Token Vesting

An initial lock-up period where no tokens are released. After the cliff expires, a lump sum is often distributed, and the regular linear vesting schedule begins. This prevents immediate dumping by team members or early investors.

• Example: A 1-year cliff on a 4-year schedule means the recipient receives 0 tokens for the first year, then 25% (1/4 of the total grant) unlocks at the 1-year mark.

The most common release schedule, where tokens become available continuously over time after any cliff. Tokens vest proportionally per block or per second, creating a smooth, predictable unlock curve.

• Mechanism: If 1,000 tokens vest linearly over 1,000 days, 1 token becomes available each day.
• Contrasts with bullet vesting, where the entire amount unlocks at a single future date.

A smart contract that autonomously holds and distributes tokens according to the vesting schedule's rules. It is the immutable, trustless enforcer of the agreement, removing the need for a central party to manually release funds.

• Key functions: release() to claim vested tokens, vestedAmount() to check available balance.
• Security: Funds are custodied by code, not an individual.

Provisions within a vesting agreement that can trigger an early release of tokens. These are contractual safeguards, not default smart contract features.

• Single-trigger acceleration: Typically occurs upon a change of control (e.g., company acquisition).
• Double-trigger acceleration: Requires two events, like an acquisition followed by the employee's termination, offering more investor protection.

Distinct vesting schedules applied to different stakeholder groups within a project's tokenomics. Each pool has its own cliff, duration, and release curve.

• Common Pools:
  • Team & Advisors: Long cliffs (1-3 years) with multi-year linear vesting.
  • Investors: Varies by round (Seed, Series A) with shorter cliffs.
  • Ecosystem/Community: Often used for grants, rewards, or liquidity mining with customized schedules.

Defines whether the grantor can cancel the vesting schedule and reclaim unvested tokens.

• Revocable Vesting: Common for employee equity; the company can claw back unvested tokens if employment ends. Rarely used on-chain due to centralization.
• Irrevocable Vesting: The standard for on-chain smart contract vesting. Once deployed, the schedule cannot be altered or canceled by any party, providing maximum security for the recipient.

A vesting schedule where no tokens are released until a specific date (the cliff period) has passed, after which a large initial grant vests, followed by regular, smaller releases. This is a standard component of most schedules.

• Typical Cliff: 1 year for employee equity, 3-12 months for token grants.
• Purpose: Ensures commitment before any tokens are claimable.
• Example: A 4-year schedule with a 1-year cliff. After 12 months, 25% of the total grant vests immediately, with the remainder vesting monthly over the next 3 years.

Tokens vest continuously and evenly over the vesting period, typically on a per-second, per-day, or per-month basis. This creates a smooth, predictable release curve.

• Mechanism: Total grant / total vesting seconds = tokens vested per second.
• Use Case: Common for continuous and transparent distributions post-cliff.
• Example: A 1,000,000 token grant over 4 years (126,144,000 seconds) vests approximately 0.00793 tokens per second.

Tokens vest in discrete, periodic chunks (e.g., monthly, quarterly, or annually) after an initial cliff. This is the most common structure for employee and investor agreements.

• Structure: Cliff → Periodic releases (e.g., monthly over 48 months).
• Contract Standard: Often implemented via VestingWallet or similar smart contracts.
• Example: A 4-year schedule with a 1-year cliff and monthly vesting. After the cliff, 1/48th of the remaining tokens vests each month.

Token release is contingent upon achieving specific, pre-defined company or project milestones, rather than the simple passage of time. This ties compensation directly to performance.

• Triggers: Product launches, revenue targets, user adoption metrics, or technical achievements.
• Complexity: Requires clear, objective milestone definitions to avoid disputes.
• Risk: If milestones are not met, tokens may never vest.

A mechanism where founders start with all their tokens but are subject to a buyback clause if they leave the project early. The company/cliff has the right to repurchase unvested tokens at a nominal price.

• Purpose: Protects the project and other stakeholders if a founder departs prematurely.
• Legal Form: Often implemented via a restricted token purchase agreement rather than a pure smart contract.
• Contrast: Opposite of standard grant vesting, where tokens are earned over time.

Real-world schedules are typically hybrids. A standard SAFE or token warrant for an early investor might include:

• A 1-year cliff from Token Generation Event (TGE).
• Linear vesting over the following 2-3 years.

