Token vesting is a mechanism used in Web3 to gradually release tokens to individuals or entities over a specified period, typically to team members, investors, or partners involved in a blockchain project. This approach is designed to align incentives by ensuring that those who are integral to the success of the project remain committed over the long term. It helps prevent the market from being flooded with tokens all at once, which can lead to a dramatic drop in value.
Vesting schedules can vary, with tokens being distributed on a linear basis, at specific milestones, or after a certain "cliff" period has passed, during which no tokens are released. The terms of vesting are usually encoded into smart contracts, making the process transparent and automatic.
Token vesting is a sign of trustworthiness and stability for contributors and investors. Vesting acts as a safeguard against the risk of early contributors selling all their tokens immediately after a project launches or reaches a certain price (see Rug Pulls), which could negatively impact the project's development and tokenomics. It is important to appropriate due diligence and familiarize yourself with any vesting requirements before investing your time, energy or finances into a Web3 project.
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