Translated by | Wu Blockchain Aki
Original Link:
https://x.com/DougieDeLuca/status/1907441638038806640
Risk Warning: This article is for information sharing only and does not provide any financial or investment advice. Readers should strictly comply with local laws and regulations and not participate in illegal financial activities.
Introduction: Why the TGE Model Needs Rethinking
TGE is often a critical point in a project's lifecycle, marking a significant turning point from the private domain to the public domain. Different stakeholders have different expectations for TGE, and coordinating these expectations is often a complex task that requires careful organization.
In the past 18 months, we have witnessed two dominant TGE models emerge - Low Float/High FDV issuance and Fair Launch. These two models are at opposite ends of the spectrum, each with clear advantages and disadvantages. However, from the perspective of long-term sustainability, neither approach can be considered successful. As the crypto industry continues to develop, we believe now is a critical moment to review history, rethink, and determine whether changes should be made.
This article proposes a compromise TGE model aimed at leveraging on-chain liquidity, promoting a genuine market pricing mechanism, and ensuring that project insiders (including the team and investors) remain aligned on the goal of long-term success. Before discussing the specific composition of this mechanism, we will review how the current two mainstream TGE models fail due to their own flaws, the market's response, and why an "on-chain-centered" path is a reasonable choice for projects pursuing sustainable development.
Recent TGE Model Traps and Issues
1. Low Float/High FDV: Quick Profit and Quick Defeat
The Low Float/High FDV model typically includes multiple financing rounds before TGE, with valuations increasing in each round, and setting an extremely low circulating supply on the official launch day. Initially, this design can create an illusion of scarcity and drive a significant token price increase. However, over time, this model has exposed several problems:
● Pre-TGE Private Placement Pricing Mechanism:
Project parties raise funds through multiple rounds, gradually increasing valuations, and negotiating to ensure listing on mainstream centralized exchanges (CEX) on the launch day. By the time TGE officially begins, most of the token's price appreciation has already occurred during the private placement phase, making it difficult to attract new marginal buyers in the public market.
● High First-tier Exchange Listing Costs:
For many projects, listing on mainstream exchanges on the first day often requires paying up to 10% or more of the total token supply as a listing fee. This practice has a strong dilution effect and often undermines the project's long-term development potential.
● Over-reliance on Market Maker (MM) Agreements:
To ensure initial liquidity, project parties typically allocate a large number of tokens to third-party market makers under favorable conditions. However, such agreements often lack transparency, with incentive mechanisms easily misaligned, potentially dragging down project operations and causing ongoing burdens.
● Investors Hedging Locked Positions:
Since tokens remain locked for an extended period, some experienced investors or funds will short the asset in external markets, effectively hedging their position risks and potentially triggering larger selling pressure upon unlocking.
● Discounted Over-the-Counter (OTC) Sales:
Investors and project parties often sell tokens at discounted prices through OTC to investors seeking low-price purchases - these buyers will then hedge their discounted positions and close hedging positions when unlocking begins.
● Rebates to Liquidity Funds:
Project parties may provide strategically significant "sweeteners" or private agreements to liquidity funds in exchange for early buying behavior after TGE, artificially driving up prices. Such operations are legally questionable and often provide insiders with a time window to sell some of their holdings at inflated valuations through OTC.
● Investor Unlocking Causing Unbearable Selling Pressure:
Once a large number of tokens are unlocked simultaneously, retail investors must assess whether accumulated supply will flood the market. If the product (or token) itself lacks sufficient market demand, the additional selling pressure from unlocking may cause the token price to stagnate or even plummet.
Essentially, the Low Float/High FDV model creates an environment favorable for insiders to quickly profit. This often puts retail or later buyers at a disadvantage. Many projects fall into difficulties within the first year because early insiders who have profited lack motivation to continue participating.
2. The Rise of Fair Launch and Its Own Problems
Facing the various failures of the Low Float/High FDV model, the market began to support "Fair Launch". This model aims to create an open, equal TGE structure that allows tokens to be widely held by the public from the beginning, thereby reducing insider advantages and large private placement allocations. Although the initial intention was good, this issuance strategy has also exposed its own series of problems over time:
● Financing Limitations:
Project teams using fair launch typically raise almost no funds during TGE, or even raise no funds at all. Due to the extremely low percentage of tokens held by the team, it becomes very difficult to raise funds after TGE. As token prices continue to fall, the project's long-term sustainability is severely affected.
● Weak Liquidity and Insufficient Execution:
Due to the lack of market maker support and inability to inject initial liquidity, tokens launched fairly often suffer from insufficient liquidity from listing to maturity, leading to increased volatility and frequent high slippage issues.
