Original Title: Between Extremes: A DeFi-Native Blueprint for Sustainable TGEs
Original Author: DougieDeLuca, Member of Figment Capital
Original Translation: Rhythm Little Deep

Editor's Note: This article reviews the pros and cons of two TGE models: low liquidity/high FDV and fair distribution. It points out that the former allows insiders to cash out quickly, while the latter struggles due to insufficient funds and liquidity. Based on market lessons, it proposes a DeFi-native TGE solution that utilizes on-chain liquidity, phased price unlocking, and transparent smart contract mechanisms to balance the funding needs of the team with the public's true price discovery, while also aligning the incentives of insiders with the long-term goals of the project, thereby building a more sustainable token economic structure.

The following is the original content (reorganized for better readability):

Why Rethink TGE

TGE is often a defining moment in a project's lifecycle. It marks the most significant transition of a project from the private domain to the public domain. Different stakeholders have different expectations for TGE, and balancing these expectations is a complex task that requires careful coordination.

In the past 18 months, we have seen two mainstream TGE approaches—low liquidity/high FDV issuance and fair issuance. These two approaches are at opposite ends of the spectrum, each with distinct advantages and disadvantages. However, both have largely failed to achieve long-term sustainable outcomes. As the crypto ecosystem continues to evolve, we believe it is time to step back, learn from history, and decide whether changes are necessary.

This article proposes a middle-ground TGE model that leverages on-chain liquidity to facilitate genuine public price discovery and ensures that insiders—teams and investors—are incentivized to align with long-term success. Before delving into its mechanisms, let’s first examine how the two mainstream TGE approaches have collapsed due to their inherent flaws, what the market's reactions have taught us, and why an on-chain-centric approach is the logical next step for projects pursuing lasting success.

Recent TGE Model Flaws

Low Liquidity/High FDV

The low liquidity/high FDV model typically involves multiple rounds of pre-funding before TGE, with valuations gradually increasing and an extremely low circulating supply on the first day. Initially, this creates an illusion of scarcity, driving prices to soar. However, over time, problems emerge:

• Private Pre-TGE Price Discovery: Teams conduct multiple rounds of funding at increasingly high valuations and negotiate to ensure a listing on mainstream centralized exchanges (CEX) on the first day. By the time of TGE, most price appreciation has already occurred, leaving few marginal buyers in the public market.

• Expensive Top Exchange Listings: Many projects must pay up to 10% or more of their token supply as fees to list on top exchanges on the first day. This highly dilutes equity and often harms the project's long-term prospects.

• Overreliance on Market Maker (MM) Trading: To ensure initial liquidity, projects allocate large amounts of tokens to third-party market makers under loose conditions. These trades lack transparency, often leading to misaligned incentives and placing a continuous burden on the project.

• Investor Hedging of Locked Positions: Due to long-term token lock-ups, savvy investors/funds short the asset in external markets, effectively neutralizing their exposure and setting the stage for sell-off pressure once the tokens are unlocked.

• Discounted Over-the-Counter (OTC) Sell-offs: Investors and teams often sell to buyers seeking low prices through OTC at discounted rates, with buyers subsequently hedging their newly acquired discounted positions and closing out when the tokens unlock.

• Kickbacks to Liquidity Funds: Teams may offer "sweeteners" or engage in private trades to entice early buying post-TGE, artificially inflating prices. This potentially illegal activity provides insiders with a brief window to exit OTC at inflated valuations.

• Investor Unlocking Triggers Unbearable Sell-off Pressure: Once a large number of tokens unlock, retail investors must consider whether the backlog of supply will flood the market. If demand for the product (or token) is insufficient, unlocking may lead to price stagnation or collapse under sell-off pressure.

Essentially, the low liquidity/high FDV model creates an environment where insiders can quickly cash out. This often leaves retail or later buyers at a disadvantage. Projects frequently struggle after the first year, as early profit-taking insiders lack the motivation to continue participating.

The Shift to Fair Issuance—and Its Own Shortcomings

Disappointment with the failure of the low liquidity/high FDV model prompted the market to shift towards supporting fair issuance. Fair issuance aims to create an open and equitable TGE structure, putting tokens in the hands of the public from the outset, reducing insider advantages and large-scale private allocations. Despite its good intentions, this issuance strategy gradually revealed its own flaws:

• Limited Funding: Fair issuance teams typically start TGE with very little or no funding. Since the token supply held by the team is usually very low, fundraising after TGE becomes extremely difficult, jeopardizing the project's long-term viability, especially when token prices continue to decline.

