What Happens if the Token is Unlocked? Chain Reactions in the Market

Unlocking a token in a crypto project is not just a technical operation. Instead, it is a dynamic event that triggers a series of reactions in the market and shapes investor strategies. So, what exactly happens when a token is unlocked?

The basic answer is simple: supply increases, price pressure emerges, and investor behavior changes. However, behind this simple formula lies a multi-layered market mechanism.

Disruption of Price and Supply Balance

The immediate and most direct result of token unlocking is a sudden increase in market supply. Tokens that were previously locked become available for trading in the open market. This can independently affect the supply-demand equilibrium.

For example, in a project’s five-year vesting plan:

• Year 1: 10% of tokens are released – slight supply increase
• Year 2: 20% more released – moderate supply shock
• Year 3: 30% released – significant market pressure
• Year 4: Remaining 40% released – the largest potential price impact

At each unlocking stage, a large token pool may enter the market. If demand does not grow at the same pace, this situation can exert downward pressure on prices.

Changes in Investor Behavior

When tokens are unlocked, different investor categories act according to their interests:

Founders and Early Investors: When unlocked, these groups must decide whether to sell their tokens. Tokens acquired at low purchase prices can now be converted into cash. Those seeking to realize profits may contribute to selling pressure.

Market Participants: Other investors act based on anticipation. As a major unlock date approaches, they may try to position themselves in advance, knowing that selling pressure could increase. It is possible to see price declines weeks before the unlock date.

Long-term Supporters: Believers in the project and those investing with a long-term vision may choose not to sell immediately and might even buy more during price dips.

Contradictory Effects of Selling Pressure and Liquidity Increase

Token unlocking creates a paradoxical situation. On one hand, selling pressure can push prices down. On the other hand, increasing the amount of tokens in the market can improve liquidity.

Selling Pressure Scenario: When unlocked, large amounts of tokens may start to be sold rapidly. For projects with small market caps, this can lead to a significant price drop. Liquidity pools may not be able to absorb this high selling volume.

Liquidity Increase Scenario: Conversely, having more tokens available can boost trading volume and make buying and selling easier. This can, in the long run, increase interest in the project and attract new investors.

Which scenario unfolds depends on the project’s fundamental characteristics, market sentiment, and overall crypto market conditions.

Long-term Project Health and Outcomes

If tokens are unlocked, we can also draw important conclusions about the project’s future:

If, after unlocking, the project shows positive developments—new partnerships, protocol upgrades, community growth—these unlocked tokens may find support in the market, and price declines could be minimal.

However, if the project has fundamental issues or is losing market interest, unlocking may only accelerate the process. Selling pressure can accumulate, leading to a significant price drop.

In conclusion: What happens when a token is unlocked depends not only on the technical plan but also on the project’s quality and market conditions. For investors, reviewing the unlock schedule and being prepared for price fluctuations is crucial. Before investing in a project, checking this schedule in the whitepaper is vital for risk management.