Key Smart Contract Standards:

• VestingWallet (OpenZeppelin): Manages a linear release schedule for a single beneficiary.
• Vesting (Aragon): More complex, multi-beneficiary contract templates.

Core Parameters: Start timestamp, cliff duration, vesting duration, beneficiary address, and revocability.

Vesting enforces a time-based release of tokens using a smart contract, known as a vesting contract or token locker. Common schedule types include:

• Cliff Period: An initial lock-up with no token release, followed by the start of linear vesting.
• Linear Vesting: Tokens are released in equal increments per block or per time period after the cliff.
• Step Vesting: Tokens are released in discrete, larger chunks at specific milestones (e.g., quarterly).

A primary security function of vesting is to mitigate supply shock and price volatility by preventing large, concentrated sell-offs (dumps) from early investors, team members, or advisors. This protects retail investors and project treasury value by ensuring token distribution aligns with project milestones and long-term development, rather than short-term speculation.

The security of the vesting mechanism depends entirely on the smart contract code. Key risks include:

• Centralization Risks: Contracts with admin keys that can arbitrarily pause, modify, or revoke vesting schedules.
• Logic Flaws: Bugs in the schedule calculation or claim function that could allow premature withdrawals.
• Upgradeability: Transparently audited, non-custodial contracts are essential; poorly implemented proxy patterns can introduce vulnerabilities.

Vesting schedules are a key governance tool to align incentives. Typical designs include:

• Longer cliffs and vesting periods for core team members (e.g., 1-year cliff, 4-year total vest).
• Milestone-based releases tied to product launches or key performance indicators (KPIs).
• Bad-leaver clauses encoded in contracts to claw back unvested tokens if a founder leaves prematurely, protecting the project.

Projects use vesting to manage their treasury and ecosystem/community funds responsibly. Instead of holding a large, liquid supply, tokens are vested and released predictably to fund:

• Grant programs and developer incentives.
• Liquidity provisioning and staking rewards.
• Strategic partnerships. This ensures long-term runway and prevents inflationary pressure from sudden, large treasury sells.

A cliff period is an initial lock-up phase 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.

• Purpose: Prevents immediate dumping and ensures commitment from team members or investors.
• Example: A 4-year vesting schedule with a 1-year cliff means no tokens are claimable for the first year, after which 25% (1/4) of the total grant vests immediately.

Linear vesting is the most common schedule where tokens are released in equal, continuous increments over the vesting period after any cliff.

• Mechanism: Tokens vest per block or per second, creating a smooth, predictable unlock curve.
• Contrast: Differs from bullet vesting, where the entire amount unlocks at a single future date.
• Use Case: Standard for employee compensation and advisor grants to provide steady, aligned incentives.

A vesting contract is a smart contract that autonomously holds and releases tokens according to a predefined schedule. It is the primary on-chain implementation of vesting logic.

• Key Functions: Holds locked tokens, allows beneficiaries to claim vested amounts, and provides transparency into remaining balances and schedules.
• Security: Removes reliance on a central party, ensuring the schedule is immutable and trustless once deployed.
• Example: OpenZeppelin's VestingWallet is a widely audited standard for Ethereum-based projects.

A token lockup is a period where tokens are completely non-transferable, often applied to early investors or team allocations before exchange listings.

• Relation to Vesting: A lockup is a simpler, total freeze, while vesting involves gradual release. They are often used in conjunction (e.g., a lockup followed by a vesting schedule).
• Purpose: Prevents market flooding immediately after a token generation event (TGE) or listing.

Accelerated vesting is a clause or event that causes tokens to vest faster than the original schedule, typically triggered by specific conditions.

• Common Triggers: A change of control (company acquisition), termination without cause, or the achievement of major milestones.
• Mechanism: May vest a percentage of the remaining balance or the entire grant immediately.
• Purpose: Protects beneficiaries in the event of a liquidity event or unfavorable departure.

Fully Diluted Valuation (FDV) is the market capitalization of a token if the entire maximum supply were issued and circulating. It is critically impacted by vesting schedules.

• Calculation: FDV = Current Token Price × Max Token Supply.
• Vesting Impact: A high FDV with most tokens still locked (vesting) represents significant future sell-side pressure as those tokens gradually enter circulation. Analysts compare FDV to circulating market cap to assess this overhang.