How does Token unlocking affect price? 90% will bring selling pressure, but this type of unlocking has a positive impact.

Important points:

Over $600 million worth of Tokens are unlocked every week.

Regardless of scale or type, 90% of unlocks will generate negative price pressure.

The impact of Token prices usually starts 30 days before the unlocking event occurs.

A larger scale unlocking will result in a significant price drop (2.4 times) and increased volatility.

Team unlocking will trigger the most severe collapse (-25%) and irrational dumping.

Investors unlock performance shows controllable price performance because they adopt wiser strategies and reduce the impact of unlocking on the market.

Ecological development unlocking is one of the few factors with a positive impact (average +1.18%).

Introduction

Each week, locked tokens worth over $600 million are unlocked (equivalent to Curve Market Cap). These tokens are typically released within scheduled intervals, flowing into the hands of different participants. The scale and intervals of these unlocks, as well as the expected and actual dates, and the recipients of these tokens, all have an impact on token value and the market.

Image source: Keyrock

In the encryption industry dominated by short-term decision-making and rampant profit-seeking behavior, the rhythm and structure of Token unlocking are crucial to ensuring long-term value acquisition and increasing holder satisfaction. Unlocking is not a novel concept. In the TradFi industry, mechanisms such as stock vesting have always been used to incentivize employees to maintain consistency in the long term. However, in blockchain projects, the methods, frequency, and impact of Token unlocking vary widely.

In the analysis of 16,000 unlocking events in this article, an amazing pattern emerged: unlocking of all types, scales, and recipients almost always has a negative impact on prices.

This article adopts a trader-centered approach to study some of the most prominent Token unlocks in the past few years, and analyzes how unlocks of different scales and recipient types affect prices, determining the recurring patterns and key behavioral differences in the entire ecosystem.

Understanding unlocking

As a trader, you cannot see the overall decision of retail investors to buy or sell, but you can understand the information of another group of holders, those listed on the vesting table. The unlocking schedule is the key to unlocking the mystery, not only indicating future supply shocks, but also leading indicators of emotion and Fluctuation.

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Most of the attribution tables look like the table above: a long-term calendar with 'Cliffs' and 'linear or batch unlock Block' in the middle. These Blocks are designated to different recipients - categories such as 'seed investors', 'core contributors', or 'community'.

Designing unlock is a tricky task for any project. You can't simply pre-gift all Tokens, as recipients may leave and sell them. But you can't make them wait too long either, or they may think the project is not worth it. The project must strike a balance: incentivize recipients to stay in the initial development of the project while also encouraging their long-term participation. The solution is usually to gradually allocate Tokens within the specified vesting period.

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A typical unlocking may look like: vesting period starts from the relationship between the recipient and the organization and lasts until full distribution. For most encryption projects, these are outlined in the early stages of the White Paper. There may be no distribution in the first ⅓ ± ¼ of the vesting period. Then, a large amount of Tokens are released at once, followed by linear unlocking for the remaining time.

This method is effective because it ensures that the recipient makes a minimum commitment before receiving the reward. For example, developers are incentivized to continue participating, while investors face an initial lock-up period, followed by partial cash-out. Gradual unlocking can alleviate market pressure.

Not all unlocks follow this structure. Some are called 'batch unlocks,' releasing all tokens at the end of Cliffs. Others are purely linear, allocating tokens regularly from the beginning of Cliffs until fully allocated.

Scale of unlocking: key element of price dynamics

This article first decomposes the attribution period of 16,000 composite events and categorizes each event by size. For each event, the daily Token price for the 30 days before and after unlocking is tracked. In addition, the 'median' price and Volatility indicator for the month before the 30-day pre-unlocking period of each Token are tracked. This is crucial because many projects adopt a monthly unlocking plan. This approach is not perfect, but it can better isolate smaller-scale unlockings.

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Finally, no asset can exist independently of the market. This is especially true for altcoin coins, which often exhibit extreme beta correlation with their protocol tokens. To illustrate this point, this paper standardizes price changes in each unlocked data series.

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To simplify, this article selects Ethercoin as the Benchmark, and then weights the prices in the sample (before, during, and after unlocking events) with Ethercoin to obtain a more market-independent index.

