Cryptocurrencies with a lock-up period are therefore not really secure

Advertisement / Advertising Cryptocurrencies with a lock-up period are therefore not really safe

To prevent rug pulls in new cryptocurrencies, where teams sell large quantities of the coin and thus trigger a steep sell-off, there are lock-up periods. But what if they can circumvent such a lock-up with a trick? Learn how it works, what investors should be prepared for, and what this means in detail in the following article.

A big trend this year is so-called DATs (Digital Asset Treasuries), which are companies that hold cryptocurrencies in their reserves . What some retail investors may have missed in the bullish headlines surrounding these coins, however, is that many of these cryptocurrencies were purchased at a discount .

This is due to companies simply buying the teams' claims to the locked coins . In return, they usually received the cryptocurrencies at a discount. This allows the founding teams to access liquidity sooner, as the DATs issue shares backed by the token .

In this way, profits can be made without the token ever increasing in value . This creates an artificially inflated valuation , indicating high demand even though the tokens are still locked. This is interpreted by market participants as bullish, even though it does not reflect real spot demand.

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Among other things, the Sui team sold its coin to Sui Group, formerly known as Mill City Ventures III, at a 15% discount and with a two-year transfer limit. In return , they received shares subject to a lock-up period of only six to 12 months. However, the tokens themselves retain their two-year lock-up period.

Another example is StablecoinX/ Ethena, whose ENA coin was sold at a 30% discount and is held at Anchorage. These tokens are subject to a 48-month release schedule, which developers can circumvent indirectly through the deal, as the shares only have a 6-month lock-up period.

NAV of StablecoinX (Ethena) | Source: DeFiLlama

Investors should therefore always check whether share prices are above the net token value, including lock-up and discounts . Once the lock-up period is lifted, premiums usually decrease, while a supply shock can occur once the locked coins are released.

Likewise, the PIPE tranches, which release the frozen shares over time, must be considered . This often leads to a sell-off in the share price when investors are able to sell them. After all, these shares were mostly acquired at a significant discount . Warrants can also create additional selling pressure .

Another positive side effect could be that the development team has more capital available sooner. This also allows new developments to be advanced more quickly through hackathons, sponsorships, marketing, and more .

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