● CEX Perpetual Contracts Intensifying Downward Pressure:
Many fairly launched tokens - especially AI track projects - have opened perpetual contract markets on centralized exchanges (CEX) before listing spot markets, allowing short sellers using leverage to suppress tokens with shallow on-chain liquidity, thereby suppressing prices.
● Long-term Price Ceiling:
The combination of limited on-chain liquidity and leveraged short selling ultimately creates a market environment where demand struggles to overcome continuous selling pressure, thus suppressing the token's upward potential.
Fair launch was initially seen as a breath of fresh air for encouraging more "open" participation. However, this model ultimately failed to build a sustainable long-term market structure. Realizing this, the market began searching for new alternatives.
Insights from Market Responses
The Low Float/High FDV model and Fair Launch model each failed in different ways. Through the market's response to these two paths, we summarize the following lessons:
● Public Pricing Mechanism is Crucial:
If public investors cannot substantially participate in the price discovery process, they will quickly lose interest once they realize insiders have already profited.
● Depth and Liquidity Trump Momentary Hype:
Neither short-term speculation nor artificial price pumping can solve a fundamentally shallow liquidity market. Sustainable liquidity depth, especially on-chain liquidity, is critical.
● Projects Need "Runway", and Liquidity Buyers Need Upside:
Project parties must raise sufficient funds to ensure long-term project sustainability while also preserving substantial upside potential for new entrants in the public market.
● Market Demand Drives Structural Changes:
The evolution from "Low Float/High FDV" to "Fair Launch" shows that if the market refuses to support problematic issuance models, project teams will be forced to adjust. However, without a clear liquidity construction strategy and sustainable market structure, even fair launch cannot ensure project success.
● Transparency Must Be an Uncompromising Bottom Line:
When insiders quickly exit using opaque market structures, market trust collapses. While fair launch promoted more on-chain transparency, true accountability mechanisms and information transparency have not yet been fully established.
Why On-Chain Liquidity is the Logical Next Step
Reviewing the previous failure cases and market rebounds, we can clearly establish a core principle: the market can only achieve long-term sustainable development when price discovery is completed publicly on-chain, and insiders cannot easily sell tokens in secret. On-chain transactions bring real-time transparent accountability, making "who holds what and at what price" clearly traceable.
To ensure sufficient liquidity at various stages of a token's lifecycle, a system structure must include the following elements:
● Transparent on-chain market depth
● Robust mechanisms to suppress sudden selling pressure
● Incentive mechanisms that encourage team and investor long-term participation after TGE
This directly leads to the concept of "Native DeFi TGE" - a token issuance model that integrates financing with public liquidity construction, keeping internal stakeholders aligned with the project's long-term development.
[The rest of the translation follows the same professional and precise approach, maintaining the original structure and technical nuances while translating into clear English.]From "low circulating supply / high fully diluted valuation" to "fair issuance", the crypto market has always been swinging between two extremes - the former allows insiders to gain short-term profits, while the latter is difficult to succeed due to insufficient funding and unsustainable liquidity. Both approaches trap participants in a short-term optimal solution, ultimately leading to disappointment with fleeting hype and manipulative behaviors.
By introducing a native DeFi TGE model - based on staged on-chain liquidity, metric-driven progressive unlocking mechanism, and mandatory information transparency, we propose a compromise and feasible middle path:
● Projects can achieve sufficient financing without relying on predatory protocols.
● Real price discovery and liquidity naturally form on-chain, enhancing trust for retail and institutional investors.
● Early investors with lower price expectations can safely exit before TGE, transferring their shares to new entrants with higher cost basis and valuation expectations, thereby optimizing secondary market health.
● Mainstream centralized exchanges (CEX) listing should serve as a true growth catalyst, rather than an instant cash-out channel for insiders.
● The market, as the ultimate arbiter, will decide to recognize or eliminate projects based on whether they align with these principles.
Although no TGE model can apply to all projects, it is clear that the industry urgently needs a mechanism blueprint that promotes genuine on-chain price discovery, builds robust market liquidity, and deeply aligns the interests of all parties. The native DeFi TGE model is precisely a key step towards this goal.
We sincerely invite readers to thoroughly examine these ideas, offer improvement suggestions, and conduct experiments in real-world environments. The crypto industry grows through innovation and iteration. By challenging traditional models of "low circulating supply / high fully diluted valuation" and "fair issuance", we hope to pave the way for healthier incentive structures that allow long-term value creation to triumph over temporary hype waves.
Ultimately, if this article can spark discussions about integrating the advantages of various TGE models and promoting new growth-oriented approaches, our goal will have been achieved. Let us work together to build a token issuance environment where all participants can benefit from continuous success, allowing the market to justly reward the builders, investors, and community members who tirelessly work towards the crypto future.
