Token unlocking refers to predetermined events where previously locked tokens become tradable again. Projects often lock a portion of their token supply to prevent early investors or team members from selling their holdings all at once as soon as the project launches. A token unlock event can occur in a single large release (cliff unlock) or through gradual, periodic releases using a linear vesting method.
Effects of Token Unlocking
When locked tokens enter circulation, an abrupt increase in supply can exert downward pressure on prices if demand does not match the new supply. Data shows that approximately 90% of token unlock events result in price declines. However, if a project has strong usage and demand, its token price may remain stable or even increase despite the unlock event. Upcoming unlocks are often priced in beforehand, but volatility tends to rise around the unlock date. Investor sentiment can also vary—while large unlocks may trigger fears of a sell-off among some investors, others may view them as a sign of project progress and consider potential price drops as buying opportunities.
Reasons for Vesting and Unlocking Schedules
Crypto projects implement vesting and unlocking schedules for several key reasons:
Long-Term Alignment: Locking tokens ensures that founders, team members, and early supporters stay committed to the project for the long term instead of cashing out immediately. This aligns their interests with the project's long-term success. Market Stability: Gradual token releases prevent large-scale sell-offs that could cause drastic price drops. Vesting spreads out the supply increase over time, reducing excessive market volatility. Project Milestones: Token unlocks are often scheduled based on development milestones. This ensures that insiders cannot access all their tokens before the project achieves critical roadmap goals, fostering trust in the project's progress.
Notable Token Unlock Events in the Past
February 2024: Multiple projects unlocked approximately $1 billion worth of tokens. For example, Aptos (APT) released 24.84 million tokens (~$230 million) on February 11, leading to an 18% price drop for APT.
March 2024 – Arbitrum (ARB): On March 16, Arbitrum conducted a massive unlock, releasing 1.11 billion ARB tokens (87% of its circulating supply, worth $1.24 billion). This influx caused ARB’s price to drop about 21% over the following three weeks before recovering.
Solana (SOL) – March 1, 2025: Approximately 11.2 million SOL tokens ($2 billion), representing around 2.3% of the total supply, were unlocked.
Token unlocking events play a crucial role in a project's economic design, influencing market dynamics, investor sentiment, and long-term stability.
