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

The new feature from Colony Lab, a developer and project incubator in the Avalanche blockchain ecosystem, called "liquid vesting," lets early investors, such as founders or VC backers, sell their tokens before their vesting period is over.

AccessTimeIconMay 14, 2024 at 3:17 p.m. UTC
Updated May 14, 2024 at 3:20 p.m. 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.

Edited by Bradley Keoun.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Margaux Nijkerk

Margaux Nijkerk reports on the Ethereum protocol and L2s. A graduate of Johns Hopkins and Emory universities, she has a masters in International Affairs & Economics. She holds a small amount of ETH and other altcoins.