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Token Vesting On-Chain

Determine a vesting schedule and distribute your project tokens to contributors and stakeholders on-chain, using the Streamflow vesting app.

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Providing efficient token vesting for Web3 projects

Ratio Finance

Ratio Finance



Phantasia Sports

Phantasia Sports





Securely schedule token allocations to recipients

Streamflow provides flexible token distribution scheduling for Web3 projects. Teams can lock tokens in our fully-audited smart contracts and distribute value programmatically to multiple recipients at once.

Automate token unlocks

Automate token unlocks

Unlock tokens to recipients progressively during the vesting period; schedule token distributions weekly, hourly, or even on a minute-by-minute basis.

Batch payment creation

Batch payment creation

Reduce vesting setup time and create vesting contracts for all of your recipients in one sitting using Streamflow’s batch-payment creation feature.

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Set cliff dates

Set cliff dates

Set a cliff date to designate a period of time that funds will be locked before vesting begins.

Process payments transparently

Process payments transparently

Allow users to follow your vesting schedule as tokens are emitted. All on-chain transactions are viewable via Blockchain Explorers.

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What is Token Vesting and Everything You Wanted To Know About It

The rapid development of the blockchain industry has created many innovative concepts, among which is token vesting. The goal of the texts below is to provide an in-depth understanding of what token vesting is. We will also explain key mechanisms often adopted by crypto projects to incentivize long-term commitment and protect the value of their tokens.

What is Token Vesting?

Token vesting is a mechanism that gradually releases a certain number of tokens to team members, advisors, or investors over a set period. According to a study by Cambridge University's Centre for Alternative Finance, token vesting helps ensure that stakeholders remain committed to the project over the long term, rather than selling their tokens immediately after an initial coin offering (ICO) or other token distribution events.

What is Token Vesting?

How Does Token Vesting Work?

Token vesting works by distributing a certain number of tokens to individuals over a predetermined period. For example, a company might decide to issue 1 million tokens to its team members over four years. The tokens might vest at a rate of 20,000 per month, starting one year after the initial agreement. This means that no tokens are received for the first year (the cliff period), after which tokens start to vest monthly. The table below will further illustrate how token vesting works:

Year Month Tokens Vested per Month % of Tokens Vested Cumulative Tokens Vested
1 12 0 0 0
2 24 20,000 2% 240,000
3 36 20,000 2% 480,000
4 48 20,000 2% 720,000
5 60 20,000 2% 1,000,000

How to Implement Token Vesting?

Implementing token vesting involves writing and deploying a smart contract on the blockchain. This is a task that requires expert knowledge in Solidity (the programming language of Ethereum) or other blockchain programming languages. The smart contract includes the terms of the vesting agreement, such as the total amount of tokens to be vested, the duration of the vesting period, the frequency of token release, and any specific conditions or cliffs. Once the smart contract is deployed, it governs the token release according to the specified terms.

Importance of Token Vesting in the Crypto

Industry Token vesting has become a vital tool in the crypto industry, promoting long-term engagement and reducing the risk of rapid sell-offs that can devalue a token. It brings a sense of trust and confidence among investors by aligning their interests with the project's team. Additionally, it provides a level of financial security and a sense of ownership for employees and project members.

Origins of the Term Token Vesting

The term 'Token Vesting' originates from the broader concept of 'vesting' which has been a standard practice in traditional finance and corporate settings for decades. With the advent of blockchain and crypto projects, the idea was adapted and applied to the distribution of tokens, hence the term "token vesting."

Evolution of Token Vesting

Token vesting has evolved over time, reflecting the unique needs and challenges of crypto space. Early iterations of token vesting were relatively simple, often featuring linear vesting without a cliff period. As the crypto market matured, more complex vesting structures emerged, incorporating features like cliff periods and graded vesting to better balance the interests of various stakeholders.

Key Terms Used in Token Vesting

Several key terms are integral to understanding token vesting:

  • Vesting Period: The timeframe over which tokens are gradually released.
  • Cliff Period: A specified duration during which no tokens are released.
  • Vesting Schedule: The plan detailing when and how many tokens will be released.
  • Token Holder: The individual or entity receiving the vested tokens.
  • Smart Contract: A smart contract is a self-executing agreement without intermediaries.
Key Terms used in Token Vesting

Types of Token Vesting

The world of crypto is no stranger to diverse approaches and strategies. As such, it's no surprise that there are various types of token vesting that projects might adopt, based on their unique needs and goals. The specific structure of a token vesting schedule can significantly influence the project's growth trajectory, investor sentiment, and overall market stability. It's important to understand the distinct types of token vesting, as each presents its own set of benefits and potential drawbacks. Below, we'll discuss three prevalent types of token vesting: linear vesting, cliff vesting, and milestone-based vesting.

