How Do Token Vesting Schedules Aim to Prevent Rug Pulls?
A vesting schedule is a pre-determined timeline that dictates when and how founding team tokens and early investor tokens are released. By locking up a significant portion of the supply and releasing it gradually over months or years, it prevents developers from immediately dumping all their tokens.
This mechanism aligns the team's financial incentive with the long-term success of the project, significantly reducing the incentive and ability to execute a rug pull.
Glossar
Vesting Schedule
Allocation ⎊ The concept of a vesting schedule, particularly within cryptocurrency and decentralized finance (DeFi), fundamentally addresses the phased release of tokens or assets to participants, mitigating risks associated with immediate distribution.
Token Vesting
Schedule ⎊ Token vesting, within cryptocurrency and derivative markets, represents a predetermined release of assets ⎊ typically tokens ⎊ over a defined period, aligning incentives between project teams, investors, and stakeholders.
Founding Team Tokens
Allocation ⎊ Founding team tokens represent the portion of a cryptocurrency project's total supply reserved for the core developers, advisors, and initial contributors as compensation for their intellectual capital and development efforts.
Circulating Supply
Distribution ⎊ Circulating supply within cryptocurrency represents the total number of coins or tokens that are publicly available for trading and transfer, excluding those held in reserve by the issuer or locked in smart contracts.