Will Polkadot’s token unlock reverse the gains of the latest market rally?
- Polkadot’s unlock event was tied to the maturing of parachain crowd loans.
- DOT’s gains made in the latest rally were in danger of getting reversed.
Polkadot [DOT] was bracing for a major event that had the potential to exert significant downward pressure on the market value of the native token.
Read Polkadot’s [DOT] Price Prediction 2023-24
Token analytics firm Token Unlocks announced on social platform X that the scheduled unlocking of about 99 million DOT tokens on 24 October, worth nearly $427 million at going market prices. The unfreezing of such a huge chunk of crypto assets kept DOT holders on their toes.
Polkadot! 99M $DOT set to unlock as 5 Parachain leases conclude.🔒
A unique event that can have a ripple effect on the industry 📈 Here is all you need to know 🌐
— Token Unlocks (@Token_Unlocks) October 23, 2023
Understanding DOT’s latest unlock event
Token unlocks refer to the release of a certain amount of crypto assets that the projects had locked or banned from circulation. Because more assets are pushed into the market, traders and analysts treat such events as bearish catalysts.
In Polkadot’s case, the event was linked to the maturing of the initial parachain crowd loan.
Polkadot limits the number of parachains it can support to around 100. Since supply is limited, parachains are allocated through auctions. As part of the auctions, winners secure a slot by locking up DOT tokens for up to 96 weeks. However, the process could prove to be an expensive prospect as it involves raising millions of dollars.
To circumvent this, the concept of crowdloans was introduced. Under this, projects with less starting capital crowdfund DOT tokens from their communities and backers. Once the bonding period ends, participants get their tokens back.
The first major unlock event is scheduled for 24 October. However, it is only the first wave, with many such events to follow in the near future.
Realistic or not, here’s DOT’s market cap in BTC’s terms
A reversal on the cards?
Around 1.32 billion DOT tokens were in circulation at the time of writing, data from CoinMarketCap revealed. Furthermore, with the latest unlock, a whopping 75% of this amount would be distributed in the market.
While traders’ behavior could be erratic, there was a high possibility of retail investors locking in gains as soon as they got access to their DOT assets. Additionally, this could cast a bearish spell on DOT’s price and reverse the gains it made in the latest market rally. At the time of writing, DOT was valued at $4.36, up 8.28% in the last 24 hours.