What Is the Potential Impact of a Sudden, Large Token Unlock on a Project’s Market Capitalization?

A sudden, large token unlock, where a significant percentage of the total supply is released from vesting or lock-up, can have a severely negative impact. The market often anticipates that a large portion of these newly liquid tokens will be sold by early investors, increasing the supply and putting downward pressure on the price.

This event, often called an 'unlock cliff,' can lead to a sharp, immediate drop in market capitalization. Projects typically try to communicate these events well in advance to manage market expectations and mitigate panic selling.