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Token Unlocks: How They Influence the Crypto Market

by Serge BaloyanApril 11th, 2024

Too Long; Didn't Read

Big unlocks often create volatility on the market and it affects the project’s price. Prices tend to decline following larger unlock events, as the sudden surge in supply outpaces the demand. The magnitude of the price drop is directly correlated with the size of the unlock, underscoring the importance of managing these events.

featured image - Token Unlocks: How They Influence the Crypto Market

When we check the tokenomics of this or that project, we often see that there are different unlocks/vesting periods. Big unlocks often create volatility in the market, and it affects the project’s price. Let’s check what happens when token unlocks are available. Of course, that doesn’t mean it will happen the same every time. But of course, it’s better to be aware of how the price and market reacted to such events in the past.

And if you run a Crypto/DeFi/NFT project and need advice on marketing and community building, you can [message me](mailto: [email protected]) to get one.

The Unlock Avalanche: A Weekly Reality

The analysis by 6th Man Ventures reveals that millions of dollars worth of tokens are unlocked on a weekly basis. This constant stream of unlocks can result in dramatic price fluctuations. Based on the data of 5,000 token unlocks, let’s see what usually happens.

Delving into the Data: Insights from 6th Man Ventures

The Good, the Bad, and the Volatile

The research indicates that small unlock events, where the circulating supply increases by less than 1%, have minimal to no discernible effect on token prices. However, larger unlocks, which increase the circulating supply by more than 1%, can have a substantial negative impact on prices. The bigger the unlock, the more pronounced the price decrease.

Interestingly, projects that have already vested most of their token supply (over 70%) exhibit significantly lower volatility and higher prices compared to tokens in the early stages of their vesting periods. This suggests that projects in a more mature stage of their token distribution may be less vulnerable to the disruptive effects of large unlock events.

The Numbers Don't Lie: Price Drops and Unlocks

The data paints a clear picture. In the two weeks preceding and following unlock events, the average and median token prices tell a compelling story. Prices tend to decline following larger unlock events as the sudden surge in supply outpaces the demand. The magnitude of the price drop is directly correlated with the size of the unlock, underscoring the importance of managing these events.

Upcoming Unlocks: Key Events to Monitor

Investors and project teams should keep a watchful eye on the unlocks. For example, at the time of writing this, there are a few unlocks announced:

- 24.8 million $APT tokens (worth $330 million) will be unlocked on April 12, 2024.

- 64 million $STRK tokens (worth $125 million) will be unlocked on April 14, 2024.

- 886,000 $CYBER tokens (worth $12 million) will be unlocked on April 14, 2024.

These large-scale unlocks have the potential to significantly impact the prices of the respective tokens, and project teams should be prepared to mitigate the volatility.

Preparing for the Unlock Onslaught: Strategies for Success

Here are some strategies that projects can consider:

1. Gradual Release of Tokens: By releasing tokens over time, projects can avoid large, sudden increases in supply that may lead to price drops. This approach allows the market to gradually absorb the new tokens, minimizing the potential for price volatility.

2. Community Engagement and Communication: Engaging with the community and managing expectations is crucial during token unlock events. By openly communicating unlock plans and their potential impact on token prices, projects can foster trust and transparency with their stakeholders.

3. Diversification of Token Distribution: Diversifying the distribution of tokens can help reduce the impact of any single unlock event. By allocating tokens to various stakeholders, such as team members, investors, and community participants, projects can create a more balanced and resilient ecosystem.

4. Alternative Token Release Mechanisms: Exploring alternative token release mechanisms, such as vesting schedules or lock-up periods, can provide more stability during unlock events. These mechanisms can incentivize long-term holding and discourage short-term selling, helping to maintain price stability.

5. Strategic Partnerships and Collaborations: Forming strategic partnerships and collaborations can help bolster the demand for a project's tokens, offsetting the potential impact of unlock events. By partnering with other projects, organizations, or influencers, projects can increase their visibility, credibility, and user base.

6. Product Development and Innovation: Continuously developing and improving a project's products or services can help drive demand for its tokens, counteracting the potential price drops associated with unlock events. By demonstrating value and progress, projects can attract new users and investors, supporting long-term growth.

By adopting a proactive and strategic approach, crypto projects can weather the storm of token unlocks and emerge stronger, more resilient, and better positioned for long-term success.