Allocation – what is it and is it possible to make money on it

Allocation is a word that is very often heard in the crypto world. Today we will find out what it is, what is the essence of allocation and what it is used for.

We will not start with dry definitions, but immediately analyze a typical situation and trace a chain of sequential actions in order to understand the meaning of the term on a live example.

Let's say a certain team launches a new project, wants to attract investors to it and offers to buy tokens for a certain amount at the lowest price. Why at the lowest price? Because the project is at the implementation stage, it does not yet have as such market value and popularity among a wide range of investors. Therefore, those who agree to take on a certain risk receive tokens among the first on the most favorable terms. This is allocation - an opportunity for an investor to purchase a certain number of tokens issued for initial circulation at the lowest possible cost. For example, you can often find the price of one token equal to only $ 0.01. That is, we will pay only one cent for one coin.

And then a chain reaction begins - funds, project partners and other major players are connected to the purchase of tokens, for which the cost of allocation is already becoming higher. This inevitably leads to a rise in the price of the token we have already bought. And by the time of listing, that is, placing on the stock exchange and launching public auctions, instead of $ 0.01, it is already worth, say, $ 0.1. That is, due to the early entry, we increased our investments 10 times, earning $ 1,000 from the conditional $100. Sounds impressive, but are there any pitfalls? Definitely.

Token sale after listing - what to expect?

After our token has entered the market, it is important for the owner to prevent its collapse. And indeed, if all the people who have already earned their interest through allocation start selling tokens en masse and withdrawing money, then it will simply collapse and the existence of the project will be threatened. That is why a token lock is introduced - from the English lock (lock). In other words, tokens are simply locked - their sales are blocked except for a certain percentage of the total amount. That is, if at the time of listing we own $ 1000 tokens, then we can only sell some of them - on average it is 10% or $ 100 out of 1000 in our example. On the one hand, this allows investors to quickly withdraw part of the profits received, and on the other hand, to support the viability of the project. And then every month we can also withdraw a certain set percentage of unlocked tokens, on average, the full withdrawal period varies from 6 to 20 months.

Allocations - what is important to do and take into account

Of course, the most important thing is to study the project in detail, since in fact you are giving him your money for a fairly long period of time. Therefore, it is not worth investing thoughtlessly, because allocation is a kind of form of investment, in which there are also risks. It would be useful to join a special community, because it is impossible to be everywhere at once, completely covering the crypto market only on your own. Therefore, tips and additional information will never be superfluous. But at the same time, remember - you can listen to other people, take into account their opinions, but only you are responsible for your decisions.

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