• Thin Liquidity and Poor Execution: Lacking market makers and initial liquidity, tokens from fair issuance experience weak liquidity during launch and maturation phases, leading to high volatility and slippage.

• CEX Perpetual Contracts Amplifying Downward Pressure: Many fair issuance tokens—especially in the AI space—have been listed on perpetual futures markets on CEX before appearing in the spot market, allowing leveraged shorts to severely impact the price of tokens with shallow on-chain liquidity.

• Long-term Price Ceiling: The combination of limited on-chain liquidity and leveraged shorting ultimately creates an environment where demand struggles to overcome oppressive sell-off pressure.

Fair issuance initially felt like a breath of fresh air, encouraging more "open" participation. However, it ultimately failed to establish a long-term sustainable market structure. The market began searching for alternatives once again.

Lessons Learned from Market Reactions

Both the low liquidity/high FDV and fair issuance approaches have failed in their own ways. Observing the market's reactions to both, we have learned the following lessons:

• Public Price Discovery is Crucial: If public buyers cannot effectively participate in price discovery, they will lose interest, especially after insiders have clearly cashed out early.

• Depth and Liquidity Outweigh Short-term Speculation: Rapid speculation or artificial price increases cannot fix fundamentally shallow markets. Sustained on-chain liquidity depth is essential.

• Teams Need Runway, and Liquidity Buyers Need Upside: Teams must raise sufficient funds to ensure the project's long-term survival while leaving significant upside potential for new entrants in the public market.

• Market Demand Drives Structural Change: The evolution from low liquidity/high FDV to fair issuance indicates that if the market refuses to support problematic issuance methods, teams will adjust. However, relying solely on fair issuance cannot guarantee success in the absence of liquidity building and long-term market strategies.

• Transparency is Non-negotiable: Trust collapses when insiders exploit opaque market structures to exit quickly. Fair issuance has promoted more on-chain openness, but true accountability and clarity remain incomplete.

Why On-Chain Liquidity is the Next Step

Reflecting on these failures and the market's resistance highlights a core principle: a long-term sustainable market requires on-chain public price discovery, where insiders cannot easily sell tokens privately. On-chain trading promotes real-time accountability, clearly showing who holds what assets and at what price they are selling.

Ensuring sufficient liquidity at all stages of a token's lifecycle requires a structure that integrates the following elements:

• Transparent On-Chain Market Depth

• Robust Mechanisms to Mitigate Sudden Sell-off Pressure

• Incentives for Teams and Investors to Participate Long-term Post-TGE

This directly leads to the concept of a DeFi-native TGE—a model that merges capital raising with public liquidity formation, aligning the long-term fate of insiders with that of the project.

DeFi-Native TGE

The core of our proposal is:

• Transforming Potential Sell-off Pressure into Structured On-Chain Liquidity

• Replacing Cliff Unlocks with Price/Time-Based Unlocks

• Proposing a Transparent and Sustainable Path to Mainstream CEX Listings

• Enabling and Even Requiring Insiders—Investors and Teams—to Use On-Chain Mechanisms

The specific methods are as follows:

Phased Liquidity Supply (Unilateral and Bilateral)

• Unilateral LP: Investors can deposit native tokens into a concentrated liquidity pool (e.g., Uniswap V3). By selecting specific price ranges, they effectively set conditions for sell orders—tokens will only be sold when the market reaches that range.

• Bilateral LP: To provide deeper liquidity and reduce slippage, participants (including teams) can pair tokens with stablecoins or other assets (like ETH). This promotes immediate market depth.

Price-Based Unlocking and Locking LP Positions

• Gradual Unlocking: Projects limit the LP share available to each investor at TGE. As time or price thresholds increase, more shares unlock, preventing sudden supply shocks.

• Locking LP: To curb speculative behavior (like driving prices to hit LP ranges), liquidity providers must lock their positions for a period after token conversion, preventing immediate withdrawal and secret re-entry, maintaining liquidity consistency.

Encouraging Early Investors to Exit Before TGE

• Lower Price Targets vs. New Investors: Teams can encourage early investors with very low costs to partially exit through high-priced rounds of oversubscription before TGE, allowing new investors to enter. This can be achieved through transfers from existing investors to new investors, ultimately approved by the team. In this scenario, early investors can profit without selling in the public market, while new supporters—entering at a higher price—are less likely to sell early after launch. It should be noted that such transfers have historically been rejected by teams.

• Healthier Post-TGE Structure: As a result, the investor base at TGE is more likely to hold tokens in pursuit of higher multiples, reducing immediate sell-off pressure and distributing liquidity more evenly within price ranges.

