Escrow
A contract that holds tokens on behalf of a user under a defined release condition. The tokens are not destroyed and not freely tradeable. They sit locked until the condition is met (a burn, a time elapsing, a counterparty action).
Also known as: locked collateral, vault
Escrow contracts are how blockchains move tokens out of “freely tradeable” without destroying them. The tokens still exist on-chain, still belong to a known wallet, and can usually be reclaimed under a clearly defined rule. The most common rules are time-based (vesting cliffs, lock-up periods) and action-based (burn the receipt token to unlock the original). Escrow differs from a true burn, which permanently destroys the tokens, and from a simple stake, which is usually unstakeable on a cooldown.
In tokenomics design, escrow is useful because it lets a protocol create a contractionary pressure on circulating supply without making the lock irreversible. Users get a receipt that represents their claim on the escrowed tokens. The receipt can be tradeable, stakeable, or used as collateral elsewhere. As long as the receipt exists, the underlying tokens stay locked. Burn the receipt and the tokens unlock.
This pattern shows up across DeFi (wrapped tokens, liquid staking derivatives, collateralised vaults) and across DeAI (Venice’s DIEM uses sVVV escrow with a burn-to-unlock release condition). The trade-off is honest: escrow gives the protocol supply discipline and gives users optionality, but it adds a layer of smart contract risk and usually requires the user to track which receipts unlock which deposits.
Whenever a project claims tokens are “permanently locked” or “removed from supply forever,” check the contract. Most “locks” are actually escrows with a release condition. The distinction matters: an escrow is reversible by definition, even if the typical user never reverses it.