Vesting, Unlocks, and the Low-Float Problem

5.1 The token that kept falling

A token launched with great fanfare. The product was growing, the community was excited, and yet the price fell steadily, month after month.

"Nothing bad happened," Mint said. "Why does it keep dropping?"

Hash opened the token's unlock schedule. "Every month, millions of new tokens become available to early investors and the team. The product is growing, but supply is growing faster."

5.2 Vesting basics

Vesting means tokens are allocated to someone but released to them gradually over time, rather than all at once. Vesting exists to align insiders with the project's long-term success, so they can't sell everything on day one.

Two terms matter.

Cliff. An initial period during which no tokens are released at all. A one-year cliff means nothing unlocks for the first 12 months.

Vesting period. The period over which tokens are released after the cliff, often monthly or continuously.

Example: team allocation of 200,000,000 tokens
Cliff	12 months, nothing released
At month 12	25% released at once: 50,000,000 tokens
Months 13 to 48	Remaining 75% released monthly: about 4,170,000 per month
Fully vested	Month 48

That first unlock at the end of the cliff is often called a cliff unlock, and it can be large.

5.3 Why unlocks matter

When tokens unlock, circulating supply grows. As Module 1, Chapter 10 showed, if demand doesn't keep up, the price has to fall to absorb new supply.

Unlocks are especially important because the people receiving them usually paid very little (Chapter 4). Even if they're committed to the project, many have reasons to sell some tokens: funds returning money to their own investors, team members paying taxes or living costs, or simply taking profit after years of work.

Not every unlocked token is sold. Some recipients hold or stake. But unlocks create the possibility of large selling, and markets often price that in ahead of time.

5.4 A worked example

A token has 200,000,000 tokens circulating at $1.20, a market cap of $240 million. Next month, 50,000,000 tokens unlock to Series A investors who paid $0.05 each.

	Value
Circulating supply before	200,000,000
Unlock	50,000,000
Increase in circulating supply	25%
Investors' entry price	$0.05
Current price	$1.20
Investors' multiple	24x
Value of unlocked tokens at current price	$60,000,000

To absorb $60 million of potential selling, the market needs $60 million of new buying. If the token trades $5 million a day, that's twelve days of the entire daily volume.

"Even if only a third of it gets sold, that's a lot of pressure," said Mint.

"And everyone knows the date in advance," said Hash. "Some traders sell before the unlock, expecting the drop. Sometimes the price falls before the unlock and then rises after, because the feared selling was smaller than expected. The unlock is public information. What matters is how the market handles it."

5.5 Low float, high FDV

One of the most important structural issues in crypto is the low-float, high-FDV launch.

Float is the share of total supply that's actually circulating. A token launching with only 10% of its supply circulating has a low float.

With so few tokens available, a small amount of buying can push the price very high. That makes the market cap look modest, while the fully diluted valuation, the value if all tokens were circulating, is enormous (Module 1, Chapter 10).

	At launch	After all unlocks, if price stays the same
Circulating supply	100,000,000 (10%)	1,000,000,000 (100%)
Price	$5	$5
Market cap	$500 million	$5 billion

For the price to merely stay at $5 as supply grows tenfold, the market cap must grow tenfold, from $500 million to $5 billion. That's a lot of new demand just to stand still.

"So buying a low-float token is like buying into a building where 90% of the apartments haven't been sold yet," said Node. "And the developer will sell them over the next few years."

"That's a good analogy," said Hash. "Prices in that building depend a lot on how many new buyers show up."

Low-float launches became common in recent years, and many such tokens declined substantially as unlocks proceeded. Some in the industry have since pushed for higher-float launches, with more tokens circulating from the start.

Chapter 5 · Low float, high FDV

At launch only 10% of tokens circulate. As vesting unlocks the remaining supply toward 100%, holding the price flat would require the market cap to grow roughly tenfold. Unlock events add tokens that must be absorbed by new demand.

5.6 Reading an unlock schedule

Token unlock trackers and project documentation show upcoming unlocks. When reviewing them, look for:

What to check	Why
Size of the next unlock as % of circulating supply	Large unlocks relative to current float have more impact
Who receives it	Investors and team tend to sell more than ecosystem funds held for grants
Their entry price	Larger profit multiples mean more flexibility to sell
Cliff unlocks	Large one-time unlocks can be bigger events than steady monthly ones
Total unlocks over the next 12 months	Shows sustained supply pressure
Trading volume and liquidity	Determines how easily the market can absorb new supply

A simple ratio helps: next 12 months' unlocks as a percentage of current circulating supply. A token where supply will grow 10% over the year faces far less pressure than one where it will grow 150%.

5.7 Unlocks aren't always bearish

It's easy to treat every unlock as bad news, but context matters. Ecosystem and grant allocations may be spent gradually on development, not dumped on the market. Some recipients stake or lock their tokens again. A project with strong, growing demand can absorb unlocks without much impact. And if an unlock is widely feared, much of the selling may already have happened.

The point isn't to avoid all tokens with unlocks. It's to know the supply schedule and factor it into your decisions.

5.8 Try it yourself

Find a token unlock tracker and choose a token with a large unlock in the next three months. Calculate the unlock as a percentage of current circulating supply, identify who receives it, and estimate its value at today's price. Compare that value with the token's average daily trading volume.

Then calculate the token's current float (circulating supply divided by total or max supply).

Key takeaways from this chapter

1. Vesting releases insider tokens over time, often with a cliff before any tokens unlock.
2. Unlocks increase circulating supply. If demand doesn't keep up, prices fall.
3. Insiders often unlock tokens bought at large discounts, giving them room to sell profitably.
4. Low-float, high-FDV tokens need large demand growth just to hold their price as supply unlocks.
5. Check unlock size, recipients, entry prices, cliff events, and the next 12 months' total relative to circulating supply.
6. Unlocks aren't always bearish. Who receives them, how they're used, and market expectations all matter.