Vesting Schedule

A cliff period is an initial lock-up phase during which no tokens are released, even if other vesting is active. This is a common feature in employee and investor agreements to ensure commitment.

• Purpose: Prevents immediate dumping and aligns long-term incentives.
• Example: A 4-year schedule with a 1-year cliff means the recipient receives 0 tokens for the first year, then a lump sum (e.g., 25%) at the cliff's end, followed by regular releases.

The vesting curve defines the rate and pattern at which assets become available after the cliff. The release schedule is the specific timeline implementing this curve.

• Linear Vesting: Tokens are released in equal, periodic increments (e.g., monthly or quarterly). This is the most common and predictable model.
• Non-Linear Vesting: Includes models like graded vesting (increasing amounts over time) or cliff-and-linear (a hybrid model).

These are the two primary parties in a vesting contract.

• Beneficiary (Recipient): The individual or entity (e.g., employee, investor, founder) who will receive the vested assets.
• Granter (Sender): The entity (e.g., company, DAO treasury, project) that creates the schedule and locks the assets. The granter's address typically holds the funds in escrow until release conditions are met.

This critical feature determines if the schedule can be canceled.

• Revocable Vesting: The granter retains the right to terminate the schedule and reclaim unvested tokens, often used for employee equity with conditions.
• Irrevocable Vesting: Once created, the schedule cannot be altered or canceled by the granter. The beneficiary's right to the future stream of tokens is guaranteed, common for investor deals and certain token distributions.

Acceleration clauses are contractual provisions that can speed up the vesting schedule, causing tokens to vest immediately under specific conditions.

• Single-Trigger Acceleration: Occurs on one event, typically a change of control (acquisition) of the granter company.
• Double-Trigger Acceleration: Requires two events to occur, such as a change of control plus the involuntary termination of the beneficiary, offering more protection for both parties.

Vesting logic can be enforced in different environments.

• On-Chain Vesting: The schedule is codified in a smart contract on a blockchain. Assets are locked in the contract and released automatically per the code, providing transparency and censorship resistance.
• Off-Chain Vesting: The schedule is managed through traditional legal agreements (e.g., stock option plans). Enforcement relies on courts, not code. Many Web3 projects use hybrid models, with on-chain execution for tokens and off-chain agreements for equity.

A linear vesting schedule releases tokens in equal, periodic increments after an optional cliff. This is the most common and predictable structure.

• Mechanism: Tokens vest continuously or in small, regular batches (e.g., daily, monthly, quarterly).
• Example: A 4-year linear schedule with a 1-year cliff. After the cliff, 25% of the total grant vests, with the remaining 75% vesting linearly over the next 3 years.
• Use Case: Standard for employee equity, providing steady, predictable access to tokens.

A cliff period is a mandatory waiting period at the start of a vesting schedule during which no tokens vest. It is almost always combined with another structure like linear vesting.

• Mechanism: 0% of the grant is vested until the cliff date is reached. Upon passing the cliff, a significant portion (e.g., 25% for a 1-year cliff on a 4-year schedule) vests immediately.
• Purpose: Serves as a probationary period to ensure commitment before any tokens are unlocked.
• Standard Practice: A 1-year cliff is typical in many equity and token grant agreements.

Graded vesting releases tokens in discrete, often increasing, chunks at specific milestones (e.g., anniversaries). It is less granular than linear vesting.

• Mechanism: A predefined percentage vests on each vesting date. For example: 25% at the 1-year mark, 25% at year 2, 25% at year 3, 25% at year 4.
• Contrast with Linear: This creates a "step function" release rather than a smooth, continuous curve.
• Use Case: Common in venture capital agreements and some founder allocations, where release is tied to annual performance or funding milestones.

Performance-based vesting (or milestone vesting) ties token release to the achievement of specific, pre-defined goals rather than the passage of time.