Linear Vesting

Linear vesting is a straightforward and simple token vesting method where tokens are released at a constant rate over the vesting period. This approach offers predictability and ease of understanding, as token holders know exactly when and how much of their tokens will become accessible.

Example: Suppose a project has a linear vesting schedule over four years, with 1,000 tokens to be vested. Every year, 250 tokens (one-fourth of the total) would become available to the token holder.

Cliff Vesting

Cliff vesting is a method where no tokens are released to the token holder for a set "cliff" period. After this period, a substantial number of tokens become available all at once. This model is often used as a tool to retain token holders, particularly employees and team members, for a specific duration.

Example: Let's say a company establishes a one-year cliff vesting schedule for its employees. If an employee leaves before the one-year mark, they would not receive any tokens. However, if they stay for at least a year, they would receive all their tokens at once after the cliff period.

Milestone-based Vesting

Milestone-based vesting is a model where the release of tokens is tied to specific project milestones. These milestones could be related to the project's development, such as the launch of a product or the attainment of a certain number of users. This model aligns the interests of the token holders with the project’s success.

Example: A startup could have a milestone-based vesting schedule where 25% of tokens are released when a product prototype is ready, another 25% when the product is officially launched, and the remaining 50% distributed in increments as the user base grows.

Advantages of Token Vesting

Token vesting brings a host of advantages to the table, particularly in the realm of crypto startups and projects. In an industry that is marked by volatility and uncertainty, token vesting stands as a beacon of stability, offering unique advantages to project founders, token holders, and investors alike. It establishes a fundamental structure for the project, instills confidence in the market, and protects token value. By understanding these benefits, we can better appreciate why token vesting has become a prevalent practice in the crypto space. Below, we delve into three crucial benefits of token vesting: long-term commitment and stability, protection of token value, and confidence for investors.

Long-term Commitment and Stability

Token vesting promotes long-term commitment and stability in a project. It helps to ensure that key stakeholders, such as team members and early investors, stay committed for a specified period. By doing so, it prevents the premature sale of tokens that could potentially disrupt the project's growth and market dynamics.

Protection of Token Value

Token vesting plays a pivotal role in protecting token value, primarily by mitigating the risks associated with token oversupply. By regulating the number of tokens entering the market, token vesting can help maintain a balance between token supply and demand, thereby safeguarding token value.

Protection of Token Value Example: In 2018, Ripple was criticized for the risk of token value dilution due to its vast token supply. To mitigate this concern and protect token value, Ripple locked up 55 billion XRP in a cryptographically-secured escrow account, from which a maximum of 1 billion XRP can be released monthly. This strategic move was a form of token vesting, demonstrating how vesting can be employed to protect token value.

Confidence for Investors

Token vesting also bolsters investor confidence. By demonstrating that the project's team has a vested interest in the project's long-term success, token vesting can make the project more appealing to potential investors. Furthermore, token vesting schedules provide transparency about when new tokens will enter the market, which allows investors to make more informed decisions.

Disadvantages of Token Vesting

While token vesting offers manifold advantages, it is not without its hurdles and complexities. As with any financial mechanism, it carries certain inherent challenges that must be thoroughly understood and navigated. From the intricacies of setting up vesting schedules to regulatory considerations and potential disadvantages for token holders, these challenges underscore the importance of approaching token vesting with a comprehensive understanding and strategic plan. Here, we'll explore these challenges, providing a realistic perspective on the complexities of token vesting.

Complexity in Vesting Schedules

Constructing and managing vesting schedules can be a complex task, demanding a clear understanding of the project's goals, the needs of the participants, and the market dynamics. Deciding the vesting period, the cliff period, the frequency of vesting, and many other parameters requires careful consideration and can be a daunting task, particularly for projects with a large number of stakeholders.

Token Vesting and Regulatory Considerations

Regulatory considerations are another critical challenge in token vesting. The world of cryptocurrencies is still a new frontier in many jurisdictions, with regulatory frameworks still being developed. Consequently, token vesting can sometimes find itself at odds with regulatory requirements.

Example: In China, the government has imposed a blanket ban on Initial Coin Offerings (ICOs), presenting a regulatory challenge for projects seeking to implement token vesting through ICOs. Similarly, in the USA, token offerings are often treated as securities, which require compliance with complex securities laws. It's crucial for projects to navigate these regulatory landscapes successfully to implement token vesting effectively.

