In cryptocurrency and blockchain, ‘lockup’ refers to a period during which certain tokens or coins are restricted from being sold, transferred, or traded. This mechanism is often used to stabilise the price of a cryptocurrency, protect against market manipulation, or ensure that the team and early investors remain committed to the project.
Lockups prevent a large number of tokens from being sold immediately after a project’s launch, and can help build trust with the broader market, demonstrating long-term commitment to a project. Typical scenarios include initial coin offerings (ICOs) or initial DEX offerings (IDOs). For tokens held by the project’s team or early investors, a lockup period ensures they remain incentivised to work on the project, rather than cashing out immediately.
Additionally, staking and vesting schedules also include lockup periods. In some blockchain networks, staking rewards are locked up for a period to prevent sudden large withdrawals that could impact network security or token price. For vesting schedules, tokens are gradually released over time to team members, ensuring long-term incentives remain and preventing members from selling all at once.
The length of a lockup period can vary widely, from a few days to months to several years, depending on the project and whether staking or vesting.
