What is Allocation?
Allocation is an allotment of tokens or equity, that may be earned, purchased, or set aside for a certain investor, team, group, organization, or other related entity.
Allocation also refers to the distribution of funds among different cryptocurrencies. For example, allocating a set percentage of your investment portfolio to Bitcoin and a mix of altcoins would be called crypto asset allocation.
Allocation in Crypto
For a crypto team at an early stage, the executive team or the community may decide what allocations of tokens should go to different initiatives, such as development, operations, marketing, etc. If a team has an organization or other entity that is responsible for funding, they may also decide to allocate some funds to a token treasury.
To ensure the long-term viability of digital assets, a cryptocurrency portfolio must decide the allocation of the token and its budget, which usually includes marketing, software development, and operating expenses. Each blockchain project has its own treasury and foundation, each of which has an allocated token. Early team members typically receive a certain percentage of tokens but cannot sell them for a specified time. If a team has a foundation that is responsible for managing crypto investments, it might decide to set up a treasury account where it can deposit money and then use it for the team or community needs.
There is an option for institutional investors to receive allocations in multiple rounds of investments. Early investors may benefit from private sale rounds as projects usually allocate a large size of tokens to this sale as a courtesy of their initial investments. Each of these investors, in this instance, would possess an allocation of the total amount offered in that specific round of sale.
Investors can also receive a crypto allocation in rounds of investments. For example, a team may sell allocations of a set “ticket size”, or maximum amount to early investors in a private sale round. In this case, each of these individual investing parties would own an allocation out of the total amount of digital currency offered on that particular round of sale. An individual entity may have the potential to hold allocations from multiple rounds of sale, which means they could eventually participate in different stages of an Initial Coin Offering (ICO) or token sale event, with a predefined allocation for each stage.
Team members working on specific coins, protocols, or projects may also receive part of an allocation as a reward for completing tasks. Some allocations for crypto projects are distributed over time through a block reward or vesting period or cliff, while others are not.