Vesting

How vesting works

The basic structure:

• Total grant — full allocation specified at grant time.
• Vesting schedule — release timing.
• Cliff — initial period before any vesting.
• Vested portion — owner can sell, transfer, or exercise.
• Unvested portion — remains restricted.

Vesting aligns long-term commitment with reward.

Common vesting structures

Typical patterns:

• Standard tech equity — 4-year vest with 1-year cliff (25% at year 1, then monthly).
• Crypto team tokens — often longer (3-5 years).
• Investor tokens — varies; commonly 1-3 years.
• Performance-based — tied to milestones rather than time.

Each context has typical conventions.

Vesting in employment

Standard equity grant:

• Hire receives stock options or RSUs.
• Cliff — typically 1 year; nothing if leave before.
• Monthly thereafter — 1/48 vests each month.
• Acceleration — sometimes triggered by acquisition.

Departure forfeits unvested portion.

Vesting in crypto

Common patterns:

• Team allocation — typically 4-year vest with 1-year cliff.
• Investor token unlocks — vary by round and market conditions.
• Airdrop vesting — sometimes vest over months.
• DAO contributor grants — often vest over time.

Vesting schedules are key parameters in tokenomics.

Why vesting matters

Several rationales:

• Retention — incentive to stay long-term.
• Alignment — long-term focus, not short-term gains.
• Skin in the game — recipients have real stake.
• Trust signal — shows team commitment.

Without vesting, recipients could exit immediately after receiving grant.

Tax considerations

Vesting often triggers tax events:

• RSU vesting — taxable as ordinary income.
• Token vesting — typically taxable when received and unrestricted.
• 83(b) election — for restricted stock, can elect to pay tax at grant.
• Withholding — employer often withholds tax via share sales.

Vesting tax can create cash crunches if recipient holds rather than sells.

Vesting acceleration

Common scenarios:

• Single-trigger — vesting accelerates on acquisition alone.
• Double-trigger — requires both acquisition and termination.
• Most common — double-trigger, protects against unfair termination post-acquisition.

These provisions matter heavily in M&A scenarios.

What individuals should know

For employees:

• Cliff matters — leaving before cliff forfeits everything.
• Tax implications — vesting can produce significant tax bills.
• Acceleration provisions — review before signing.

For crypto investors:

• Check vesting schedules for any token investment.
• Cliff dates — moments when supply increases.
• Insider unlocks — often produce sell pressure.

Vesting is foundational to incentive design across employment, investment, and crypto. Understanding the schedules affects financial planning, negotiation, and investment decisions.