How to make money from token unlocks: a step-by-step guide

Each project carefully plans out its tokenomics to avoid excessive pressure from sellers throughout the unlocking process and prevent the decline in the price of its token. Additionally, most of the funding comes from early investors who buy tokens at the lowest prices.

The project’s team sets up several features for the upcoming unlock to avoid a dump:

▪ Cliff – the period during which the purchased coins will be locked after listing on the exchange;

▪ Vesting – the token distribution period. For example, 5% of tokens will be released every month so that vesting is equal to 18 months, and so on.

Shorting token unlock is a strategy when a trader opens a short position before the token unlocks to profit from falling prices. Information about token unlocks can be found in the project's White Paper and Tokenomics which are publicly available. There is also an Internet resource Vestlab, where developers structure information about unlocks into a special table.

Table of token unlocks (Vestlab.io)

Here are some factors that can trigger a significant drop in price after the token unlock:

▪ Low entry price for investors and high current profit margin at the moment of unlocking;

▪ Poor liquidity of the trading pair and a small number of buy orders;

▪ Large volume of unlocks against market capitalization;

▪ The presence of “flippers” among investors – funds with a poor reputation, which sell their coins right away after token unlock.

There are many examples of when a project's token drops a lot after unlocking. For instance, in February 2022, GLMR investors instantly received 100 million tokens in their wallets, worth $400 million at the time of unlocking. The price of GLMR plunged by 30% within an hour, while all users could profit by opening short positions in advance.

GLMR price dropped after tokens were released at the Take Flight event

Here is an algorithm of actions on how to use a short strategy on unlocks in your trading:

▪ Go to Vestlab.io, and select any token that will soon be unlocked;

▪ Check if margin or futures trading is available for the token. If not, then it will not make sense to perform all further actions;

▪ Study statistical data – the volume of the token unlock, the type of investors and their purchase prices, the liquidity of the trading pair, and the density of trading orders;

▪ Analyze how the token’s price reacted to previous unlocks;

▪ Choose an exchange for trading, open a short position with Stop Loss and Take Profit limits.

As not every crypto is listed on Vestlab.io, you can search for an asset to short on your own. To do this, find a platform with futures or margin trading, select any available token and examine the documentation for a future unlock. Follow the steps as described above.

Another factor to take into consideration is situations involving force majeure, due to which the token’s price may not react to a large unlock. These situations could be a strong market maker, investors' faith in the project, or a simple unwillingness to sell coins.

For example, on November 13th, 10.8 million WBTs (the native token of the WhiteBIT exchange) were released to the participants of the Private Sale. The unlocked tokens amounted to $50 million in value at that time, and the order book was insufficient to cover all the sellers. Nevertheless, the price of the token avoided the expected dump, as investors did not want to sell their tokens.

WBT price dynamics after the unlock of 10.8 million tokens

Therefore, shorting unlocks is a challenging strategy that requires broad crypto experience, strong analytical abilities, practical knowledge of futures and margin trading, as well as the use of special orders to lower risk.