A Beginner's Guide: How to Check and Monitor Project Token Unlocks

Have you ever woken up one morning to find the price of an asset in your account has plummeted? You scour the news, social media, and announcement boards, only to find no hack has occurred, the project team hasn't rugged, and there isn't even a single piece of negative news.

In this situation, the price plummets without any bad news? Beware of the 'silent killer': token unlocks.

For many newcomers to the Web3 world, 'Tokenomics' is an easily overlooked yet crucial area. Today, we'll break down this concept that has cost countless beginners dearly and teach you how to monitor risks like a professional.

Why Do Prices Drop Without Bad News? Unveiling the Logic Behind Token Unlocks

Simply put, a 'token unlock' is like the 'lock-up expiration for early shares' in the traditional stock market.

In the early stages of a crypto project, to raise funds and incentivize the team, the project usually allocates a portion of tokens to early venture capital (VC) firms, core development teams, or advisors. However, to prevent them from immediately selling off their holdings and causing a price crash, a 'Vesting Period' is agreed upon.

During this vesting period, these tokens are frozen and cannot be traded on the market. It's like buying a limited-edition promissory note; you own it, but you have to wait until next year to redeem it.

However, once the agreed-upon time arrives, these frozen tokens are released into the market. At this point, even if the project is operating normally, the supply of tradable tokens suddenly increases. If there isn't new capital coming in to absorb this supply, the price will naturally face downward pressure. This is why you see a 'bad news' trend on the chart even when there's no actual bad news.

Supply and Demand Determine Price: How Token Unlocks Become a Silent Killer

The most fundamental principle in economics is the relationship between supply and demand.

Imagine a market with only 100 pounds of apples, selling for $10 per pound. Suddenly, a wholesaler brings in 1000 pounds of apples, but the number of buyers doesn't increase. To sell the apples, merchants have no choice but to lower the price.

This logic applies equally in the Web3 space. Market data from 2024 shows that for many high-profile 'high market cap' projects, the actual circulating supply is often less than 20% of the total supply. This means that beneath the tip of the iceberg, 80% of the tokens are still waiting to be released.

When a large-scale unlock occurs, if market sentiment is low and liquidity is insufficient, these newly released tokens become a 'silent killer'. This is especially true for institutional investors who got in at a very low cost. Even if the price has dropped by 50%, they can still realize profits of tens or even hundreds of times their initial investment, giving them a strong incentive to sell.

Stop Holding Blindly: 3 Essential Tools for Checking Token Unlock Data

To avoid being backstabbed by this 'silent killer,' you must take the initiative. Here, we won't delve into complex code to check on-chain data. Instead, we recommend three types of user-friendly channels that even regular users can easily master:

1. Comprehensive Market Cap Aggregators

   
   The websites you commonly use to check prices often have hidden 'treasure features.' On a token's detail page, look for 'Market Cap' and 'Fully Diluted Valuation' (FDV). If the FDV is 10 times the Market Cap or even higher, it indicates significant future unlock pressure. Also, pay attention to the 'Circulating Supply' section; hovering over it often reveals the unlock progress.

2. Specialized Token Unlock Visualization Tools

   
   There are data websites specifically designed to monitor unlocks. They typically transform raw data into intuitive bar charts and countdowns. You can see the specific date of the next unlock, the percentage of the circulating supply being unlocked, and who the recipients are. These tools often provide an 'Unlock Calendar' feature, allowing you to see which projects will face selling pressure a month in advance.

3. Official Project Documentation (Whitepaper)

   
   This is the most original and accurate source of information. If you are bullish on a project for the long term, be sure to find the 'Tokenomics' section on its official website. Although it's filled with text and charts, you only need to focus on one thing: the 'Release Schedule.' It charts the growth curve of the token supply over the coming years and is the fundamental basis for judging long-term inflation rates.

Not All Unlocks Lead to Crashes: How to Correctly Interpret Linear vs. Cliff Releases

Now that you know how to check the data, you might ask, 'Should I sell immediately whenever there's an unlock?'

The answer is no. You need to distinguish between two release models:

• Cliff Unlock: This is like a dam suddenly opening its floodgates. For example, on the 1st of a certain month, tokens equivalent to 5% of the total circulating supply are unfrozen all at once. In this scenario, the market impact is often severe, and the risk of price volatility is extremely high. This is what we often refer to as a 'danger point'.

• Linear Unlock: This is more like a dripping faucet. Tokens are released slowly, every day or even every second. Although the total supply is increasing, the market has enough time to digest and adapt. For many mature projects, the inflation from linear unlocks is often already 'priced in' and doesn't cause drastic price fluctuations.

Furthermore, you need to see who the tokens are unlocked for. If they are for an 'Ecosystem Fund' or the 'Community,' these tokens are usually used for development and incentives and are not necessarily sold immediately. However, if they are for 'Early Investors,' the probability of a sell-off is relatively high.

Practical Guide to Avoiding Pitfalls: How to Strategize for an Impending Large-Scale Unlock

When you discover that a project you're following is about to face a 'cliff unlock,' how should you respond?

First, pay attention to the unlock percentage. If the number of tokens to be unlocked exceeds 1% or even 5% of the current circulating supply, it's considered a 'massive unlock' and requires high alert.

Second, observe the market sentiment. If the project has recently had significant positive news (like a tech upgrade or a new partnership announcement), strong buying pressure might offset the selling pressure from the unlock. Conversely, if the market is already quiet, following the logic of 'price plummets without any bad news? Beware of the “silent killer”: token unlocks,' there will be very little resistance to a downward price movement.

Finally, don't try to 'bet' on a rebound after the unlock. Many beginners believe that 'once the bad news is out, it's good news' and try to buy the dip. However, history shows that it can take weeks or even months for the selling pressure to be absorbed. The safest strategy is always to wait and see until the uncertainty is resolved.

Building a Solid Investment System: Incorporate Unlock Monitoring into Your Daily Routine

In the world of Web3, the information gap is the biggest cost.

Often, we lose money not because we aren't smart, but because we aren't diligent. Incorporating 'checking token unlock schedules' into your standard operating procedure (SOP) before every decision may only take 5 minutes, but it can help you avoid 80% of the inexplicable price drops in the market.

Remember, true learning isn't just about reading candlestick charts; it's about understanding the supply and demand logic behind them. If you want to go far in this field, be sure to choose well-known, compliant, and regulated platforms for continuous learning and experience, exploring new knowledge while ensuring your safety.

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