Keyrock: 90% of token unlocks lead to price declines

The material is not an investment recommendation and is published for informational purposes only.

What’s new? Keyrock analysts have released a report on how unlocking tokens affects their value, having studied over 16 000 cases. From the study, they concluded that in 90% of cases, unlocks, regardless of their scale and type, lead to a drop in token value that starts as early as 30 days before the event itself.

Report

What else is known? Large-scale unlocks dramatically increase volatility and lead to an average 2,4x drop in value, with the most severe damage being done by unlocks that release tokens intended for the project team: a 25% drop due to simple sales by retail traders.

Unlocks for investors, on the other hand, see controlled price movements as they employ smarter strategies to reduce the negative impact on the market.

Unlocks for the development of the project ecosystem are the rare cases when there is a positive impact on the price of the token (on average, an increase in value by 1,18%).

Analysts note that $600 million worth of tokens are released weekly as a result of unlocks, which is comparable to the capitalization of the native coin of the Trust Wallet (TWT) crypto wallet, the Book of Meme (BOME) meme token, or the gold-backed XAUT stablecoin from USDT issuer Tether.

These tokens, often released at predetermined intervals, are distributed to different groups: the developers themselves, early investors, participants, and decentralized autonomous organizations (DAOs) responsible for managing and developing the projects. In addition, there are unlocks to further burn tokens to prevent inflation.

The key factors affecting token value and market dynamics are the scale and frequency of such unlocks, their expectation and dates, and the type of recipients.

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Keyrock analyzed more than 16 000 unlocks of multiple projects, tracking daily price changes for 30 days before the event and 30 days after. The analysts emphasize that the market is affected not only by the unlocking itself but also by preliminary pressure on the price, the reason for which is the desire of traders to reduce risk by locking in profits.

Large amounts of unlocking (5-10% of total supply) are often allocated to experienced recipients who use market makers to hedge their risks.

Locking in positions and capitalizing on volatility before unlocking allows such participants to reduce pressure on tokens and mitigate the impact. Most companies begin hedging 1-2 weeks or even a month before the event.

In turn, retail traders, anticipating the inevitable unlocking for large investors, move to sell-offs to avoid asset impairment. In doing so, they are often unaware that the institutional recipients of this batch of tokens have already completed their hedged sales.

“Our data suggests the best time to enter after a major unlock is 14 days, once volatility has settled and hedges may have unwound. For exiting, the optimal time is 30 days before a major unlock, when hedging or market pre-reactions tend to begin,” Keyrock writes.