Vesting

A cliff is an initial lock-up period during which no tokens are released. It acts as a probationary period before the linear vesting schedule begins. For example, a 1-year vesting schedule with a 6-month cliff means the beneficiary receives 0 tokens for the first 6 months, then a large initial grant at month 7, followed by regular releases.

• Purpose: Aligns long-term incentives and ensures commitment.
• Common Use: Standard in employee equity and early investor token allocations.

The most common vesting pattern, where tokens are released continuously or in small, regular increments (e.g., daily, monthly, quarterly) after any cliff. The release is calculated on a pro-rata basis over the total vesting duration.

• Mechanism: If 1000 tokens vest over 4 years (48 months), approximately 20.83 tokens are released each month.
• Key Benefit: Provides predictable, steady access to funds, smoothing out market impact and reducing sell pressure.

Beyond simple linear schedules, vesting can follow different release curves to model various incentive structures.

• Linear: Constant release rate.
• Cliff-Linear: Cliff followed by linear release (most common).
• Step-Vesting: Releases in large, discrete chunks at specific milestones.
• Non-Linear Curves: Exponential or logarithmic releases, sometimes used for complex incentive models or to front-load/back-load rewards.

This defines whether the entity granting the tokens (the benefactor) can cancel the schedule and reclaim unvested tokens.

• Revocable Vesting: The benefactor (e.g., a company) can terminate the schedule, often for cause (e.g., employee termination). Unvested tokens are forfeited.
• Irrevocable Vesting: The schedule is immutable once initiated. The beneficiary's right to the future tokens is guaranteed, providing stronger security. This is common for investor allocations and public token sales.

Provisions within a vesting contract that trigger the immediate release of some or all unvested tokens upon a specific event.

• Single-Trigger Acceleration: Vests upon a change of control (e.g., company acquisition).
• Double-Trigger Acceleration: Requires two events, typically a change of control followed by termination of the beneficiary, protecting both company and employee interests.
• Partial vs. Full: The clause may accelerate 100% of remaining tokens or only a portion (e.g., 50%).

The technological implementation of the vesting logic and custody.

• On-Chain Vesting: Rules are encoded in a smart contract (e.g., a VestingVault). Tokens are locked in the contract and released automatically per the schedule. This is transparent, trustless, and immutable.
• Off-Chain Vesting: Managed through legal agreements and manual processes (e.g., an Excel sheet). The custodian (often the company) holds the tokens and releases them manually, requiring trust.

Most modern crypto projects use on-chain vesting for transparency.

A cliff period is an initial lock-up phase where no tokens are released. After the cliff expires, a large initial grant is typically vested, followed by regular linear releases. For example, a common schedule is a 1-year cliff with 25% of tokens released, followed by monthly vesting for the remaining 36 months. This structure protects projects from immediate sell pressure from early contributors.

Linear vesting releases tokens at a constant, continuous rate over the vesting period. It is the most common and predictable schedule.

• Mechanism: If 1000 tokens vest over 1000 days, 1 token is released per day.
• Use Case: Standard for employee equity, advisor grants, and community airdrops to ensure steady, long-term alignment without large, disruptive unlocks.

Graded vesting (or milestone-based vesting) releases tokens in discrete, often increasing, chunks upon reaching predefined milestones. This is common in venture capital deals and project development grants.

• Example: A developer grant might release 20% upon mainnet launch, 30% after achieving 10k users, and 50% after a successful security audit. It directly ties capital release to performance.

These are distinct but related concepts:

• Vesting: Grants ownership rights over time. Once vested, tokens are owned but may still be subject to a lock-up.
• Lock-up: Prevents the transfer or sale of already owned or vested tokens for a specified period. A Token Lock-up often follows a vesting schedule to further delay market liquidity, common in initial exchange offerings (IEOs) or for early investors.

On-chain vesting is enforced by smart contracts, such as OpenZeppelin's VestingWallet. These are immutable, transparent, and trustless.

• Key Functions: release() to claim vested tokens, vestedAmount() to check available balance.
• Security: Contracts must be audited to prevent exploits like reentrancy attacks or incorrect timestamp logic that could allow premature withdrawals.

Accelerated vesting clauses trigger the immediate release of some or all unvested tokens upon specific events. This is a key term in employment and investment contracts.

• Single-trigger: Fired by events like a change of control (acquisition).
• Double-trigger: Requires two events, typically a change of control plus termination of employment, protecting employees while aligning investor and founder interests.

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 is typically unlocked, followed by regular linear vesting.

• Purpose: Prevents immediate dumping and ensures commitment.
• Example: A 1-year vesting schedule with a 6-month cliff means no tokens are accessible for the first 6 months; at month 7, 6 months' worth of tokens unlock at once.

Linear vesting is the most common schedule where tokens are released continuously at a constant rate over the vesting period.

• Mechanism: Tokens unlock per block or per second, creating a smooth, predictable release curve.
• Contrast: Differs from cliff-and-vest models by providing gradual access without large, periodic unlocks.
• Use Case: Standard for employee compensation and investor lock-ups to ensure steady alignment.

A token lockup is a contractual or smart contract-enforced period where tokens are completely non-transferable, preceding or overlapping with a vesting schedule.

• Key Difference: Lockups prevent any transfer, while vested tokens are often released but still locked. A cliff is a type of lockup.
• Primary Use: Common in ICOs, project launches, and venture capital deals to stabilize token supply post-launch.

A vesting schedule is the complete set of rules governing the release of locked assets, including start time, duration, cliff period, release frequency (e.g., linear, graded), and beneficiary address.

• Components: Defined by start, duration, cliffDuration, and revocable parameters.
• Enforcement: Codified in smart contracts (e.g., OpenZeppelin's VestingWallet) for trustless execution, replacing legal paperwork.

Accelerated vesting is a clause or event that causes a portion or all of the remaining unvested tokens to vest immediately ahead of schedule.

• Triggers: Typically activated by corporate events like an acquisition (single-trigger) or an acquisition followed by employee termination (double-trigger).
• Purpose: Protects beneficiaries (e.g., employees, investors) by ensuring payout during liquidity events.

Staking is the act of locking crypto assets in a protocol to perform network services (e.g., validation) or participate in governance, often earning rewards. While both involve locking, it differs fundamentally from vesting.

• Contrast: Vesting is a release schedule for owned assets. Staking is an active participation mechanism that locks already-owned, liquid assets, often voluntarily and reversibly.
• Overlap: Vested tokens, once released, are often staked to generate yield.