Insights from a Token Unlock Event Study by @6thManVentures

Introduction:

A recent study conducted by @6thManVentures delves into the intriguing dynamics of token unlock events, drawing from an analysis of over 5000 instances. The findings provide valuable insights for token engineers, project teams, and investors, shedding light on the relationships between unlock sizes, vesting periods, and token prices.

Key Takeaways:

1. Size Matters: Unlock Events and Price Relationship

Unlock events with a small impact on circulating supply (0% to 1%) demonstrated no discernible correlation with token prices. However, larger unlocks, those exceeding a 1% increase in circulating supply, exhibited a noticeable negative relationship, indicating that as unlock size increased, token prices tended to decrease.

2. Vesting Periods and Price Volatility

Tokens that had already vested a significant portion of their supply (more than 70%) experienced lower volatility and higher relative prices compared to tokens in early vesting stages. This suggests that fully vested tokens may enjoy more stable and favorable market conditions.

3. Allocation Dynamics: Private vs. Public Groups

Protocols with a higher allocation to private groups (e.g., team, investors) than public groups (e.g., ecosystem, community) displayed modestly better performance. While this aspect may contribute to project success, the study suggests that it might not be the primary consideration for token engineers.

4. Unlock Size Recommendations

To mitigate potential negative impacts on token prices, the study recommends considering unlock sizes no larger than 1% of the circulating supply. Additionally, favoring more frequent unlock events, such as daily or weekly, over quarterly or annually, can contribute to a more stable market environment.

5. Reassessing Vesting Cliffs

The study urges a reconsideration of the inclusion of large vesting cliffs, emphasizing that such events can create significant and unnecessary price pressure. A more gradual release of tokens throughout the vesting schedule may result in smoother market dynamics.

6. Early Vesting Period Volatility

Token prices may experience substantially higher volatility in the first half of the vesting schedule. This awareness is crucial for both project teams and investors, allowing them to navigate potential price fluctuations more strategically. Token engineers strive to comprehend the intricate elements of token unlock design, aiming to decipher how size, frequency, length, and distribution impact a token's price stability and long-term viability. In a comprehensive analysis, @6thManVentures examined data from over 5000 token unlock events, unearthing crucial insights that can shape the strategies of token designers and project founders.

Insights from the Study:

Unlock Size and Price Relationship:

Small unlock events, with a 0% to 1% increase in circulating supply, exhibited no substantial correlation with token prices. However, larger unlocks, surpassing a 1% increase, demonstrated a noticeable negative relationship—indicating that as unlock size increased, token prices tended to decrease.

Vesting Periods and Market Behavior:

Tokens that had vested over 70% of their supply showcased significantly lower volatility and higher relative prices than those in early vesting stages. This suggests that fully vested tokens may experience a more stable market environment.

Private vs. Public Allocation Dynamics:

Protocols with a higher allocation to private groups (e.g., team, investors) than public groups (e.g., ecosystem, community) displayed modestly better performance. While this aspect may contribute to project success, it might not be the primary consideration for token engineers.

Considerations for Founders:

From these insights, the study derived practical considerations for founders:

Unlock Size Guidelines:

Founders are advised to size unlocks to be no larger than 1% of the circulating supply. Favoring daily or weekly unlocks over quarterly or annually can contribute to a more evenly distributed sell pressure, potentially mitigating adverse price impacts.

Reassessing Vesting Cliffs:

The study recommends rethinking the inclusion of large vesting cliffs, as they can create significant and unnecessary price pressure. Instead of concentrating tokens in a single event, founders are encouraged to consider more gradual unlocking strategies.

Awareness of Early Vesting Period Volatility:

Founders are cautioned that token prices may experience higher volatility in the first half of the vesting schedule. This awareness allows effective communication of expectations to investors and communities.

Dataset and Analysis:

The study collected and verified data from 20 protocols, including prominent names like Uniswap (UNI), Galxe (GAL), and BitDAO (BIT). The analysis included a balanced spread of vesting schedule types and market conditions, providing a robust foundation for the insights derived.

Correlation Analysis:

Correlation analyses were conducted, examining the relationship between unlock size and price impact. Notably, larger unlocks showed a negative correlation, reinforcing the hypothesis that larger unlocks contribute to more substantial price reductions.

Vesting Length and Token Distribution:

The study also explored the impact of vesting length on token price stability, confirming that tokens become more stable once the majority of their supply is unlocked. Additionally, an analysis of token distribution dynamics indicated that tokens with higher private allocations experienced marginally lower volatility.

Conclusion:

The study conducted by @6thManVentures provides a nuanced understanding of the dynamics surrounding token unlock events. These insights offer valuable guidance for token engineers, project teams, and investors seeking to optimize the release of tokens into the market. By considering the recommendations outlined in the study, projects may enhance their ability to maintain price stability and foster positive market sentiment throughout the vesting period. This exploration into token narratives is not financial advice (NFA), and investors are urged to conduct their own research (DYOR). The valuable insights shared by contributors and market analysts provide a glimpse into the current trends shaping the cryptocurrency space. Members of the @loch_chain team may or may not hold some of these tokens, emphasizing the importance of due diligence in navigating the dynamic market landscape.

Via https://twitter.com/Prithvir12/status/1747156765681320298