market maker cashing out, market maker playing people for suckers, what can save the heavily criticized TGE?

The native TGE of DeFi is a model that integrates capital raising with public liquidity formation, overcoming the shortcomings of traditional TGE through on-chain liquidity and transparent mechanisms.

Written by: Dougie DeLuca, Member of Figment Capital

**Compiled by: **Rhythm Little Deep

Editor’s Note: The article reviews the advantages and disadvantages of two TGE models: low liquidity / high FDV and fair issuance. It points out that the former allows insiders to cash out quickly, while the latter struggles to sustain due to lack of 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 incentivizing insiders to align with the long-term goals of the project, thereby constructing a more sustainable token economic structure.

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

Why We Need to Rethink TGE

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

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

This article proposes an intermediate route TGE model that utilizes on-chain liquidity to facilitate genuine public price discovery and ensures that the incentives of insiders - the team and investors - are aligned with long-term success. Before delving into its mechanism, let’s first examine how the two mainstream TGE methods have collapsed due to their own flaws, what the market reactions have taught us, and why an on-chain centric approach is the logical next step for projects seeking sustainable success.

Recent Defects in TGE Models

Low Liquidity / High FDV

Low liquidity / high FDV models usually involve multiple rounds of TGE pre-financing, with valuations gradually rising and a very low circulating supply on the first day. Initially, this can create an illusion of scarcity, driving prices to soar dramatically. However, over time, issues emerge:

• Private pre-TGE price discovery: The team conducts multiple rounds of financing at increasingly higher valuations and negotiates to ensure listing on mainstream centralized exchanges (CEX) on the first day. By the time of TGE, most price appreciation has already occurred, and there are few marginal buyers in the public market.
• Expensive top exchange listings: Many projects need to pay up to 10% or more of their token supply as fees for listing on top exchanges on the first day. This greatly dilutes equity and often harms the long-term prospects of the project.
• Over-reliance on market makers (MM) for trading: To ensure initial liquidity, projects allocate a large number of tokens to third-party market makers under loose conditions. These trades lack transparency, often leading to misaligned incentives and imposing a continuous burden on the project.
• Investors hedge against locked positions: Due to the long-term locking of tokens, savvy investors/funds short assets in the external market, effectively neutralizing their exposure and laying the groundwork for selling pressure after unlocking.
• Discount Over-the-Counter (OTC) Sell-off: Investors and teams often sell at a discount to buyers seeking lower prices through OTC, who then hedge the newly acquired discounted positions and close them upon unlocking.
• Rebates to liquidity funds: The team may offer “sweeteners” or engage in private trades with liquidity funds to induce early purchases after the TGE, artificially driving up the price. This potentially illegal activity provides insiders with a brief window to exit OTC at inflated valuations.
• Investor unlocks trigger unbearable selling pressure: Once a large number of tokens are unlocked, retail investors need to 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 the heavy pressure of selling.

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

The Transition of Fair Issuance - and Its Own Shortcomings

The disappointment with the low liquidity / high FDV model failure has prompted the market to shift towards supporting fair issuance. Fair issuance aims to create an open and equal TGE structure, handing tokens to the public from the outset, reducing insider advantages and large-scale private placements. Despite good intentions, this issuance strategy has gradually revealed its own flaws:

• Limited funding: Fair distribution teams usually start TGE with very little or no funds. Since the token supply held by the team is often very low, fundraising after TGE is extremely difficult, leading to a long-term viability of the project being compromised, especially when the token price continues to decline.
• Thin liquidity and poor execution: A lack of market makers and initial liquidity leads to weak liquidity for fairly issued tokens during their launch and maturation phases, resulting in high volatility and high slippage.
• CEX perpetual contracts amplify downward pressure: Many fairly issued tokens—especially in the AI field—have already launched on the perpetual futures market on CEX before the spot market, allowing leveraged shorts to severely impact on-chain liquidity thin tokens, thereby driving down prices.
• Long-term price ceiling: The combination of limited on-chain liquidity and leveraged short selling ultimately creates an environment where demand struggles to surpass oppressive selling pressure.
• Fair issuance initially came as a breath of fresh air, encouraging more “open” participation. However, it ultimately failed to establish a long-term sustainable market structure. The market once again began to seek alternatives.

Lessons learned from market reactions

Both low liquidity / high FDV and fair issuance have failed in their own ways. Observing the market’s reaction 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 obviously cashed out in advance.
• Depth and liquidity surpass short-term speculation: quick speculation or artificial price manipulation cannot fix the fundamentally shallow market. Continuous on-chain liquidity depth is crucial.
• The team needs a runway, liquidity buyers need upside potential: the team must raise enough funds to ensure the project’s long-term survival while leaving significant upside potential for new entrants to the public market.
• Market demand drives structural changes: The evolution from low liquidity / high FDV to fair distribution indicates that if the market refuses to support problematic issuance methods, teams will adapt. However, relying solely on fair distribution cannot guarantee success without liquidity construction and long-term market strategies.
• Transparency is non-negotiable: Trust collapses when insiders abuse opaque market structures and exit quickly. Fair issuance promotes greater on-chain openness, but true accountability and clarity are still incomplete.

Why On-Chain Liquidity is the Next Step

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

To ensure sufficient liquidity at all stages of the token lifecycle, a structure that integrates the following elements is required:

• Transparent on-chain market depth
• A robust mechanism to curb sudden selling pressure
• Encourage teams and investors to participate long-term after TGE

This directly introduces 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 the project.