Unlocking scale does not mean everything

After decomposing, classifying, and quantifying unlock events, the average price impact at different time intervals after the unlock date is plotted. The data looks messy when visualized. You might expect a proportional relationship between unlock size and price impact, but the correlation weakens after 7 days.

Image source: Keyrock

When scaled by relative size, most unlocks appear to have similar degrees of price suppression. Instead, frequency is a more telling factor. As mentioned earlier, unlocks typically occur in the form of a single large batch after the initial Cliff, or they continue to occur before the end of the vesting period. For any unlocks other than large or massive ones, we also observe smaller, steady downward price pressure from ongoing unlocks. Therefore, it is difficult to distinguish the quality of unlocks based on their scale.

Cliffs and the Gulf of Linearity

Image source: Keyrock

The clearer data shows the characteristic behavior of larger-scale unlocking before the event. In the 30 days before the event, the price usually continues to fall, accelerating in the last week. After the unlock, the price often stabilizes within about 14 days, returning to neutral levels.

This price behavior may be attributed to two main phenomena:

Complex Hedging: Large unlocks are typically allocated to recipients who hedge using market makers. By locking in prices before the unlock or taking advantage of volatility, these parties reduce Token pressure and mitigate the direct impact of the unlock. Most companies hedge 1-2 weeks or even a month in advance based on scale. If executed properly, this strategy can effectively minimize the impact of unlocks on the market.

retail investor anticipated: the sharp decline in the last week may be due to retail investor pushing down the price in advance. They know the unlock is coming, so they sell Token to avoid dilution, and they are usually not aware that the recipients of the unlock may have already completed dumping through hedging.

This behavioral pattern is also evident in the weighted volume of different categories, usually peaking in the 28th or 14th day before unlocking.

Interestingly, data shows that the performance of massive unlocks (>10% of the supply) is as good as or even better than that of large unlocks (5%-10%). This may be because the scale of the unlock is too large to be fully hedged, and cannot be dumped or released within 30 days. Therefore, their market effects are often more gradual and lasting.

Image source: Keyrock

The last chart highlights the changes in the nature of Fluctuation. A large unlock will cause significant Fluctuation on the first day. However, this Fluctuation nature basically subsides within 14 days.

How to trade?

In most cases, the key is to follow the super and large unlocks on the calendar. These are usually the starting Cliffs for the transition to linear unlocking. For any given unlock, the proportion granted by Cliffs may vary widely, ranging from 10% to 50%. What really matters is how much the unlock accounts for the total supply.

Data shows that the best time to enter after a major unlock is 14 days later, when volatility has stabilized and hedging may have been lifted. The best time to exit is 30 days before a major unlock, when hedging or market pre-reactions often begin.

For smaller unlocks, it's usually best to wait until they are complete.

Recipient type, a key predictive factor for price impact

When analyzing unlocking, the second and most important thing is the recipient type. Who is the recipient of the Token, and what does it mean for price behavior? The recipient can vary greatly, but is generally divided into five main categories:

Investor unlock: Tokens distributed to early investors as compensation for funding the project.

Team Unlock: Tokens reserved for rewarding the core team, whether through a one-time payment or as a salary.

Unlocking Ecosystem Development: Injecting the ecosystem to support activities such as Liquidity, network security, or donations.

Public/Community Unlock: Distributing tokens to the public through Airdrop, user rewards, or stake incentives.

Burn Unlock: Tokens used only for burning, reducing supply. These are rare and therefore not included in this analysis.

There are different opinions on which type of recipient has the greatest price impact downstream. Some believe that most community airdrops are carried out by Sybil attackers, resulting in market pressure from dumping. Others believe that injecting millions of tokens into the ecosystem will dilute the value. Some also believe that VC and investors are the fastest at dumping and they will profit.

Image source: Keyrock

After analyzing k unlocking events, the data indicates:

Almost all categories show a negative price impact, but there are subtle differences

The unlocking of the ecological system has the least destructive effect, while the team unlocking always leads to the largest decline in price.

