Steemit Crypto Academy Contest / S11W6 - Token Unlock

According to my understanding an unlock token is a kind of digital pass that allows you to do some specific thing and that allows you to access different features or benefit within a project.

There are some projects that choose quantity of different tokens for creation of a sense of exclusivity. If supply of unlock tokens become limited then they make them more valuable and desirable because its just like having limited edition item that just some of the people can get their hands on and its an also plays a key role to generate interest in that project.

Why some projects choose to lock a quantity of these tokens

• Locking tokens could be a way to incentivize early investors because by locking some portion of particular token team of the project can give rewards to those that shows their earlier commitment or contribute for the development of a specific project. You can say that it is a way of giving special perk for involvement of those investors or people who shows commitment.

• For a long term sustainability of a project looking tokens are also helpful and when supply of unlock tokens are limited then it potentially increase their value with the passage of time that's why it could be benefited for both the project team and token holders because it creates stronger incentives for people to hold more tokens and not to sell them as a result.

Overall if I talk about taking a decision of locking some unlock tokens then it could be strategic because it helps in creating interest and excitement as well as it rewards to those who early committed investors and also increase token value but it is important for the project to maintain a balance and to ensure that locking token mechanism is transparent for everyone.

Surely I would explain here that how tokens are locked and how they are released.

How tokens are locked

• There is a common method for locking token and it is through small contracts that are often self executing with the terms of agreement directly written into code and these are the small contracts that have function for token locking for a specified period of time until certain conditions are met and if I give an example then a small contract might lock a token for 1 year and after that it is automatically released.

• Vesting schedule is the second one method for locking token and in this tokens gradually releases in a pre determined period of time and it can be done to incentivize token holders to stay engaged with project for a long period of time. If I give an example then we can say that a project may have a wasting schedule in which 25% of tokens would be released after 1 year and remaining would be released within equal increments in the following other three years.

• Multi signature wallets are also used by different projects for locking of token. Multiple parties are required to sign off a transaction by multi signature wallets and these can be used to lock tokens in wallets which requires multiple keys holders so that they may agree on the release of tokens and this methods shows more security by the release of token more carefully.

How tokens are released

There could be some method used for token release so let's discuss them.

• When lock up period of a token or conditions meet in smart contracts or vesting schedule meet then tokens automatically release back and this automatic process could be done through small contract code or if there is manual intervention by project team then through this ,it can also be happen.

• When tokens released then token holder can take a control over them and can use them as well as can transfer these tokens to another wallet and can sell them on different exchanges and can also use them for accessing specific features of a particular project.

There are different specific methods for locking and release of token but variations may occur in them from project to project so it depends upon project team that how they announces details in there tokenomics or whitepaper that can further provide a more detailed information that how tokens may be locked or released.

On the price of cryptocurrency unlocked tokens can have different impacts. Selling pressure on markets built or create when large number of tokens becomes unlocked then definitely they also become available for trading in market hence increase supply of spoken can decrease in price if there is no proper demand to absorb additional or more supply.

There are different means or methods through which impact of unlock token on the price of cryptocurrency is monitored. Some of the most common methods I am describing below.

• By tracking tokens on chain activity is the most common method that can be used for monitoring unlock token impact on Crypto price and in this process there is analysing of transactions and movements of unlocked token on blockchain observed. Analyst can gain some deep insights by monitoring tokens flow whether the unlock tokens are sold or held by investors in their wallets.

• Trading volume observance and price movements on different Crypto exchanges could be another way to monitor impact of unlock tokens. When amount of unlock tokens sold in market then trading volume increases which creates download pressure on price and vice versa condition is this if unlock token held by investors then it indicates that price is increasing.

An imaginary example

It would be more clear to all of you if I would give an example so let's have a look at an example that you have to first imagine a cryptocurrency project which is called xyz coin and they have schedule an event about token unlock. White paper of that project states that 10% of total token supply would remain unlock and it would be available for trading in market also.

At the upcoming date different investors and triggers become aware in advance about upcoming date or event so some may anticipate a price decrease due to increase demand and supply of these tokens while sum of them would be considered it a best opportunity to buy it at low price.

When unlock they comes then it is definite that unlock tokens would you release into market and then different investors and other triggers would monitor price movements and other trading activities of XYZ coin as I have mentioned above. If there are large number of token holders deciding to sell their unlocked tokens then selling increase leads to decrease in price because when supplier of token increase then it cause price to drop.

If I explain situation opposite to it then it would be strong demand for unlock the tokens because buyers are actively purchasing them so it will create price increase and buying pressure and it will only occur if investors view unlock event as a positive development for project and also if they believe in long term potential of project.

