Blockchain projects release their tokens to the general public via a crowdsale event. People who wish to support a new token participate in the crowdfund by purchasing their tokens using Ethereum or Bitcoin. At the end of the crowdfunding period, each participant receives tokens corresponding to how much they donated. But some organizations prefer to vest a certain amount of tokens.
It’s a certain amount of tokens that are held aside for some period of time for the team, partners, advisors, and others who are contributing to the development of the project. Smart contracts usually lock a certain amount of funds until contract conditions are met. For example, startups that use the blockchain technology can lock a certain amount of tokens: the team can reserve 15% of coins, for instance, which will be gradually released once a month/quarter/year during the project process for financial purposes. In general terms, the process of releasing these coins is called vesting. Vesting is usually used to show that the team is highly interested in the project, and will continue working on project development. Additionally, vesting lowers market price manipulations. There is often a several-year “cliff”, meaning that the individual must be with the company for a couple of years to release the first increment of tokens.
Here’s an example of such vesting schedule: 20% of the vested tokens are released in 6 months; 50% — in 1 year; and 100% — in 2 years. The reason why this structure is beneficial is that if a single or several entities controlled, for example, 20% of all tokens issued from the date of the token generation event, they could easily create supply fluctuations that can be detrimental to the token ecosystem and price. In simple terms, this creates a definite risk for the given token stability.
The vesting process is in some ways similar to the central bank’s reserve fund. The bigger the reserve usually means the stronger the fiat currency is. And the more flooded the market is with banknotes, the less their value becomes. It is a rough example of why having a certain amount of tokens vested for a period of time can help a newly established project level the price and popularity of their tokens.
Likely influenced by an increasing number of management teams coming from outside the sector itself, the trend we see is that management is retaining a somewhat larger number of tokens as an incentive aligning their interest in creating a vibrant, prosperous community or project with the interests of token holders and users. While insiders retaining a large number of shares is obviously a fine line, the general trend appears to be moving from teams holding 6–8% of tokens in 2015–16 to closer to 20–25% today. Arguably more significant is the lengthening vesting schedules for insider token holdings. Whereas 0–24 months was typical for vesting schedules up through 2016–during which vesting was incredibly rare at all–now vesting schedules are now stretching into the 36–48 month time frame and are another strong measure of management commitment to a project.
So what is the token vesting process for DreamTeam?
The company vested 25% of all the DreamTeam Tokens issued. These tokens are locked in order to ensure our investors that we have the best intention and maintain a long-term vision for the project. These Tokens are secured via smart contract and will be paid out to DreamTeam advisors, partners and pro teams within 2 years. This is helping to keep their interests aligned. 15% of Tokens are reserved as bonuses for pro-teams and tournament organizers vested; 10% — team and early investors. There is also a 10% company reserve as well as 5% vested for investors via individual vesting smart contracts. The more the already distributed tokens are used, the more valuable the reserved ones become — so it’s in each project team member’s best interest to create a successful project that has many users, increasing the value of their tokens in the process.
For example, here is one of the transactions which locks some DreamTeam Tokens in a vesting smart contract: https://etherscan.io/tx/0xaa94ddb6b2c3dd2f7ea23aab5836cfcb0580b2ff0e060779773630e55b8daebe
Indeed, a proper vesting schedule is one of the key things used to help keep the team members focused on delivering a great project after the crowdfunding occurs. Instead of receiving a full share of their tokens after the crowdfunding, the team members receive tokens after regularly scheduled vesting periods determined by the project founders. This way, a lone unscrupulous team member can’t run off with tokens without continuing to contribute to the project. DreamTeam could have paid out Tokens to them immediately during the Token Generation Event but DreamTeam received the support and trust of our advisors and partners in our Tokens value and they have been vested for 2 years. Below is an example of the DreamTeam Tokens vesting for pro-teams and tournament organizers.
Here are the examples of other companies doing token vesting to support their infrastructure and development. They represent the different approaches that develop over time.
The classic token vesting process is represented by the Aragon Network token sale in 2017. 70/15/15 distribution: 70% will go to purchasers, 15% to support the network development, and 15% to the founders and early contributors who have worked on the project with none going to partners or advisors.
Squeezer.io is a great example of the updated token distribution strategy for their token sale. If previously, companies reserved around 6–8% of the general amount of the token sale amount, Squeezer follows the 2018 trend and reserved 30% for their operational needs, 20% for their team and only 5% for advisors and 5% for marketing and partners.
InsurePal that had a token sale in January 2018 showcasing another vesting strategy where the vesting is subdivided into multiple small targeted pieces: 10% vested for founders, 6% for team, 6% for the support team, 6% for advisors, 3% for incentives to users, and 2% for early investors.
Another even more radical example is the Smilo Platform where during the initial 200M token generation event half of the tokens are reserved for various purposes: 72M vested for platform support with 2% of these tokens being sold on exchanges every month. The second portion containing 28 million Smilo tokens, which equals to 14% of the total amount of Smilo tokens, will be distributed amongst the team as compensation for their investment of time and money in developing the project before the ICO. Every six months, after the ICO, 25% of their tokens will be released. Thus, after two years, all the Smilo team tokens will be released. This phased vesting is implemented to show our commitment to the success of the platform and the concept development.
As you can see as the time goes by more and more startups are vesting a larger chunk of tokens as more and more people outside the industry are join the blockchain fundraising. This resembles the standard angel investing where a large portion of the company remaining in the hands of the founders and providing them with a way to fund and leverage their company on the market.
As the token vesting process is becoming more complex and more tokens are set aside for the companies it is vital for the projects to clearly explain the allocation of tokens to founders, early investors and others. Investors need to know that the project team has sufficient skin-in-the-game without too much-centralized control of the token. In addition, details on founder vesting schedules and cliffs should be clearly communicated.
DreamTeam is the ultimate teambuilding and skill-growing platform that solves problems for hundreds of millions of gamers who want to find teammates, improve skills, manage teams, and earn money. And with the unlocking of blockchain and smart contract technologies, DreamTeam is building a one-of-a-kind payment gateway for players, teams, tournaments, and sponsors.
For more information on DreamTeam, please visit https://token.dreamteam.gg
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