The act of restricting the sale of a token for a particular period of time.
A healthy token economy requires that most tokens are held by investors and not released into the market. Locking up tokens allows the team to prevent the value of their token from dumping. It also disables the team members to sell their tokens right after the trading goes live, hence, protecting the interest of the holders.
By locking up tokens, projects prevent dumpers from crashing the price as soon as the token gets listed on any exchange. It is usually a part of their anti-dump policy to attract more investors by gaining their trust in the longevity of the project.
Here are some of the benefits of having a lockup period:
Protects token holders from large price fluctuations, as early investors will have to wait for a specific period before selling their assets.
Token lockup provides time for a product to be developed and launched, especially if there is no prototype yet. During this period, investors can evaluate the progress of the project and decide whether they want to hold on to their tokens or exchange them for another currency, such as Ether or Bitcoin.
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