What Is A Vesting Contract

This is another crypto term being thrown around the crypto community, which has once again sparked my curiosity to knowing what it means. Some few days ago I talked about venture capitalism in Who Are Venture CaPitalist?. These people are people that invest in a start up hoping they will boom so they can make back their money with a handsome ROI. In the crypto space some of these VC(venture capitalists) get gifted a huge amount of coins, mind you this gifting is not subjected to VC alone, employees involved in making that project a success also get gifted some of the coins as a way to appreciate them.

Now imagine everyone, the venture capitalists, the employees and other people who in one way or the other gets hold of these tokens decide to sell their tokens at once. Of course they won’t agree on selling it together but some of them will have the idea of selling some. This will thereby, drive a selling pressure that will end up reducing the price.

In 2021, we found a lot of meme coins creator rug pull lots of projects through these means. This is because, they had lots of the coins in their possession, after the token pump price, it got easy to sell them off and drag the token price down.

To prevent something like this from happening there is something called vesting contract. This is a smart contract that locks up most of the equity or token and release some particular amount little by little over a period of time to control selling pressure. Vesting is The process in which the blockchain smart contract releases these tokens. These tokens can be released for various reasons depending on what they were vested for, they could be vested for fundings. You know, like funding the team behind the project over a period of time so the funds can be used to develop the project further.

This reminds me of a controversy between the Safemoon team and a hacker who was dedicated to exposing scam coin developers and their team. This was what initially brought my attention to what vesting is. This hacker did his investigation and found out that over 20% of the token supply is held by an account without being placed in a vesting contract. This created awareness which then led to the team behind the project placing those tokens in a vesting contract.

This is why it’s always advisable to add this to part of your researching when researching on a token project to invest in. Check the smart contract and see if a huge amount is held by some particular addresses, if you have access to their discord channel or telegram channel, ask questions. Don’t just ape in without do a proper research.

Vesting shows loyalty to the project by their developers and investors, it shows that this project can be trusted enough because a large chunk of the token is locked and can’t be accessed. With vesting, pump and dump by the team can be avoided because when they are not vested it will lead to the misleading of the public who are attracted to buying project tokens when they are already in profit.

Posted Using LeoFinance ^Beta