Investors and the public/community unlocking have a moderate impact on prices.

However, like the unlock scale, these data themselves cannot explain the entire situation. When you plot the price trend by recipient type within 30 days before and after the unlock event, different behaviors will appear.

Image source: Keyrock

What is the behavior of the driver receiver?

At first glance, team unlocking seems to be the most destructive, while ecosystem unlocking poses almost no threat. But these are just superficial insights. Why do the differences exist? What drives the behavior of the recipients? What lessons can the protocol learn from this data?

Team Unlock

Team unlocking is one of the most unfavorable categories for price stability. When the team is about to reach Cliffs or is in the distribution phase, you should be cautious.

When drawing charts, the price of Token follows a roughly linear downward trend, starting 30 days before the unlocking date and continuing to decline at a steep angle. Team unlocks often have two characteristics that have a greater impact on price than other receiving categories.

Image source: Keyrock

Dumping caused by team members' lack of coordination:

Teams are usually composed of multiple participants, who have different financial goals and no coordinated method to settle their Tokens.

Many team members view their tokens as compensation for long-term (sometimes years) work before receiving proper rewards. When these tokens unlock, especially near Cliffs, the incentive for profit is high, which is understandable.

Even with linear unlocking, these Tokens are often a part of their income and need to be sold

Lack of hedging or mitigation strategies:

Unlike large investors or institutions, teams rarely use complex techniques to reduce market impact when selling.

Experienced entities often recruit market makers to strategically manage large-scale Token allocations

In addition, pre-hedging strategies can reduce the direct pressure on the market at the time of unlocking over time.

So these explain why the price is so negative, but why did we also observe a price drop in the past 30 days? This is largely due to a serious price impact and the combination of overlapping linear unlocks. Why try to control the median price before observation, because many unlocks are continuous, and the data still shows suppression. In this regard, if you do your best, not only skip batch Cliffs unlocks, but also delay purchases during the linear period of unlocking.

Ecological development unlocked

In terms of ecosystem development, a unique trend has been observed: a slight price decrease in the first 30 days before unlocking, followed by an immediate positive price impact after unlocking. Unlike other unlocking types, ecosystem development unlocking typically guides Token towards long-term value creation and protocol enhancement plans.

Image source: Keyrock

Why does the price rise (and often rise) after unlocking?

Liquidity Supply: Tokens are often allocated to lending platforms or Liquidity pools, thereby increasing market Depth, reducing slippage, and enhancing overall Token availability. By enhancing 'market availability', these unlocks can not only stabilize trading conditions but also enhance participant confidence.

Incentives for Participation: Eco-funds usually drive user participation through incentive programs. These measures, such as Liquidity Mining or stake rewards, generate a flywheel effect of participation, thereby promoting network activity. As participants recognize the potential for continuous growth, they are less likely to sell immediately and choose to continue investing in the ecosystem.

Donations and infrastructure funding: Developer donations and infrastructure project funding support the creation of dApps and network scalability features. While the returns on these investments typically take 6-12 months to materialize, they indicate a long-term commitment to ecosystem growth, thereby alleviating short-term pressure.

How to explain the price drop before unlocking? There are two reasons for this behavior:

Expected dumping: As mentioned earlier, many investors are dumping before unlocking, believing that increasing token supply will dilute value, regardless of the purpose of unlocking. This is particularly common among retail investors, whose misunderstanding of unlocking types can drive short-term decisions.

Liquidity Preparation: A large number of recipients of gifts or distributions often need to prepare Liquidity in advance. For example, in order to establish a Liquidity pool on a DEX, recipients may sell existing assets to ensure stable coins or other paired assets. This preparatory dumping can even create downward pressure on prices before Token deployment.

Investor unlock

Investor unlocking is one of the most predictable events in the token market. Unlike other categories, these unlockings typically exhibit controlled price performance, with consistent trends observed in the data from 106 unlocking events: slow, minimal price declines. This stability is not accidental. Early investors (whether angel or Series C) often have a VC background and possess expertise in managing positions.

These investors are not just transferring risks; they are actively avoiding potential disruptions to the market while optimizing returns. By understanding the complex strategies they employ, traders can predict how these events will unfold and adjust their positions accordingly.

