How to Avoid Getting Dumped on by Insiders
When investing in a new crypto project, understanding token vesting schedules is crucial to protecting yourself from market manipulation. Token vesting refers to the gradual release of tokens over time, typically to team members, advisors, and early investors. While vesting is designed to ensure that insiders are committed to the project, it can also lead to large sell-offs when tokens are unlocked.
If a project has large amounts of tokens locked for insiders, it can result in a scenario where once those tokens are unlocked, insiders may sell off their holdings, leading to a significant price drop. This is commonly referred to as getting "dumped on." It’s essential to be aware of the vesting schedule to understand when large amounts of tokens will enter circulation.
Typically, projects with long vesting periods (1-3 years) can help mitigate this risk, as the gradual release of tokens gives the project time to develop and grow its community. However, projects with short vesting periods or unlocked tokens early in the project lifecycle can experience dramatic volatility when insiders sell their shares.
Before investing, always check the vesting schedule and look for any red flags, such as large unlocks happening soon after the project launches. Doing so will help you avoid being caught off guard by sell-offs and ensure you’re not left holding the bag after insiders take their profits.
By understanding how token vesting works, you can make more informed decisions and avoid falling victim to the pitfalls of early-stage projects. Smart money always considers tokenomics as part of its risk management strategy.
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