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Hold period

The hold period is the simplest supply management mechanism: newly minted tokens are locked for a protocol-determined period before they can enter circulation. Think of it as a mandatory cooling-off period that prevents immediate dumping and gives the market time to absorb the news of new supply.

When tokens are minted (whether through issuer acquisition or custodian-verified assets), those tokens sit in a holding state for a fixed duration (e.g., 3 days). During this period, they cannot be sold, transferred, or used in any protocol function. Once the hold period expires, tokens become fully liquid and can be used across the protocol: spot trading, lending, borrowing, futures, or other DeFi primitives.

Critical for custodian-verified assets: While the hold period applies to both minting paths, it is especially important for custodian-verified assets (Path 2). When an external owner sends their asset to the custodian for tokenization, they receive the newly minted tokens directly. Unlike the issuer (who is expected to act in the protocol's best interest and follow distribution requirements), external owners have no obligation to support orderly market dynamics. Without a hold period, they could immediately dump all tokens into the market, causing sharp price drops and destabilizing the collection. The hold period ensures that all newly minted supply, regardless of source, enters the market with adequate time for price discovery and demand absorption.

Why hold periods matter​

Without a hold period, newly minted tokens could hit the market instantly. In Case B scenarios (acquisition price below pool price), this creates:

  • Immediate price shocks as supply enters without warning
  • Front-running opportunities for actors who anticipate the mint
  • Panic reactions from holders who see sudden supply increases
  • Disorderly execution of existing limit orders

A hold period creates a buffer between minting and market entry, giving all participants—existing holders, potential buyers, and market makers—time to:

  • Assess the new supply and its impact on valuations
  • Adjust positions to account for upcoming dilution
  • Place limit orders to absorb supply at desired price levels
  • Prepare liquidity for orderly price discovery

Formal structure​

Let:

  • t0t_0: mint time
  • Δthold\Delta t_{\text{hold}}: hold period duration
  • trelease=t0+Δtholdt_{\text{release}} = t_0 + \Delta t_{\text{hold}}: release time
  • mm: number of newly minted tokens
  • α\alpha: fraction of minted tokens subject to hold period (typically 80%)

Token state:

State(t)={LOCKEDif t<treleaseLIQUIDif t≥trelease\text{State}(t) = \begin{cases} \text{LOCKED} & \text{if } t < t_{\text{release}} \\ \text{LIQUID} & \text{if } t \geq t_{\text{release}} \end{cases}

During the locked state, tokens cannot:

  • Be sold on spot markets
  • Be used as collateral in lending
  • Be transferred to other addresses
  • Participate in any protocol function

After treleaset_{\text{release}}, tokens become fully liquid and can be used across all protocol functions.

Worked example​

Setup​

  • Current pool price: pt=5,000p_t = 5{,}000 USDC per token
  • Acquisition price: pacq=4,200p^{\text{acq}} = 4{,}200 USDC per token
  • Newly minted tokens: m=1,000m = 1{,}000
  • Tokens subject to hold: αm=800\alpha m = 800 (80%)
  • Tokens retained by issuer: (1−α)m=200(1 - \alpha) m = 200 (20%, not subject to hold)
  • Hold period: Δthold=3\Delta t_{\text{hold}} = 3 days
  • Mint time: t0=t_0 = Day 0
  • Release time: t_release=t\_{\text{release}} = Day 3

Timeline​

Day 0 (mint time):

  • Issuer acquires asset at $4,200 per token
  • Issuer mints 1,000 tokens
  • 800 tokens enter LOCKED state (subject to hold period)
  • 200 tokens available to issuer immediately (retained allocation)
  • Market participants observe the mint on-chain
  • Pool price: $5,000 per token

Days 1-2 (hold period):

  • 800 tokens remain LOCKED
  • Cannot be sold, transferred, or used as collateral
  • Market participants have time to:
    • Assess impact of new supply
    • Adjust positions
    • Place limit orders to absorb supply
    • Prepare liquidity for release
  • Pool price may adjust as market anticipates release

Day 3 (release time):

  • 800 tokens transition to LIQUID state
  • Tokens can now be sold, transferred, or used across protocol
  • Issuer must offer tokens at acquisition price ($4,200), but no restrictions are impose don external owners
  • Market absorbs supply through spot trading, limit orders, or other mechanisms

Impact on dilution​

Without hold period (immediate release):

  • Day 0: All 800 tokens hit market immediately
  • Price shock: Sudden 7-8% price drop (from price dynamics calculation)
  • Holder reaction: Panic selling, disorderly execution

With hold period (3-day lock):

  • Days 0-2: Market has time to prepare for release
  • Day 3: Tokens enter circulation in orderly fashion
  • Price adjustment: Gradual convergence toward acquisition price
  • Holder reaction: Orderly position adjustments

The hold period doesn't eliminate dilution—it just spreads the adjustment over time, preventing sudden shocks and giving all participants fair warning.

Outcome​

Market preparation​

During the hold period, market participants can:

  1. Place limit orders at or above acquisition price to absorb supply
  2. Adjust collateral in lending positions to account for potential price drops
  3. Rebalance portfolios to manage dilution risk
  4. Provide liquidity to the pool to earn fees from upcoming trading

This preparation creates orderly market conditions for the token release, reducing the risk of panic selling or disorderly execution.

Price discovery​

The hold period enables forward-looking price discovery:

  • Limit orders placed during hold period signal demand at various price levels
  • Pool price may adjust gradually as market anticipates release
  • Open interest (see Open interest mechanism) provides demand signals to issuer

By the time tokens are released, the market has already priced in the new supply to some degree, reducing the shock of actual release.

Why it works​

The hold period is the simplest minting mechanism—it just adds time between minting and market entry. But that time is valuable:

  • Transparency: All participants see the mint and know when tokens will be released
  • Fairness: Everyone has equal time to prepare for release
  • Simplicity: No complex curves or schedules—just a fixed lock period
  • Predictability: Release time is known in advance, enabling planning

The hold period transforms a surprise event into an anticipated event, giving markets time to adjust and maintain orderly price discovery.

Trade-offs​

Advantages:

  • Simple to implement and understand
  • Transparent and predictable
  • Prevents immediate dumping
  • Gives market time to prepare

Disadvantages:

  • Doesn't prevent sharp price drops at release time (just delays them)
  • Capital inefficiency during lock period (tokens earn no yield)
  • May not be sufficient for large mints or stressed markets
  • Requires combination with other mechanisms (release curve, open interest) for full effectiveness

Configuration​

Hold period parameters are configurable per collection:

  • Duration (Δthold\Delta t_{\text{hold}}): Length of lock period (default: 3 days)
  • Fraction subject to hold (α\alpha): Percentage of minted tokens locked (default: 80%)
  • Release conditions: Additional conditions beyond time (e.g., minimum limit order depth)

These parameters can be adjusted based on:

  • Asset class: More volatile assets may need longer holds (e.g., 7-14 days)
  • Market conditions: Stressed markets may need extended holds
  • Mint size: Larger mints may need longer preparation time