Image source: Keyrock

OTC Trading Backstage: Investors often hire Liquidity providers or OTC Trading desks to sell large amounts of Tokens directly to interested buyers. This method completely bypasses the public order book, avoids immediate pressure from the seller and avoids signaling to the market.

T/VWAP and hedging: Time-Weighted Average Price (TWAP) execution or Trading Volume-Weighted Average Price (VWAP) strategy helps to distribute Token sales over time, thereby dropping price impact. Many investors also use futures to hedge their positions in advance and 'lock in' prices before unlocking events. They then gradually unwind these positions after unlocking to further drop volatility.

"Locking" or "hedging" is actually opening short positions with derivative financial products before the unlocking date, which helps to ensure the price when unlocking the short positions at the time of Token sale as soon as possible.

Since 2021, the use of advanced option strategies has expanded beyond investors, and more and more project teams are adopting them to generate regular income or manage funds more effectively. For traders, this evolution reflects the increasing complexity of the encryption market, releasing opportunities to predict and align strategies with key participants. Options, whether sold privately or used as Collateral, play a crucial role in shaping market dynamics, providing informed traders with a clearer perspective to interpret Token activities.

Unlocking Communities and the Public

Community and public unlocking, such as Airdrop and points-based reward programs, reflect investor unlocking in behavior, with prices gradually declining before and after the event. This dynamic is shaped by two different behaviors among the recipients:

Image source: Keyrock

Immediate dumping: Many retail investor participants liquidate rewards upon receipt, prioritizing Liquidity.

Long-term holders: Most public airdrops are for holding rather than selling, which reflects a group of participants or less active traders.

Overall, the price impact is not significant, but these results highlight the importance of well-designed incentive programs. Thoughtful design can prevent unnecessary market confusion while achieving the expected goals of promoting community development and participation.

Summary

Token unlocking is an essential mechanism in the cryptocurrency ecosystem, used to fund development, incentivize participation, and reward contributors. However, their intervals, scale, and recipient categories are key factors determining their price impact. Understanding these influences and why they occur helps facilitate better trading and assists protocols in constructing their unlocking mechanisms more effectively.

The analysis of over 16,000 unlocking events for 40 types of coins in this article emphasizes key trends:

Linear vesting is superior to the original Cliffs vesting in reducing short-term price destructiveness, although larger cliffs usually recover better after 30 days.

The most significant price changes often come not from the token recipients, but from the retail investors' reaction to narratives and broader emotions.

Receiver Type Dynamic

Ecology unlocking: Continuous positive results, driven by Liquidity provision, user incentives, and infrastructure financing for growth.

Investor unlocks: minimal interference due to OTC sales, TWAP/VWAP execution, and options hedging for complex strategies.

Team Unlock: The most destructive category, poor coordination and immature dumping methods have led to a significant price drop. The team can mitigate the impact by collaborating with market makers.

Community unlock: Long-term impact is limited, because many recipients hold Token, but in the short term, 'Miner' usually sells Token to obtain immediate returns.

Conclusion

Before engaging in long-term trading, please be sure to use tools such as CryptoRank, Tokonomist, or CoinGecko to check the unlocking calendar. Unlocking events are often misunderstood, but they play a crucial role in the performance of tokens.

Contrary to popular belief, VC and investor unlocks are not the main factors for price decline. These participants usually align with the long-term goals of the protocol, adopting strategies to limit market chaos and maximize returns. On the other hand, team unlocks require closer attention, as mismanaged allocations often lead to downward pressure on token prices. Ecosystem unlocks provide a unique opportunity, often becoming a catalyst for adoption and liquidity when aligned with clear growth objectives, making it a favorable time to enter the market.

[Disclaimer] There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice. Users should consider whether any opinions, perspectives, or conclusions in this article are suitable for their specific situation. Investing based on this is at your own risk.

This article is authorized to be reproduced from: "PANews"

Original author: Keyrock

How does Token unlocking affect prices? 90% will bring selling pressure, but such unlocking has a positive impact. This article was first published in 'encryption city'.