Steemit Crypto Academy Contest / S11W6 - Token Unlock

Greetings to All Steemians!

Designed by me , edited on Canva

Welcome to my post. I hope you all are doing well by the grace of Allah Almighty. This is my participation post in this astonishing contest of Steemit Crypto Academy "Token Unlock 🔓". It's going to very interesting. After a research from google and other posts , now I'm able to write on this very informative topic.

---

Use your own words to define what an unlock token is. And in your opinion, why do some projects choose to lock a quantity of these tokens?

---

Being a girl , I'm gonna use an example of wardrobe. Looking at your wardrobe, I believe that there are some clothes you so treasure that you only wear when the big occasions call for right? Hence, Unlock Tokens are just like our treasured clothes that are only brought out for big occasions.

Unlock as we all know is to open, or gain access to something. Just as we bring out the golden clothes from the wardrobe. In the case of Token unlock, it is all about opening or giving access to a cryptocurrency that has been earlier locked.

That is to say, for a token to be unlocked, it has to be locked first, what does it mean to lock a token then? To lock a token means to prohibit the transfer, trading, or transacting of a token. Usually to be opened when certain criteria are met.

During the period of locking a token, investors are hindered from trading, transacting, or transferring these locked tokens.

The objective of locking tokens is to promote long-term investment in the project and prevent the transacting of the token in large quantities in other not to flood the market and cause radical price changes.

---

Clearly explain the method(s) by which these tokens are locked and then how they are released.

---

Different strategies are utilized in locking tokens and these strategies are chosen based on the ambitions of the project. Below are some examples of strategies used to lock tokens.

Time-based lockup: This strategy is used when a project only wants to restrict access to trading and transferring of the tokens for only a period. Hence, this lockup is unlocked when the time is up.

Milestone-based lockup: This pertains to the locking of tokens till a milestone is achieved. E.g. till the project launches its Mainnet. Therefore, it is only unlocked when the milestone is achieved.

Performance-based lockup: Under this mode, tokens are locked having certain metrics in mind to be achieved before users/investors can use them. Therefore, to unlock, this kind of lockup, the performance of the token in the market has to improve to a certain level before users can gain access to the token.

---

What is the impact of an unlock token on the price of crypto and how is it monitored? Give an example.

---

With the tokens locked, they are exempted from the circulating supply, hence if they are unlocked, they increase the circulating supply. Considering the law of Demand and Supply, this seems to be bad for the token as higher supply and less demand would mean a dip in price.

However, it's established that it is not always as plain in papers, as projects tend to react to these unlock tokens differently based on the maturity of the project and the ideology of the token unlock process.

Take the Bitcoin Cash project for example, The Bitcoin Cash project was not new to its users and the process of token unlock was counted on by the users, therefore unlocking the tokens boosted the user's confidence in the long-term plans of the project.

So, in December 2020 when Bitcoin Cash tokens were unlocked, at first there was a dip in price due to the increase in supply. Nevertheless, the price of Bitcoin Cash went back up when the new tokens unlocked were swallowed by the users demonstrating the strength of the project.

_{Screenshot of Bitcoin Cash token price effect, taken from coinmarketcap}

Monitoring the Token unlock process is mostly achieved by investigating the objectives of the project as the project would have written down all their objectives and how to achieve them (their plans).

Plans such as the time of the unlock, the method they utilize to lock their token, and how many tokens will be made available will all be provided in their project roadmap or white paper.

---

Do you think that all cryptocurrency ecosystems have developed this kind of lock? Steem.Inc Among them? If yes or no, do you think it is or will be beneficial if used or added to its ecosystem? For what?

---

Since there are millions of tokens in the crypto world working under different agreement mechanisms. It would be hard to say that all cryptocurrency ecosystems use this kind of lock. However, I believe most of them do as they offer Initial Coin Offering (ICO) and the airdrop mechanism.

On if Steem.Inc uses such a lock mechanism, Yes I believe Steem.Inc is among the cryptocurrency ecosystems that use the token lock. This could be seen from our rewards configuration in Steemit as the minimum of 50% is by default going into Steem Power (SP) which in turn is restricted from being traded or transferred unless a power down is carried out.

_{Screenshot taken from Steemit}

_{Screenshot taken from steemit whitepaper}

The process of powering down serves as the mechanism to unlock the SP token, currently, this process lasts 1 month, with a 25% per week ratio, hence making it a Time-based lockup.

As earlier stated, the ideology of locking tokens by projects is to foster longevity and encourage users to believe in the long-term goals of the project.

_{Screenshot from steemit whitepaper}

Locking this token also serves to reduce the circulation supply, and if going by the logic of demand and supply, it should help increase the price of the token hence, it is considered a beneficial move for any project to lock its tokens and this will also bolster trust in the project.

---

List the risks and benefits of unlocking tokens simply and understandably.

---

In life, there are always risks and benefits, demerits and merits, and unlocking tokens has its own as well, so below are a few;

Benefits of Unlocking Tokens

Benefits of Unlocking tokens are following:

Increasing Supply: Unlocking tokens will increase the supply of the token as users are granted access to trade or transfer these tokens that were initially restricted from doing so.

Increased Access to Tokens: When these tokens are unlocked, and make their way into circulation, more users are likely to gain access to them.

Risks of Unlocking Tokens

There are Risks of Unlocking Tokens :

Price instability: With these tokens introduced to the market, there is always a risk of price instability due to users selling off tokens in large amounts, which may also cause a price decrease.

Going Short: With users having their full share of tokens when unlocked, there is every likelihood of them selling their tokens for short-term gain.

Absence of belief: If tokens are unlocked, with users having access to all these tokens, there is every likelihood that users might sell for short-term gain, leading to a lack of belief in the long-term plans of the project.

---

Conclusion

---

In shaping the trajectory of cryptocurrency projects , this concept of unlock token plays a vital role. From time-based lockups to milestone-based strategies of token locks act as a mechanisms to control supply. It's also instill investor trust.

If the cryptocurrency continues to evolve then it will remain a dynamic strategy that balances risks and balances. To conclude , token unlock , it plays a vital role. Now , I would like to invite my friends @suboohi, @faran-nabeel and @shahid2030 to take part in the contest. Thank you very much for reading my post.

Best Regards
@aaliarubab