What is the lock-up period in cryptocurrency?

Asked 2 years ago

What does it mean when tokens are locked-up? Is this a bad thing?

Odin Clarke

Wednesday, February 02, 2022

A lock-up period in cryptocurrency is a pre-planned window of time after an ICO, IEO, or IDO when team members and early investors of a crypto project are prohibited from selling their holdings. This period helps young ventures gain more confidence from the crypto community and avoid liquidity problems as they cement their support base.

Wilbur Padilla

Saturday, February 26, 2022

In traditional finance, underwriters often encourage companies to have a lockup period after an IPO or initial public offering to prevent price volatility, to maintain public confidence in the shares of the company, and to protect the reputation of the underwriting bank.

Initial Dex Offerings (IDOs), Initial Coin Offering (ICOs), and Initial Exchange Offering (IEOs) are the crypto equivalent of an IPO in traditional finance. When a coin is launched in any of the aforementioned ways, the project issued tokens to early investors at a discount price and distributes some to team members.

The lockup serves the same purpose of preventing price volatility of the cryptocurrency or distrust from potential users of the crypto project. During lockups, these holders are not allowed to sell their tokens which helps the project build value and trust from the community and the crypto space before it is finally launched. The period is also flexible with some projects setting a lockup period of up to 6 months or in some cases 365 days.

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