Founders who have run an equity vesting schedule assume token vesting is the same mechanism applied to a different asset. It is not. The two are created by different instruments, enforced by different means, and capable of producing opposite results on the same event. A founder can leave, forfeit unvested equity under the shareholders' agreement, and carry on receiving token allocations because nothing in the agreement reaches the smart contract. Drafting the two separately is a recurring cause of that outcome.

How Equity Vesting Works

Equity vesting is contractual. It lives in a shareholders' agreement, founder agreement or share option plan, and operates on shares issued or issuable in a company.

The mechanism is a legal obligation. Where a founder leaves before shares vest, the documents typically give the company or the other shareholders a right to buy back or compel transfer of the unvested portion. A common contractual design prices that at nominal value for a bad leaver and a formula value for a good leaver, but this is negotiated drafting rather than a legal default and it varies. Enforcement runs through the register and, if contested, through the courts or an agreed dispute mechanism. Because it is contractual it is flexible: leaver definitions, acceleration on a change of control, and treatment of a founder removed without cause are all negotiable.

How Token Vesting Works

Token vesting is usually executed in code. An allocation is committed to a vesting contract that releases tokens to an address on a schedule, automatically, when the contract's conditions are met.

Execution is automatic rather than discretionary. Nobody exercises a right; the contract runs. That is not the same as saying the arrangement has no legal effect, and the two are often wrongly treated as alternatives. Automatic execution is a strength for investor confidence, since a publicly verifiable lock cannot quietly be waived, and a weakness for governance, since a contract with no leaver logic continues releasing to a departed founder's address according to its existing schedule.

Token vesting also frequently exists with no conventional supporting documentation. The schedule sits in the contract and the tokenomics deck and nowhere in a signed agreement. Whether that arrangement creates or evidences enforceable rights depends on the governing law and ordinary contract formation requirements, and several frameworks recognise electronic and automated contracting. ADGM, for instance, treats electronic contracts as legally effective and permits formation through interactions involving automated message systems. What the absence of a conventional agreement reliably produces is ambiguity about terms, parties and remedies, which is a recurring finding in Web3 due diligence.

The Two Side by Side

The Leaver Problem

The gap between those two columns concentrates on one event.

A founder departs. The shareholders' agreement operates: unvested shares are repurchased, the cap table updated, the matter closes. The vesting contract has no concept of employment and continues releasing on schedule to an address the founder controls. The company has recovered the equity and lost the tokens, and the remaining founders discover it when the next tranche unlocks.

Three drafting responses exist, and the right one depends on how much on-chain immutability the project has promised investors.

Contractual overlay. A token allocation agreement mirroring the leaver provisions and obliging the departing holder to transfer released tokens back. Preserves immutability, but depends on the individual complying or being pursued.

Contract-level revocability. A revocation function controlled by a multi-signature arrangement. Effective, though the existence of that key needs disclosing, since it changes what investors are relying on.

Alignment of schedules. Matching cliffs and periods so departures land at comparable points. Reduces the mismatch without resolving it.

Whichever is chosen, the two should be drafted together rather than in sequence. Disputes over founder allocations after a departure are among the harder ones to resolve, as our note on crypto co-founder disputes in the UAE covers. Our founder agreements and cap table structuring and token design work reconciles them as they are written. To review an existing arrangement, get in touch.

Frequently Asked Questions

Is token vesting legally binding?

It depends on the governing law and whether the ordinary requirements for contract formation are met. Automatic execution and legal effect are not alternatives, and a number of frameworks recognise electronic and automated contracting, ADGM among them. A conventional written agreement is strongly advisable for clarity on terms, parties and remedies, but it is not universally a precondition of enforceability.

What happens to a founder's tokens if they leave?

If the vesting contract has no leaver logic and no separate agreement addresses departure, the vesting schedule may simply continue, releasing to an address the founder controls. Whether anything can be recovered then depends on what the surrounding arrangement, if any, provides for.

Should token and equity vesting schedules match?

Aligning cliffs and periods reduces the mismatch on a departure but does not remove it, because the enforcement mechanisms remain different. Alignment helps most alongside a contractual overlay covering leaver events.

Can a vesting smart contract be changed later?

Only if it was built to allow it. Contracts deployed as immutable cannot be amended, which is often the point. Where a revocation function exists, it should be disclosed to investors relying on the lock.

Who should hold the admin key on a vesting contract?

This is a governance question rather than a legal requirement. As a matter of good practice, concentrating control in one individual creates a single point of failure, and a multi-signature arrangement with defined signatories and a documented process recorded in the governance documents is the usual answer.

This article provides general information about vesting arrangements and is not legal advice. Speak with qualified counsel about your specific circumstances.