Challenges for Token Holders

Token vesting can also present certain disadvantages for token holders. Since vested tokens are typically locked for a specific period, token holders may lack liquidity and might be unable to sell their tokens even in favorable market conditions. Moreover, if the project fails or doesn't perform as expected, token holders may suffer losses, with their tokens locked in a vesting schedule.

Manual vs. Automated Token Vesting

Both manual and automated token vesting approaches have their advantages and disadvantages. The choice between the two depends on factors such as the desired level of flexibility, control, accuracy, scalability, and technical capabilities of the organization. Careful consideration should be given to select the most suitable method to ensure efficient and reliable token vesting that aligns with the organization's objectives and requirements.

What is Manual Token Vesting?

Manual token vesting involves a manual, human-driven approach to distribute tokens according to the agreed-upon vesting schedule. This process typically requires manual calculations, record-keeping, and manual token transfers.

What are the advantages of Manual Token Vesting?

Advantages of Manual Token Vesting are:

  • Flexibility: Manual token vesting involves a manual, human-driven approach to distribute tokens according to the agreed-upon vesting schedule. This process typically requires manual calculations, record-keeping, and manual token transfers.
  • Personalization: Manual processes can accommodate unique situations, exceptions, or special agreements that may not be easily handled through automated systems.
  • Control: With manual processes, there is a higher level of direct control and oversight over the token vesting process, providing organizations with the ability to make adjustments or modifications if needed.

What are the disadvantages of Manual Token Vesting?

Disadvantages of Manual Toke Vesting are:

  • Human Error: Manual processes are susceptible to human error in calculating vesting periods, tracking vesting events, or executing token transfers, potentially leading to inaccuracies or discrepancies.
  • Time-Consuming: Manual token vesting can be time-consuming and resource-intensive, requiring significant administrative efforts to manage the process effectively.
  • Scalability Challenges: Manual processes may become cumbersome and challenging to scale as the number of participants or complexity of vesting arrangements increases.

What is Automated Token Vesting?

Automated token vesting relies on smart contracts or token management platforms to automate the calculation, tracking, and distribution of tokens based on predefined vesting rules and conditions.

What Are Advantages Of Automated Token Vesting?

Advantages of Automated Token vesting are:

  • Accuracy and Transparency: Automated processes eliminate the potential for human error, ensuring accurate calculations and transparent token distribution based on predefined vesting rules.
  • Efficiency: Automated token vesting streamlines administrative tasks, reducing the time and resources required to manage the process.
  • Scalability: Automated systems can efficiently handle a large number of participants and complex vesting arrangements, making them highly scalable.

What are the Disadvantages of Automated Token Vesting?

Disadvantages of Automated Token vesting are:

  • Limited Flexibility: Automated systems may have limitations in accommodating unique or complex vesting arrangements that require customization beyond the capabilities of the smart contract or token management platform.
  • Technical Complexity: Setting up and maintaining an automated token vesting system requires technical expertise and may involve costs associated with developing or deploying smart contracts or utilizing token management platforms.
  • Dependency on Technology: Automated processes rely on the availability and reliability of the underlying technology, such as blockchain networks, smart contract platforms, or token management systems.

Token Vesting Security

The security of vested tokens is a critical aspect to consider in any token vesting project. As token vesting often involves a substantial number of tokens, potentially amounting to millions in value, ensuring their security becomes imperative. Moreover, the blockchain ecosystem, being relatively nascent, currently lacks robust mechanisms to fully secure investor assets. This makes the question - why do you need token vesting security - all the more relevant. There are primarily two methods to secure and vest tokens under stipulated token vesting contracts. In the first method, the tokens remain in the founders' custody, with the founders maintaining a detailed ledger noting the token issuance timetable. The second method involves using third-party token vesting platforms to establish a vesting timeline.

How to Secure Token Vesting?

Securing token vesting is challenging, given the inherent complexities of the blockchain infrastructure. As mentioned, there are two primary ways to lock and vest tokens:

Founder's Possession: In this method, the tokens are kept with the project's founders. They maintain a meticulous record detailing the token issuance timetable, which forms an integral part of the vesting agreement.

Third-party Token Vesting Platforms: Alternatively, founders can rely on third-party platforms to create a token vesting timeline. These platforms typically employ smart contracts, specifically designed to manage customizable vesting schedules for projects. These smart contracts undergo rigorous audits from reputable auditing firms, thereby providing an additional layer of trust and security.

Both these methods offer their unique advantages and should be chosen based on the specific needs and circumstances of the project.