• Mechanism: Vesting events are triggered by operational, financial, or technical milestones (e.g., product launch, revenue target, mainnet deployment).
• Key Feature: Highly customizable and aligns incentives directly with value creation.
• Risks: Can create disputes if milestones are ambiguous. Often used in conjunction with a time-based schedule for a hybrid model.

Reverse vesting is commonly applied to founders and early team members who receive their tokens upfront but are subject to a vesting schedule that allows the company to reclaim (claw back) unvested tokens.

• Mechanism: Tokens are issued immediately but held in a restricted wallet or smart contract. The founder's ownership stake vests over time; if they leave before full vesting, the unvested portion is returned to the company treasury.
• Purpose: Protects the project and investors by ensuring founders remain committed. It is a core component of SAFT (Simple Agreement for Future Tokens) agreements.

Many real-world vesting schedules combine elements from multiple structures to meet specific strategic needs.

• Common Hybrids:
  • Cliff + Linear: The industry standard (e.g., 1-year cliff, then 3 years linear).
  • Graded + Performance: Base time-based vesting with acceleration clauses for hitting milestones.
• Customization: Schedules can be back-loaded, front-loaded, or include acceleration clauses (single-trigger or double-trigger) upon specific events like acquisition.
• Smart Contract Implementation: Custom logic is encoded in vesting contracts that autonomously manage the release schedule.

Primary use case: Protecting capital and ensuring founders remain engaged post-investment.

• Founder Equity: Traditional equity for startup founders is almost always subject to a multi-year vesting schedule.
• SAFT Agreements: In crypto, Simple Agreements for Future Tokens often include vesting clauses for investor-allocated tokens, preventing immediate market dumps.
• This creates "skin in the game," aligning the founder's financial outcome with the company's long-term valuation.

Primary use case: Preventing token price volatility immediately after a public sale.

• Linear Vesting: Public sale allocations are often distributed linearly over 6-18 months to avoid a sudden influx of sell pressure.
• Cliff Periods: A common structure is a 3-month cliff followed by linear monthly releases.
• This mechanism protects early community investors by ensuring the project team cannot exit before them, a practice known as a rug pull.

Primary use case: Ensuring funded projects deliver promised work before receiving full compensation.

• Milestone-based Vesting: Funds or tokens are released upon verification of pre-defined deliverables (e.g., mainnet launch, audit completion).
• Example: The Ethereum Foundation or a Layer 1 blockchain's grant program might disburse 30% upfront and 70% upon successful project completion and reporting.
• This accountability measure is crucial for effective capital allocation within decentralized ecosystems.

Primary use case: Encouraging long-term liquidity provision and protocol security.

• Reward Vesting: Staking or liquidity mining rewards may be vested to discourage "farm and dump" strategies.
• Lock-up Periods: Users might stake tokens to earn rewards, but those rewards are locked and vested over time, promoting protocol loyalty.
• This design increases the Total Value Locked (TVL) stability and reduces inflationary sell pressure on the reward token.

Primary use case: Ensuring successful integration and performance after an acquisition or partnership.

• Earn-outs: A portion of the acquisition price is paid out over time, contingent on the acquired team hitting performance targets.
• Partner Incentives: In strategic partnerships, token allocations may vest based on the achievement of integration milestones or volume targets.
• This ties the final transaction value directly to the realized success of the combined entities.

A vesting schedule is a time-based lock on assets that prevents immediate, large-scale selling. This is a critical security feature for:

• Tokenomics Stability: Prevents founders or early investors from dumping tokens and crashing the price post-launch.
• Team Alignment: Ensures core contributors remain incentivized to build and maintain the project long-term.
• Investor Protection: Mitigates the risk of capital flight by locking venture capital or seed funding for a defined cliff period and subsequent linear release.

Vesting is typically structured with two key phases that define the unlock logic:

• Cliff Period: An initial duration (e.g., 1 year) during which zero tokens are unlocked. If a beneficiary leaves before the cliff ends, they forfeit the entire allocation. This enforces a minimum commitment.
• Linear Vesting: After the cliff, tokens unlock incrementally on a per-block or per-second basis (e.g., monthly over 3 years). This creates a predictable, continuous release schedule that is enforced by the smart contract's immutable logic.