Smart Contract Control and Compliance

• Compliance Pools and Structured Withdrawals: Through enforced policy constraints (like AML fund flow checks), locked tokens can only flow into approved on-chain markets in a publicly visible, rule-based manner.

• Gradual Access: Smart contracts manage how and when LPs can adjust price ranges, collect fees, or withdraw, ensuring that waves of insider sell-offs do not destroy the market.

TGE Pricing and Team Inclusion

• Attractive and Sustainable Valuations: Projects may conduct TGE at valuations below typical low liquidity/high FDV levels, attracting genuine buyer interest. Over time, on-chain prices and trading volumes can naturally rise, ultimately attracting mainstream listings.

• Inclusion of Team Allocations: Teams are subject to the same LP constraints on their holdings, indicating true alignment. In an environment where the market demands transparency, team positions can also be publicly monitored, curbing silent OTC sales or sudden insider exits.

Gradual Move Towards CEX Listings

• Delaying Early Listings: Initially reducing exposure to large exchanges helps the market discover prices on-chain, without immediate exit channels for insiders.

• Catalyst: As usage, trading volume, and community traction grow, mainstream CEX listings become genuine demand-driven factors rather than scenarios of rapid sell-offs.

Expected Benefits

This DeFi-native TGE model addresses many issues while supporting deeper public price discovery:

• Genuine On-Chain Discovery: Launching at fair prices and requiring insiders to provide liquidity promotes real-time transparent price formation.

• Healthier Unlocking Models: Price-based token unlocking reduces the fear of cliff sell-offs. If buyers do not push prices to specific ranges, insiders remain locked.

• Stronger liquidity, reducing reliance on MM: Key stakeholders become initial liquidity providers, lowering dependence on market makers whose motivations may conflict.

• Team and investor unity: If core contributors also face liquidity constraints, they cannot quietly abandon the project; success is shared.

• Robust market support: Combined with gradual CEX listings, the project experiences incremental catalysts while building a stronger on-chain reputation.

• Experimental space: Because this approach is programmable, teams can adjust lock-up periods, price thresholds, or whitelist pools to pursue optimal outcomes.

Most importantly, it directs founders, early investors, and new participants towards sustainable long-term growth rather than quick opportunistic exits.

Questions and Reflections

Even though this model addresses common TGE failures, it still raises further exploration:

• Liquidity concentration: Could a large number of holders cluster in similar ranges, creating price "walls"? If so, how can this be prevented?

• Order book vs. AMM: Is concentrated liquidity AMM always superior, or is a hybrid approach more suitable for certain tokens?

• Execution and regulations: Are there compliance requirements (such as KYC/AML) that investors must meet to participate?

• Investor education and tools: Is there a need for dedicated dashboards or third-party managers to help inexperienced or resource-limited insiders handle advanced LP strategies?

• Team transparency: Although forward contracts or private trades may persist, requiring insiders to fully or nearly fully disclose will promote honesty.

Conclusion

From low liquidity/high FDV to fair issuance, the crypto world swings between extremes—one that brings short-term profits to insiders and another that lacks sufficient funding or sustainable liquidity to succeed. Both options lead participants to optimize for extremely short-term results, disillusioned by fleeting speculation and manipulation.

By introducing a DeFi-native TGE—rooted in phased on-chain liquidity, metric-based incremental unlocking, and enforced transparency—we pave a path:

• Projects raise sufficient capital without relying on exploitative trading.

• Genuine on-chain price discovery and liquidity development build trust with retail and institutional investors.

• Early investors with lower price targets can safely exit before TGE to newcomers with higher costs and valuation targets, optimizing secondary market health.

• Mainstream CEX listings become true catalysts rather than immediate exit channels.

• The market acts as the ultimate arbiter, rewarding or rejecting issuances based on alignment with these principles.

While no single TGE model fits every project, it is clear that we need a blueprint that promotes genuine on-chain price discovery, robust market liquidity, and deep alignment among stakeholders. The DeFi-native TGE model aims to take meaningful steps towards these goals.

The crypto ecosystem thrives on innovation and iteration. By challenging the norms of low liquidity/high FDV and fair issuance, we can pave the way for healthier incentive structures—ensuring that long-term value creation outweighs fleeting speculation.

Ultimately, if this article can spark discussions about merging the best aspects of various TGE models and encourage new solutions that reward genuine growth rather than quick exits, we will have fulfilled our mission. Let us work together to create a token issuance environment where everyone can benefit from sustained success, and the market can fairly reward those builders, investors, and community members striving for a bright future in crypto.

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