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What is Vesting in crypto? How to avoid scams

2 min read
Vesting in crypto has been become the norm to for investors to consider a blockchain project as legitimate This can be a good thing for retail investors but a bad thing for angel and seed investors.

Is vesting in Crypto and Blockchain projects a good thing

Vesting in crypto has been become the norm to for investors to consider a blockchain project as legitimate

This can be a good thing for retail investors but a bad thing for angel and seed investors.

In this guide we will discuss the risks for both sides.

 

What is vesting in crypto

In crypto, vesting refers to a period of time which the whale investors’ blockchain tokens are locked.

This means, that during that period of time, the vested tokens can not be sold or

Vesting is a protection against scams for retail investors.

 

The purpose of vesting

Vesting acts is a reassurance to retail investors that the founding team will not dump all their tokens and crash token’s prices.

Most blockchain projects are just ideas without a minimum viable product nor customers.

 

In vesting in a blockchain project means the you are betting that the founders will.

  1. raise enough money to create a minimum viable product
  2. create a minimum viable product
  3. Create a large enough customer base to make the tokens increase in value

 

Is vesting a good thing?

Once the token hit decentralized exchanges, the prices usually 5x -10x.

Then 10x again as they hit centralized exchanges.

Retail investors usually buy the tokens as the tokens get listed on centralized crypto exchanges.

And that when the whales dump their tokens

In a blockchain project, the whales usually refer to the early investors who got the token at heavily discounted prices.

This includes:

  • the founders
  • seed investors
  • team members
  • angel investors

 

How vesting works

With vesting, founders are promising the seed investors to have sufficient trade volume on cryptocurrency exchanges for them to cash out their tokens at a 100-1000x profit as they are unlocked.

The vesting period

The vesting period is usually around 3-5 years depending on amount.

In the perfect world, within in 3-5 years, that the tokens are issued, the blockchain project should have a working product with customers using the tokens to drive the prices

 

Vesting wallet

The vesting wallet is a type of cryptocurrency wallet given to investors.

The investor usually has full ownership of the wallet.

In other words, he will own the private keys.

However, we will not be able to transfer nor sell the tokens out of the wallet.

The vested tokens are locked by a smart contract and are irreversible.

 

Is vesting a good thing?

If you are an early investor

Risk:

  • During a crypto bull run, a long vesting period (2-5 years) could potential result in missing the opportunity to cash out at the top
  • Cryptojacking

 

Pros:

  • Your reputation remains intact as the founders did not scam the other early investors

 

If you are a Retail investor

Risk:

  • The risks are reduced as the the odds of the whales crashing prices have been reduced

They will crash it when they dump.

 

Pros:

  • You will know ahead of time when prices are crashing

 

Token Vesting vs non-vesting

In the 2021 and 2017 alt season, we saw projects get hyped by influencers

People around the world could easily support the projects that they liked by buying the tokens.

This resulted in a boom in blockchain crowdfunding, and now the infamous 2017 ICO Bubble.

During the bubble, start-up founders  would just mint out tokens and sell them to get funding, even if the project had nothing to do with blockchain.

 

As soon, as the project pumped, they would dump all their tokens on the market and bringing down the prices with them.

Also, the token value was  purely speculative to begin with.

In other words, based off a sales pitch without the investors getting any rights to the projects.

 

This results in the project and the team getting labelled as a scam because investors lose money.

 

Is vesting the same as staking?

Vesting and staking are two different things.

Staking is where cryptocurrencies are  offered as reward to incentivize cryptocurrency investors to lock their tokens over a short period of time.

In vesting, there are not short term rewards, and the main incentive is a potential five to ten time ROI since the tokens were bought at a discounted price.

 

Conclusion

Crypto vesting could be a good thing or a bad thing, depending on which side of the fence you are as well as at which phase in the market cycle that the tokens unlock.

 

Investing in the early phases of a blockchain project, yields among the highest ROIs.

But to buy and cash out at the moment requires a clear understanding of the market cycle.

 

If you enjoyed reading What is Vesting in Crypto, 

Feel free to check out What is Altseason 

 

 

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