The security of a vesting schedule depends entirely on the integrity of its smart contract. Key risks include:

• Immutable Logic: Once deployed, the schedule cannot be altered, posing a risk if terms need adjustment.
• Administrative Privileges: Some contracts include owner functions to revoke vesting or change beneficiaries, creating centralization and trust risks.
• Integration Vulnerabilities: Flaws in the contract's interaction with token standards (e.g., ERC-20) can lead to lost funds or unintended unlocks. Audits are essential.

In decentralized organizations, vesting directly impacts governance security:

• Vote Dilution: A large, sudden unlock can shift voting power dramatically, enabling governance attacks.
• Sybil Resistance: Linear vesting for contributor rewards makes it economically costly to create multiple identities (Sybil attacks) to influence votes.
• Proposal Incentives: Teams with vested tokens are incentivized to submit proposals that increase long-term protocol value rather than enable short-term extraction.

Analysts must scrutinize vesting terms to assess project risk. Key due diligence questions include:

• Cliff Duration: Is it long enough to ensure team commitment (typically 1 year)?
• Release Schedule: What percentage unlocks monthly/quarterly after the cliff?
• Total Allocation: What percentage of the total token supply is subject to vesting?
• Contract Address: Is the vesting contract verified on-chain and audited by a reputable firm? Misconfigured schedules are a common red flag.

A typical founder/employee vesting schedule in Web3 illustrates the standard parameters:

• Total Grant: 1,000,000 tokens.
• Cliff: 1 year. No tokens are claimable before this date.
• Vesting Duration: 4 years total.
• Release: After the 1-year cliff, tokens vest linearly over the remaining 3 years.
• Monthly Unlock: ~20,833 tokens per month (1,000,000 / 48 months). This structure means if a founder leaves at 18 months, they keep tokens vested from months 13-18 (~125,000 tokens) and forfeit the remainder.

An initial lock-up period at the start of a vesting schedule during which no tokens are released. After the cliff expires, a large initial grant typically vests, followed by regular linear vesting. For example, a 1-year cliff with a 4-year schedule means the recipient receives 0% for the first year, then 25% of the total grant vests immediately at the 1-year mark.

• Purpose: Aligns long-term incentives and prevents immediate dumping.
• Common in: Team and advisor token allocations, equity compensation.

The most common vesting model where tokens are released continuously in equal increments over the vesting period. For instance, 10,000 tokens vesting linearly over 48 months would release approximately 208.33 tokens per month.

• Mechanism: Often implemented via a smart contract that calculates the vested amount based on elapsed time.
• Contrasts with: Cliff vesting (delayed start) or milestone-based vesting.

A broader term for any contractual or technical restriction preventing the transfer or sale of tokens. A vesting schedule is a type of time-based lockup.

• Other lockup types: Exchange-listed project tokens often have post-ICO lockups for founders.
• Enforcement: Can be via smart contracts (on-chain) or legal agreements (off-chain).

A smart contract that programmatically enforces a vesting schedule. It holds the tokens in escrow and releases them to the beneficiary's address according to predefined rules (cliff, linear rate).

• Key functions: release() to claim vested tokens, vestedAmount() to check available balance.
• Security: A critical piece of infrastructure; vulnerabilities can lead to permanent loss of funds.

A clause or event that causes tokens to vest faster than the original schedule. This is often triggered by specific conditions.

• Common Triggers: Change of control (company acquisition), liquidity event, or performance milestones.
• Purpose: Protects early contributors by ensuring reward alignment during major corporate events.

A key metric for understanding the potential future market cap of a project, calculated as: (Current Token Price) * (Total Token Supply). Vesting schedules directly impact FDV analysis.

• Circulating vs. Total Supply: Tokens locked in vesting are part of the total supply but not the circulating supply.
• Investor Risk: A high FDV with a large percentage of tokens still vesting represents significant future sell-side pressure.