Due to consideration of market fluctuations, many projects will have a portion of their tokens locked before release. After the market is relatively stable, these tokens will be unlocked and can be traded freely. In this regard, some investors are worried that there will be a pullback before these tokens are unlocked? Before answering this question, understand the concept of pumping. Pumping refers to pushing up the price of a token by buying a large amount of tokens or other market manipulation methods. According to data analysis, there may be a pullback before the token is unlocked, but it depends on multiple factors such as the market and the investment team. The editor below will tell you in detail.
There may be a market pull before the token is unlocked, but the occurrence and impact of this behavior depend on a variety of factors, including market expectations, project team decisions, market manipulation, etc. The following is a specific analysis:
1. Market expectations: Investors expect that a large number of tokens will flow into the market after the tokens are unlocked, which may lead to a decline in token prices. Therefore, some investors may purchase tokens in advance before they are unlocked in order to profit from selling them when the price rises.
2. The project team’s strategy: In order to stabilize the token price, the project team may conduct price pulls before unlocking to create market optimism and attract more investors to buy, thereby reducing selling after unlocking. pressure.
3. Market manipulation: Large investors or market manipulators may use the market sentiment before unlocking to pull the market, artificially pushing up prices to attract retail investors to follow up, and then ship at high prices to make profits.
Token unlocking may be a good thing. There is still an active trading market (OTC) for locked tokens. Professional investors guarantee the locking period of tokens through laws and contracts, especially if the seller is the project team itself. , the token lock-up period will even be extended after it changes hands.
He described a situation:
·Seed round investors will transfer the locked tokens to other venture capital at 10 times the price.
·The venture capital sold again at 5 times the price.
Under such a cycle, the unlocked token is actually quite close to the market price of the token, and in the process, the "paper hand" is thrown to the "diamond hand", coupled with the expected profits of market participants (future rise trend), token unlocking actually further eliminates panic.
But if there is no demand for unlocked tokens in the OTC market, the only way for institutional holders is to sell when they are unlocked, and Cobie is also bearish on more than 90% of token unlocking events in 2022.
Cobie believes that venture capital is more inclined to buy at relatively low prices, rather than always chasing high prices like retail investors, so when the valuation of locked tokens is significantly decoupled from the current market value (locked token holders more incentive to sell), VCs will not try to buy unlocked tokens.
Token unlocking refers to an event in which tokens allocated to initial investors and major development contributors are released after being locked for a period of time. There is the "cliff type", which releases a certain amount every few months (such as quarterly), and there is the "liner type", which allocates small amounts more frequently.
When tokens are "unlocked," it means they are available to the public, meaning the owner can sell or exchange the token if they wish. With many tokens, there is typically a “vesting” schedule where team members, employees, and/or investors will receive a certain number of tokens over a specific period of time.
It is very important to note if there is a cliff (as opposed to a graded) vesting schedule, because as the name suggests, there is a major release where most (if not all) of the tokens are released at once, creating a token A cliff-like structure in the total supply.
Token unlocking usually has an impact on the price of the token, but the size and direction of this impact depends on multiple factors. Small-scale unlocking events have no substantial relationship with price, while larger-scale unlocking events have an obvious negative correlation.
The number of tokens unlocked is a key factor. If a large number of tokens are unlocked, it could lead to an increase in supply, putting pressure on the price. Unlocking smaller quantities may have less impact on the market.
Market sentiment has an important impact on token prices. If investors are optimistic about the project's prospects, unlocking may not have a negative impact on the price. Conversely, if market sentiment is low, unlocking may cause prices to fall. Supply and demand are the main factors determining price fluctuations. If a project's token supply increases significantly without a corresponding increase in demand, the price could fall. Conversely, if demand is strong, it could support prices.
The fundamentals, development plan and execution capabilities of the project will have an impact on the price after unlocking. If the project makes positive progress after being unlocked, it could help support the price. The unlocking schedule is also important. If tokens are unlocked in batches over a period of time, the market may have time to adjust to the increase in supply, mitigating the price shock.
The reason why token unlocking has an impact on currency prices is mainly due to changes in supply and demand. When tokens are unlocked, new token supply enters the market, which can have an impact on market supply and demand dynamics, causing price fluctuations.
Token unlocking means more tokens available for trading. Without a corresponding increase in market demand, new supply of tokens may cause prices to fall as more sellers will be in the market. Some token unlocks may lead investors to take specific actions, such as locking in profits or reducing holdings. This could have an impact on market sentiment, causing price volatility.
Market sentiment plays an important role in token unlocking events. If market participants are optimistic about the project, token unlocking may not have a negative impact on the price. Conversely, pessimism can lead to lower prices.
Token prices are mainly affected by supply and demand. If the token unlocking results in a significant increase in supply without a corresponding increase in demand, the price could fall. Conversely, if market demand is strong, new token supply may be absorbed, supporting the price.
Market liquidity will also affect the degree of impact of token unlocking. In highly liquid markets, prices may be less volatile, while in low-liquidity markets, prices may be more volatile.
The token allocation ratio and unlocking rules are what the cryptocurrency project details in its white paper or official website. These rules have an important impact on the development of the project and the decision-making of investors. The following are some common token allocation and unlocking rules:
1. Team and consultants: Project teams and consultants usually allocate a certain proportion of tokens as rewards for their contributions. This ratio is usually between 10% and 20%.
2. Investors: Early investors (such as seed rounds, private placement rounds and public placement rounds) are usually allocated a certain proportion of tokens. Investors in seed and private rounds are likely to receive a larger percentage of tokens because they take on higher early-stage risk. The allocation ratio for investors in the public offering round (i.e. ICO/IEO) is relatively small.
3. Ecosystem and community incentives: A part of the tokens will be allocated for ecosystem construction and community incentives to encourage users to participate in and promote the project. This part usually accounts for 10% to 30%.
4. Foundation or reserve: The project party may retain a portion of the tokens as a foundation reserve for future development and unforeseen needs. This part usually accounts for 10% to 20%.
5. Liquidity and Marketing: Tokens used for marketing and liquidity provision, this part usually accounts for 5% to 15%.
1. Lock-up period: The tokens of teams and consultants usually have a longer lock-up period to prevent them from selling tokens in the early stages of the project and affecting the market price. . Common lock-up periods range from 6 months to 2 years.
2. Linear unlocking: Some tokens will be unlocked linearly, that is, after the lock-up period ends, they will be gradually unlocked at fixed time intervals. For example, unlock a certain percentage of tokens every month until all are unlocked.
3. Cliff period and gradual unlocking: Some projects will set up a cliff period (Cliff), that is, after the lock-up period ends, a large number of tokens will be unlocked for the first time, and then the remaining tokens will be gradually unlocked. For example, the lock-up period is 1 year, 50% will be unlocked at one time after the cliff period, and the remaining 50% will be gradually unlocked in the next year.
4. Conditional unlocking: The unlocking of certain tokens may have some conditions attached, such as reaching specific project milestones or market goals.
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