Token Unlock at Optimism: $600M Selling Pressure

386 million – that’s how many Optimism (OP) tokens will be unlocked tomorrow, May 31st. The surgical course is therefore faced with an enormous challenge. Loud a report by analytics firm Unlock Calendar, there is reason to believe that token unlocking is generating significant selling pressure. On average, a token’s price drops by more than 15 percent immediately after such an event. Does this fate also blossom Optimism?

Currently there are 291 million OP tokens in circulation. With the planned activation, the total amount will increase by more than 100 percent. At the time of writing, the 386 million new tokens are worth nearly $600 million. With the current trading volume of “only” 70 million US dollars, this is massive selling pressure. “There is unlikely to be a need of $400 million to $600 million to maintain the amount released,” the analysis said. In other words: The demand is significantly lower than the supply that will be activated tomorrow.

In addition, OP seems to be significantly overrated compared to its Layer 2 competitor project Arbitrum (ARB). Even more: The fully diluted valuation in relation to sales is very high, it is said. In short: the starting position for Optimism is anything but advantageous.

Are Investors Selling Optimism Tokens?

Major Optimism investors include Paradigm, Andreessen Horowitz (a16z), and IDEO CoLab Ventures, among others. Loud Data by CryptoRank, these venture capital firms are clearly in the black. According to the analysis, the average purchase price would be around 0.24 US dollars. At the time of writing, OP is trading at $1.53. “Investors may be interested in reducing their risk positions,” according to the report.

Optimism faces a major challenge with token activation. The selling pressure is very high compared to the current volume. In addition, the protocol is not yet ready to generate constant revenue and profits. The analysis report comes to a conclusion: The OP course will probably break out to the south in the next few days.

What are token unlocks anyway?

Very few altcoins today work like Bitcoin in terms of their token supply: their total supply is mined from day one. Therefore, individually designed emission schedules (vesting schedules) decide in advance on the distribution of the tokens – and when they are activated.

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When it comes to the type of activation, a distinction is first made between linear vesting and cliff vesting. With the former, the tokens are released linearly, i.e. gradually distributed over time. In most cases, this has far less of an impact on price than cliff vesting. Here, tokens are always released in certain quantities at predefined times, similar to the current case with Optimism.

Course slump inevitable?

This cumulative activation causes a short-term shock, in which the supply of the token suddenly increases and exerts pressure to sell. Of course, only if increasing demand does not compensate for the effect. Following a price downturn, most tokens tend to trend sideways for a short period of time.

In some cases, however, the price of the tokens even falls completely. This will also be the case in 2022 with Sandbox (SAND), Axie Infinity (AXS), LooksRare (LOOKS) and Immutable X (IMX). All are characterized by a quite aggressive cliff vesting. For all of them, the token collapsed shortly after the activation. In Optimism, the downturn is already becoming apparent. Because: Compared to the rest of the crypto market, OP is increasingly trending south. We can see how the token activation affects Optimism in full tomorrow May 31 at 02:00 (CET).