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'Liquid Vesting' Is Oxymoronic Blockchain Feature That Lets Early Investors Sell Without Waiting

source-logo  coindesk.com 14 May 2024 15:25, UTC

Even in anything-goes crypto trading, there are conventions designed to protect the little guy. One of those is the vesting period – a window of time following a digital-token sale or airdrop where early investors, such as founders, project contributors and venture-capital backers, are locked up from dumping their allocations.

Projects typically do this so that the price of that token doesn’t crash immediately after a listing, say if big stakeholders were to sell right away. Another goal is to make sure insiders and early backers keep skin in the game, an assurance of good faith, as it were.

Now comes a new feature from Colony Lab, a developer and project incubator in the Avalanche blockchain ecosystem, called "liquid vesting."

If it sounds like a workaround, that's because it basically is. Have your bags and keep them too. Take liquidity now, without having to wait for the end of the vesting period.

“Liquid vesting allows early investors to trade their tokens before they invest without impacting the projects, without impacts in the secondary market, " said Wessal Erradi, co-founder of Colony Labs.

The positive spin? “It also allows new buyers to establish long-term positions,” Erradi said.

Colony announced the liquid vesting feature Tuesday in conjunction with the launch of its decentralized fundraising platform, which has the stated aim of "democratizing access to seed sales investments in early-stage projects, previously limited to a select group, including VCs and high-net-worth individuals,” the team wrote in a press release.

The rollout comes after Colony shared in November that it invested $10 million in the Avalanche blockchain ecosystem, by buying more than 500,000 AVAX tokens, which went towards a validators program for AVAX holders.

Elie Le Rest, another co-founder, said there is some precedent for this in traditional markets, but "in crypto, not that much.”

“We had the infrastructure to be able to build something like this,” Le Rest said in an interview with CoinDesk.

How does it work?

According to Le Rest, "we kind of tokenized again, the vesting contracts."

"So we issue a new token, one-to-one, that matches the ones that are locked, and then we distribute that to the users," Le Rest said. "And then they can basically trade that on our decentralized exchange that we built."

As often is the case in crypto, the solution to a token problem is another token.

Read more: AVAX Ecosystem to Get $10M Boost from Avalanche Accelerator Colony Lab