Investors and funds looking to participate in initial coin offering (ICO) projects must take many factors into account, but one of the most overlooked is the token lockup period.
ICORating has gathered data on token lockup periods for various ICO projects funded by institutional players in Q2 2018. One of the most important takeaways from the data is that nearly half of all projects had no lockup period for their tokens, distributing them to members of their team immediately after the completion of an offering.
Distributing tokens to team members shortly after completing an ICO can have unintended negative effects. Doing so can decrease the motivation of the team to continue working on the project, or, in the worst case scenario, early token distributions can crash the token price. Team members looking for liquidity can sell their tokens on the secondary market, crashing the trading price, and making it very difficult for investors to receive a return on their own token holdings.
Incredibly, investors seemed unconcerned with the risks of low or nonexistent lockup periods. About 48 percent of all ICOs funded by institutional capital had no lockup period at all, 15 percent of projects had a lockup period of 1 to 3 months, 17 percent locked their tokens up for 4 to 6 months, 14 percent had a lockup period of 8 to 12 months, and 6 percent of projects studied locked their tokens up for 18 to 24 months.