Cryptocurrency

Token unlocks: short-term volatility brings long-term growth

Method

Token unlocking is a significant market-defining event.

crypto slate To better understand how unlocking their tokens impacted the market, we examined pricing data for six different crypto projects ranging from high-cap to mid-cap.


Polygon (MATIC)

On October 26, 2019, the Polygon network unlocked 190 million MATIC. Tokens were distributed to retail investors and early backers who participated in Polygon’s funding round.

The price action seen by MATIC in the months and weeks leading up to the unlock is consistent with the trends seen in most token unlocks. The market is gearing up to unlock the token, creating buying pressure pushing the price up by almost 30%.

MATIC’s price remained relatively flat as selling pressure increased after the token was airdropped. However, in the month after unlocking, MATIC’s price increased by more than 80% of his.

  • 30 days before TU: $0.0108
  • 7 days before TU: $0.0138
  • Day 0 of TU: $0.0135
  • 7 days after TU: $0.0137
  • 30 days after TU: $0.0244
Unlocking the matic token
Graph showing MATIC prices from September to November 2019 (source: coin gecko)

Lido DAO (LDO)

Lido has seen a significant increase in its popularity in 2022 as Ethereum has become the most valuable player as it transitions to a PoS network. His LDO token saw a notable rally ahead of the merger, so his month leading up to the token unlocking in December saw little positive price action.

On December 18, 2022, 1.65 million LDO tokens were unlocked and distributed to the project’s team, investors and validators.

The week after the token was unlocked, LDO selling pressure reached its peak, with the price almost doubling in the month following the unlock.

  • 30 days before TU: $1.22
  • 7 days before TU: $1.03
  • Day 0 of TU: $0.98
  • 7 days after TU: $0.97
  • 30 days after TU: $2.01
Unlock the ldo token
Graph showing LDO prices from November 2022 to January 2023 (source: coin gecko)


Sandbox (SAND)

Sandbox was one of the first major metaverse platforms to hit the market and has seen great success in 2020 and 2021.

One year after the high-profile token sale on Binance Launchpool, Sandbox unlocked 397.7 million SAND tokens on August 16, 2021. Tokens were distributed to investors, advisors, and company reserves, increasing the liquidity and popularity of the project.

SAND followed the same trend as Polygon’s MATIC, with increased pre-unlock buying pressure pushing the price to an annual high. A short-term price correction turned into positive price action with the token up about 30% in the month following the unlock.

  • 30 days before TU: $0.48
  • 7 days before TU: $0.62
  • Day 0 of TU: $0.64
  • 7 days after TU: $067
  • 30 days after TU: $0.82
Unlock Sand Token
Graph showing SAND prices from July 2021 to September 2021 (source: coin gecko)

1inch network (1inch)

One-inch networks peaked during the 2020 DeFi Summer, capitalizing on the market’s newfound attraction to decentralized finance.

DEX wanted to capitalize on its success and launched its native token 1INCH in late 2020, allocating approximately 97.5 million tokens to various community initiatives. 1INCH skyrocketed in value throughout 2021 as record numbers of users and transaction volumes increased.

The 231.7 million tokens allocated to the 1inch team, its advisors, and external investors will be unlocked on December 1, 2021. This was followed by an even larger unlock that was distributed to seed investors and the company’s reserves, and he added 295.2 million tokens to the market.

  • 30 days before TU: $4.58
  • 7 days before TU: $3.99
  • Day 0 of TU: $3.69
  • 7 days after TU: $2.72
  • 30 days after TU: $2.39
1 inch token unlock
Graph showing the price of 1 INCH from November 2021 to January 2022 (Source: coin gecko)

step (GMT)

A pioneer in the earning space, STEPN is one of the top performing platforms in the first half of 2022. Thousands of users flooded the platform and the native token GMT hit an all-time high in April. About its attractive compensation model.

At the beginning of September 2022, a total of 4.2 million GMT tokens were distributed to users as part of the Move-to-Earn rewards program. Following this event, approximately 5 million GMT tokens distributed to users were unlocked each week.

  • 30 days before TU: $0.93
  • 7 days before TU: $0.65
  • Day 0 of TU: $0.69
  • 7 days after TU: $0.73
  • 30 days after TU: $0.62
Unlocking the stepn token
Chart showing GMT prices from August to October 2022 (source: coin gecko)

Takeaway

Pre-, during- and post-unlocking price movements of major tokens show a repeating trend.

The bulk of the tokens will see increased buying pressure for a notable scheduled unlock, followed by a price correction. Most of the time, this price correction is short-lived, quickly turning into a slow, steady growth of the token.

However, some tokens may not follow this pattern.

The above trend is most prevalent with large tokens where unlocking the token creates a network effect, putting the project on the map and attracting new users. It’s also evident in projects that distribute a fair amount of tokens to their users.

Projects that distribute large amounts of tokens to private investors or internal teams are those whose prices will drop after major unlocks. Since most unlocks are open to the public, the market usually expects big drops and tries to outperform the falling price action.

Some unlocks also come at unfortunate times for tokens and their owners. For example, the distribution of STEPN’s GMT rewards came after the protocol’s heyday and coincided with the broader recession caused by FTX.

There is also the timing factor. The earlier in the project lifecycle the unlock occurs, the more impact it will have on the price of the token. Large, highly liquid projects such as Polygon are often unbothered by unlocks, as their huge network absorbs price fluctuations quickly.

For most tokens, unlocking will increase liquidity and create a more stable price environment. A few months after unlocking, most tokens have stabilized in price and made significant profits.


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