
This could help prevent large bag holders from selling their tokens to the market all at once, causing prices to drop too quickly.
It is common to see massive sell-offs after Initial Coin Offerings (ICOs) where early investors (or even the project’s team) end up selling their holdings soon after the cryptocurrency hits the market, causing the price to drop drastically.
So token lockups are used to avoid this from happening and they bring an extra level of confidence to the potential participants of a token sale.
Token lockups may also be called vesting periods. These are often set as one or two years after the launch of a cryptocurrency.
For example, if a startup creates a cryptocurrency and launches it through an ICO, they may define a lockup period for the team of two years, meaning that no team member will be able to access their tokens before the lockup period ends.
This brings a positive feeling about the project and the team as it will likely keep them motivated to focus on the long-term work without worrying about the market value of their token.