Token Vesting and Employee Compensation

The advent of cryptocurrencies has redefined the concept of employee compensation, especially in the burgeoning world of startups and blockchain projects. Token vesting has become a favored tool for compensating employees, incentivizing them with the promise of a future payoff. It's an approach that motivates team members to drive the project towards success, thus potentially increasing the token's value. Despite the apparent allure, however, token vesting in the realm of employee compensation has its nuances, benefits, and challenges. In this section, we will delve into token vesting in employee contracts, explore its advantages and potential issues for employees.

  • Token Vesting in Employee Contracts Employee contracts often include token vesting as a form of compensation. Typically, these contracts specify the number of tokens granted, the vesting period, and the cliff period.
  • Advantages for Employees Token vesting offers employees the opportunity to share in the company's success. As the project flourishes, the value of the vested tokens could appreciate, potentially resulting in a substantial payout over time.
  • Potential Issues for Employees While token vesting can be rewarding, it does not come without risks. The value of the tokens is directly tied to the success of the project, and if the project fails or underperforms, the value of the tokens might decrease, impacting the total compensation.

Vesting Strategies for Team Members and Investors

Vesting strategies for team members and investors must be carefully crafted to align with the project's long-term objectives. The vesting period for tokens issued to these stakeholders usually differs, reflecting their unique roles in the project.

Team members, who are involved in the day-to-day operations of the project, typically have a longer vesting period. This approach incentivizes them to contribute to the project's success over time. Tokens for team members are often subject to cliff vesting, meaning a substantial amount of tokens is unlocked after a certain period, say one year. This type of vesting schedule ensures that team members stay committed to the project for a significant duration.

Conversely, investors, who provide the necessary funding for the project, may receive tokens with a shorter vesting period or even an immediate release. This is to reward them for their early belief and financial support to the project. However, some projects might also implement a lockup period for investors to prevent them from selling their tokens immediately after the Initial Coin Offering (ICO) or Initial DEX Offering (IDO).

How Investors View Token Vesting?

From an investor's perspective, token vesting is a safeguard against rapid sell-offs that could destabilize the token's value. It indicates the project team's long-term commitment to the project, fostering trust and confidence.

Token Vesting in Investor Agreements

Investor agreements often include vesting schedules for tokens bought during funding rounds. This secures the investor's commitment to the project over a specified period, promoting price stability and long-term support.

Effect of Token Vesting on Investor Confidence

The practice of token vesting can boost investor confidence by demonstrating the project team's commitment to the project's longevity. By preventing premature selling of tokens, it helps maintain price stability, a key concern for many investors.

Impact of Vesting Period on Token Value

Vesting period is a fundamental aspect of token vesting. It's the time frame during which the vested tokens are gradually released to their owners. Importantly, this period is crucial in determining the token's value. In a study conducted by Becker Friedman Institute for Research in Economics, Cong, Li, and Wang (2018) found that longer vesting periods could lead to a higher token value. This happens because the long period allows investors and market participants ample time to observe the project's progress and adjust their valuation of the token accordingly.

When a company, primarily startups, adopts a token vesting policy, it typically sets a vesting period that aligns with its strategic plan and business needs. For example, a blockchain project in its early stage might use a longer vesting period to ensure that team members and investors are committed to the project's long-term success.

Impact of Vesting Schedule and Token Price

Token vesting schedules have a significant impact on the token price. According to research by Momtaz (2020) at the University of Wisconsin, a well-designed vesting schedule can help maintain the token price stability by preventing the mass selling of tokens.

In ICOs, for instance, a project's team members often receive a significant number of tokens as part of their compensation. If these tokens are immediately vested, team members might be tempted to sell their tokens once the token is listed on an exchange, which could lead to a sharp drop in the token price. On the other hand, a token vesting schedule that gradually releases tokens to team members can mitigate this risk and promote price stability.

The same logic applies to tokens issued to investors. If investors receive all their tokens immediately after the token sale, they might decide to sell their tokens, causing a price crash. A vesting schedule that gradually releases tokens to investors can help prevent this scenario.

How Are Vested Tokens Distributed?

How the distribution of vested tokens is managed plays a significant role in token economics. Projects need to carefully craft a process that ensures a fair and efficient distribution of tokens to all stakeholders. One of the key considerations here is to avoid a situation where a small number of people control a large portion of the tokens, which contradicts the principles of decentralization, the bedrock of blockchain technology.

Zetzsche et al. (2018), in a paper published by the University of Luxembourg, observed that projects with a centralized token distribution often face trust and credibility issues. Conversely, projects that employ a decentralized token distribution approach tend to have a more diverse investor base and better market acceptance.

