The emergence of blockchain technology brings about the rise of technology projects with decentralized finance coming to light in a new form. In the blockchain world, technology project owners can create an ecosystem for their community based on tokens. These tokens are for the shareholders and stakeholders of the project who can make decisions and control the business. But what has protected the interests of shareholders and stakeholders in the ecosystem? That is the linear vesting schedule.
What is linear vesting?
To understand more about linear vesting, we need to initially look at the definition of “vesting”. In traditional finance, businesses distribute shares and decision rights to founders, key employees, advisors and investors. These issued shares will be officially traded after a certain period of time (usually 3 to 4 years). This amount of shares will be locked and not allowed to be traded during this period. This process of locking shares and rights is called “vesting”.
Similarly in the decentralized finance ecosystem, projects and businesses develop and provide tokens with diversity thanks to the flexibility and freedom of the market. This makes investors consider the reality and success of these projects without knowing the time in advance. The vesting mechanism appears in the DeFi space to help project owners and stakeholders, investors solve this problem, protect the value of tokens and decentralized economy.
In particular, the linear vesting schedule controls the amount and timing of the issuance of tokens according to a linear relationship, whereby the amount of tokens released will be X% after each certain period, Y months/years. This control of token issuance will protect the value of tokens when stakeholders (including founder team, advisors, strategic partners, key employees etc.) cannot trade all the tokens they own but are bound under linear vesting. As such, the business owner can be empowered to process the total amount of issued tokens and prevent the token sale after being officially listed on the exchange. Besides, the value of tokens is guaranteed, and the interests of shareholders are also protected.
How does linear vesting work?
In traditional private finance, the interests of shareholders are bound by contractual agreements on the time and conditions for the ownership shares to take effect. At that time, shareholders must perform effectively and stick around for enough time to receive the corresponding number of shares. If they do not perform well, the enterprise has the right to refuse to issue this share. By this contract, the value of the shares is guaranteed, the interests of shareholders are also protected and the business also ensures to keep the key people. Likewise, tokens in a decentralized ecosystem using linear vesting technology will control and create ties to stakeholders through smart contacts. Smart contracts will operate automatically through predefined terms and automatically execute those terms. The number of shares locked in each process will be controlled by the smart contacts until the unlocking conditions are met.
Many companies and projects employ linear token vesting to boost their focus on implementing a project after it has been funded. Investors, donors, project members, partners, and others will be allowed to exchange tokens after a length of time, according to the creator’s trading schedule, rather than obtaining the complete token set up of the project that has been proposed. This prevents the project member from abandoning the coin or leaving the project. Advisors and partners will back the company and put their faith in it.
Businesses reserve locked tokens in the Vesting process, which functions similarly to a Central Bank reserve fund. The more reserves a currency has, the more valuable it is; conversely, the more cash on the market, the less valuable it is. One of the most crucial aspects of the project is to properly notify the distribution of tokens to the project’s founders, investors, and other stakeholders so that they are aware of the project’s potential for growth.
There are many case studies that have linear vesting tokens including but not limited to Polka Fantasy and Oxychain where their tokens are released following a linear vesting schedule. In the schedule, the stakeholders who bought tokens will be able to trade their shares with a limited amount which are released within a period of time. The investors of the projects can claim their own share, any time.
At Dandelion Labs, we provide services to help the company managers or project owners to design and release tokens with safety and security. We work alongside the team to generate token architecture, governance & economics, aligning it with the technology roadmap and roll-out strategy. If you are concerned and tending to apply the linear vesting token strategy for your business, please contact us immediately to receive realistic advice from the subject matter experts in this field.
About Dandelion Labs
Dandelion Labs is a blockchain product and research agency that leverages the power of blockchain technology. We support the businesses to create their projects in blockchain to power the next generation of decentralized commerce, paving the way for evolution and connection to the digital world. Stay update with our newest advancements by following us on social media: