Elastos announced yesterday, 24th October 2018, the cancellation of all lock-ups of ELA tokens, consisting of:
- Community lock-ups,
- Angel investors lock-ups,
- Cyber Republic funds – about 16 million ELA which is held by the Foundation will be allocated to Cyber Republic for holding until August 2019, when its governing council is put in place, and
- Mined tokens – tokens mined by the Foundation and through merged-mining with Bitmain will be allocated to Cyber Republic for management by its Preparatory Council.
While there could be much noise and confusion regarding this move within the community, we actually support Elastos’s decision to cancel the lock-ups. Doing the right thing is never easy. In the short term, a negative knee-jerk effect on the price is inevitable, but we believe that it will be a positive move overall for Elastos in the medium to long term. Also, from a token economic standpoint, lock-ups are entirely unnecessary for Elastos and only present challenges for proper market evaluation of the project value.
- For a project that has been around for a year and way past its ICO stage, lock-ups serve little to no purpose, as lock-ups are mainly to instil trust, commitment and dedication in the initiation stage of the project.
- Lock-ups are also constant token price overhangs, which limit the upside potential of the token in constant anticipation of the next batch of token unlocks that would push prices down due to the psychological effect on token holders. The original lock-up release schedule would see high effective inflation values threaten both the real and perceived value of ELA.
- The unlocking of tokens would not affect the value of the project anyway as it is the full market capitalization of a project that reflects value, not the circulating supply market cap. Hence, variations in the circulating supply from unlocking of ELA tokens would not change the overall value of Elastos.
- A larger circulating supply, in fact, provides better liquidity and lowers volatility, which is desirable for medium to long term investors.
- Lastly, there is the major concern of Elastos being classified as a security token by the SEC due to the significant portion of token lock-ups, despite primarily being a utility-based token. Such a classification would affect Elastos’ listing opportunities on major exchanges, and further limit Elastos’ network effects and hinder its growth plans of mainstream adoption and investment.