For monitoring of impact of unlock tokens on the price of XYZ coin traders and investors will keep an eye on market sentiment ,different trading volumes and flow of tokens in market and they will use technical analysis such as charts and different other indicators to see different patterns and trends in market they can also analyse on-chain data to track movements of unlock token.

I cannot guarantee that all Crypto currency ecosystems are following law of mechanism. The reason is that there are thousands of cryptocurrencies so I cannot approach everyone that's why I cannot guarantee but if I talk about Steem.Inc then it is from that cryptocurrency ecosystem that really utilise token lock and I can prove it by talking about steem power that I user hold in his account in the times of staking them.

Steem power are basically tokens that are not present in their liquid form that's why to convert them into their liquid form for involving it in different processes like transaction or trading there is a process called power down a user can follow for release of that tokens or unlocking of that tokens.

Some of the benefits of implementing lock mechanism are below.

• Managing of supply of a token is one of the big benefit of implementing lock mechanism because when a token is locked then ecosystem can regulate availability of tokens in market so in this way Southern in flux of tokens could be prevent and price volatility may also system can create more stable market environment by the control of token supply.

• Incentivization of long term holding and speculative trading reduction is another benefit that can be gained by lock mechanism. Investors are encouraged to hold their tokens for longer time when tokens become locked and its contribute to a stable ecosystem when long term holders becomes more committed to project success.

• Due to Lock mechanism there could be increased in transparency within ecosystem by publicly revealing lock schedules and further details so in this way ecosystem becomes more committed to fair token distribution and its an also keep investors in more trust and also becomes good for new investor attraction.

• For decision making process in ecosystem Lock mechanism could be beneficial because if we suppose that there is a lock mechanism which is associated with voting rights then it would encourage token holders to participate more actively in activities related to ecosystem governance. In this way more engaged community create so more decision making processes occurs.

For what lock mechanism could be used

Lock mechanism could be used for the support of project development. For example if tokens are locked for a particular time period then it could provide a source of funding for ecosystem during that time in which tokens are locked and that funding could be beneficial for development marketing and other activities for the success of project.

Implementing any lock mechanism could not be successful without challenges.

• Between token liquidity and token lock duration it is very challenging to keep a right balance. The reason for this is that if tokens locking period is for a longer time then liquidity of ecosystem may limit due to this and their could be hindrance in trekking activities also and on the different side if tokens are low the four short period of time then there would be no decide benefits for long term holding.

• Transparency in lock mechanism could also be very challenging.Eosystem needs to establish clear rules for lock mechanism for prevention of potential abuse or different unfair activities. Solo mechanism should be designed in that way that minimise hacking risks.

There are different risks and benefits of unlock tokens I am describing below.

Benefits of unlock tokens:

1. Access to exclusive content:

Benefit of unlock token is that it can give you access to special particular features or experience is within a platform or project that are not available to other regular users so it can cause excitement interests and give reward to users who have tokens.

2. Enhanced user experience:

Second benefit is that by unlock tokens a user can in hands overall experience when he approach to additional features or contents that can make the project or platform more engaging or enjoyable.

3. Incentive for engagement:

Unlock tokens could be an excellent incentive for engaging more and more users with the platform or project so it cause encouragement of users to spend more time as well as to interact with different or particular features in order to earn more tokens or in order to unlock more tokens.

4. Support for creators:

There are some cases in which Unlock tokens can also support content creators. By unlock tokens a person can show his support and appreciation for his work which can help that person to continue the creation of quality content.

Risks of unlock tokens:

1. Cost and financial implications:

Unlock tokens have also some cost associated with them. Users need to be well aware about the financial implications and should keep in mind and analyse that either benefits of unlocking tokens are more than the associated costs or not.

2. Limited availability:

Unlock tokens can also have limited availability and it all depends upon the platform so it means that users may not always have an access to tokens or the contact that they can unlock which can also be discouraging or disappointed for some of the users.

3. Potential for misuse or scams:

Unlock tokens in some cases could be missed use aur could be a target of different scams so users ensure that they are obtaining tokens from a legatimate sources for prevention of any scam.

4. Dependency on tokens for full functionality:

Dependency on tokens for full functionality could also be a risk factor for unlock tokens and its creates sense of exclusivity and limit user experience for those who don't have tokens. The reason is this that there are some particular situations in which full functionality within an app or a platform depends upon availability of possession of unlock tokens.

I want to invite here some of my friends @sailawana , @hifazsab , @cryptoloover , @ngoenyi , @suboohi to participate 😊