Vesting Schedules and Liquidity Locks

Understanding vesting schedules and liquidity locks is essential for anyone dealing with token vesting. The vesting schedule refers to the timetable that outlines when and how much of the vested tokens are released to the holders. A common type of vesting schedule is cliff vesting, where a large number of tokens become available all at once after a specific time.

On the other hand, liquidity locks refer to a mechanism that prevents tokens from being sold or exchanged for a certain period. They are commonly used in Decentralized Finance (DeFi) projects to provide stability and protect investors. Liquidity locks can be seen as a type of vesting schedule where 100% of the tokens are vested at the start, but they are gradually released over time.

These elements, vesting schedules and liquidity locks, are important to consider when a project plans its token issuance process. Having clear vesting schedules and liquidity locks can protect investors and promote the long-term sustainability of the project.

Vesting and Tokenomics

Token vesting directly impacts tokenomics by affecting the supply and distribution of tokens. Tokenomics refers to the economics of a token within its blockchain ecosystem, encompassing aspects like issuance, distribution, and utilization.. The vesting process can, for instance, affect the token's price by controlling the market supply.

It's important to note, however, that tokenomics is a complex field with various factors influencing the outcome. While token vesting is an essential component, other elements such as market sentiment, project development progress, and overall crypto market trends can also affect the value of a token. Hence, when assessing a token project, it's advisable to consider the complete tokenomics, not just the vesting component.

What is a Token Vesting Scheme?

A token vesting scheme is a mechanism used in the blockchain and cryptocurrency industry to gradually release or distribute tokens to recipients over a specific timeframe. It is designed to incentivize and reward individuals or entities by ensuring that they receive tokens gradually, subject to predefined conditions and vesting schedules. This approach promotes long-term commitment, discourages immediate selling or transferring of tokens, and aligns the interests of the token holders with the goals and success of the project or organization.

For example, let's say a startup company decides to allocate 100,000 tokens to an employee with a four-year vesting period and a one-year cliff. In this scheme, the employee will receive 25,000 tokens after completing one year of service (cliff), and the remaining tokens will be distributed in equal monthly installments over the next three years. This ensures that the employee has an incentive to stay with the company for the long term while aligning their interests with the company's growth and success.

What are the components of a token vesting scheme?

The components of a token vesting scheme include:

  • 1. Vesting Period: The duration over which the tokens will be gradually released or distributed to the recipients. It can span months or years and is typically defined in the vesting agreement.
  • 2. Vesting Schedule: The specific timeline or milestones within the vesting period that dictate when and how much of the tokens will be released. This schedule determines the intervals at which the recipients become eligible to access their vested tokens.
  • 3. Cliff Period: An initial period within the vesting period where no tokens are vested. This acts as a threshold before the vesting begins, often set to ensure recipients have a vested interest in the project or organization for a certain duration.
  • 4. Token Release Conditions: The predetermined criteria or conditions that must be met for the release of vested tokens. These conditions can be based on time, achieving specific project milestones, or meeting performance goals.
  • 5. Token Lock-up: A period during which the vested tokens are subject to restrictions and cannot be transferred or sold. This lock-up period helps prevent immediate selling and promotes long-term commitment to the project or organization.
  • 6. Token Escrow: The use of a third-party escrow service to hold the tokens during the vesting period. This ensures security and impartiality in the token distribution process.
  • 7. Token Forfeiture: The provision that outlines the circumstances under which the recipients may lose their right to vested tokens, such as termination of employment or violation of certain terms and conditions.
  • 8. Transfer Restrictions: Any limitations on the transferability of vested tokens, such as restrictions on selling or transferring tokens before a specified date or milestone.

Evaluating Token Vesting Schemes

Investors and participants need to critically evaluate token vesting schemes before getting involved in a project. The vesting scheme provides an insight into the project's financial strategy and its consideration for the investors' interests.

Emerging Trends in Token Vesting

As the crypto industry continues to mature, token vesting is evolving along with it. We're starting to see more complex vesting schedules designed to balance the needs of projects and their stakeholders. Other emerging trends include the creation of liquidity locks and staking pools, which provide additional ways to secure the project's financial stability and further incentivize token holders.

Future Scenarios of Token Vesting

The future of token vesting looks promising, with its increasing relevance in the growing DeFi space. As more projects enter the market and competition intensifies, the need for token vesting as a tool for ensuring commitment and stability is likely to rise. With advancements in blockchain technology and smart contract functionality, we might see more automated and secure ways of managing token vesting processes.

Innovations in Token Vesting

Innovations are also occurring within the realm of token vesting. At Streamflow Finance we are exploring new ways to create more efficient and effective token vesting schedules, benefiting both the project and its investors. With the increasing derivation of tokens as part of fundraising and compensation packages.

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