Decentralized Finance Native TGE

The core of our proposal is:

• Transform potential sell pressure into structured on-chain Liquidity
• Use price/time-based unlocks instead of cliff unlocks
• Propose a transparent and sustainable path to mainstream CEX listing
• Enable insiders—investors and teams—to use on-chain mechanisms even if they must.

The specific methods are as follows:

Phased Liquidity Supply (Single-Sided and Double-Sided)

• Single-sided LP: Investors can only deposit native tokens into a centralized Liquidity pool (such as Uniswap V3). By selecting specific price ranges, they effectively set conditional sell orders — tokens will only be sold when the market reaches that range.
• Bilateral LP: To provide deeper liquidity and reduce slippage, participants (including the team) can pair tokens with stablecoins or other assets (such as ETH). This facilitates instant market depth.

Based on price unlocking and locking LP positions

• Gradual Unlocking: The project limits each investor’s available LP share during the TGE. As time or price thresholds are met, more shares are unlocked to prevent sudden supply shocks.
• Locking LP: To curb speculative behavior (such as driving up prices to reach the LP range), liquidity providers must lock their tokens for a period after conversion, preventing immediate withdrawal and stealth re-entry, maintaining liquidity consistency.

Encourage early investors to exit TGE early.

• Lower price targets vs. new investors: The team can encourage cost-effective early investors to partially exit through high-priced rounds of oversubscription before the TGE, allowing new investors to step in. This can be realized through the transfer from existing investors to new investors, ultimately approved by the team. In this scenario, early investors can profit without having to sell on the public market, while new supporters—entering at a higher price—are less likely to sell early after the launch. It is worth noting that such transfers have historically been rejected by the team.
• 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 the price range.

Smart Contract Control and Compliance

• Compliance pools and structured withdrawals: Tokens that are locked can only flow into approved on-chain markets in a publicly visible, rule-based manner through mandatory policy constraints (such as AML fund flow checks).
• Gradual access: Smart contract management of LP on how and when to adjust price ranges, collect fees, or withdraw, ensuring that insider sell-offs do not destroy the market.

TGE pricing and team inclusion

• Attractive and sustainable valuation: The project may conduct TGE at a valuation below the typical low liquidity / high FDV, attracting genuine buyer interest. Over time, on-chain prices and trading volumes can naturally rise, eventually attracting mainstream listings.
• Inclusion in Team Allocation: The team applies the same LP constraints to their holdings, indicating true consistency. In an environment where the market demands transparency, team positions can also be publicly monitored to curb silent OTC sales or sudden internal exits.
• Gradually move towards CEX listing

Delayed early listing: Initially reducing exposure to large exchanges helps the market discover prices on-chain, without immediate exit channels for insiders.

Catalyst: As usage rates, trading volumes, and community traction grow, mainstream CEX listings have become a true demand-driven factor rather than a rapid sell-off scenario.

Expected Benefits

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

• Real on-chain discovery: launching at fair prices and requiring insiders to provide liquidity, promoting real-time transparent price formation.
• Healthier unlocking model: Price-based token unlock reduces the fear of large cliff sell-offs. If buyers do not push the price into a specific range, insiders remain locked.
• Stronger Liquidity, Reduced Dependence on MM: Key stakeholders become initial liquidity providers, reducing reliance on market makers with potentially conflicting incentives.
• Unity between the team and investors: If core contributors also face liquidity constraints, they cannot quietly abandon the project; success is collective.
• Stable market support: With the gradual listing on CEX, the project experiences incremental catalysts while establishing a stronger on-chain reputation.
• Experimental Space: Since this method is programmable, the team can adjust the lock-up period, price threshold, or whitelist pool to pursue optimal results.

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

Questions and Thoughts

Even if this model solves the common TGE failures, it still raises further exploration:

• Concentrated Liquidity: A large number of holders may gather in similar ranges, forming a price “wall”? If so, how to prevent it?
• Order Book vs. AMM: Is centralized 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 a dedicated dashboard or third-party managers to help inexperienced or resource-constrained insiders handle advanced LP strategies?
• Team Transparency: Although forward contracts or private transactions may persist, requiring insiders to fully or nearly fully disclose will drive honesty.

Summary

From low liquidity / high FDV to fair distribution, the crypto world swings between extremes—one that brings short-term profits for insiders, and the other lacking sufficient funds or sustainable liquidity to succeed. Both options lead participants to optimize for very short-term outcomes, disillusioned by fleeting hype and manipulation.

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

• The project raises enough capital without relying on exploitative trading.
• Real on-chain price discovery and liquidity development, establishing trust with retail and institutional investors.
• Early investors with lower price targets can safely exit before the TGE to newcomers with higher costs and higher valuation targets, optimizing the health of the secondary market.
• Listing on mainstream CEXs becomes a real catalyst rather than an immediate exit channel.
• The market, as the ultimate arbiter, can reward or deny issuance based on the alignment with these principles.

Although there is no single TGE model suitable for every project, it is clear that we need a blueprint to facilitate genuine on-chain price discovery, robust market liquidity, and deep alignment among stakeholders. The DeFi native TGE model is designed to take meaningful steps toward these goals.

The crypto ecosystem thrives on innovation and iteration. By challenging the norms of low liquidity / high FDV and fair distribution, we pave the way for a healthier incentive structure – ensuring that long-term value creation outweighs short-term speculation.

Ultimately, if this article can stimulate discussions about integrating the best aspects of various TGE models and encourage new solutions that reward genuine growth instead of 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 who strive for a bright future in crypto.