Token unlocking in cryptocurrencies refers to the release or liberation of a portion of frozen tokens.

These tokens may be allocated for the project team, investors, or users who participated in events like pre-sales or initial coin offerings (ICO).

There are several reasons for having vesting periods before token unlocking, such as:

Protecting price stability: The purpose of a token unlocking schedule is to avoid causing a large influx of tokens into the market all at once, which could affect the price and create severe volatility.

Long-term incentive: Keeping a portion of tokens locked can encourage the team to commit to the project in the long run while maintaining investor interests.

Ensuring transparency: Token unlocking schedules are often announced in advance, allowing investors and traders to track when tokens will be added to the market.

Tokens are usually unlocked gradually over a period of time, with dates related to these processes announced within the project's documentation.

During the token unlocking period, the price of the cryptocurrency can be affected in several ways, depending on various factors such as the amount of tokens to be unlocked, investor behavior, and the overall market situation. Here’s what may happen to the price during this period:

Increased supply and selling pressure:

When a large amount of tokens is unlocked, it increases the available supply in the market. If investors or the team sell these tokens quickly, it may lead to selling pressure, resulting in a decrease in the token's price.

If demand is insufficient to absorb these new tokens, the price may decline.

Market expectations:

If the token unlocking is anticipated and announced in advance, some investors may sell before the unlocking to avoid any price drop. This may lead to a decline in price even before the unlocking process occurs.

Sometimes, there may not be any significant impact if investors expect this unlocking and have confidence in the project, especially if the amount of unlocked tokens is relatively small compared to the daily trading volume.

Positive interaction:

If the unlocked tokens are intended for project development or to incentivize users, and there is progress or growth in the project, the unlocking may be viewed positively, boosting confidence and raising the price.

Some projects link the token unlocking process to significant events or the launch of new features, which may drive the price up if there is optimism about the project's developments.

Short-term fluctuations:

Short-term price fluctuations often occur during or after the token unlocking process, as some traders take advantage of these periods to make quick profits. However, the price usually stabilizes over time after the early sell-offs.

In short, token unlocking can cause price fluctuations based on how the new supply impacts the market and how investors respond to it.