Low Liquidity High FDV and Fair Issuance: TGE Model Dilemma and Decentralized Finance Native Solution Reconstruction

Original Title: Between Extremes: A Decentralized Finance-Native Blueprint for Sustainable TGEs

Original Author: DougieDeLuca, Member of Figment Capital

Original translation: Rhythm Little Deep

Editor’s Note: This article reviews the advantages and disadvantages of two TGE models: low circulation/high FDV and fair distribution. It points out that the former benefits insiders for quick cashing out, while the latter struggles to sustain due to lack of funding and liquidity. Based on market lessons, it proposes a DeFi native TGE solution that utilizes on-chain liquidity, phased price unlocking, and a transparent smart contract mechanism to balance the funding needs of the team with the genuine price discovery of the public, while also incentivizing insiders to align with the project’s long-term goals, thereby constructing a more sustainable token economic structure.

The following is the original content (for ease of reading and understanding, the original content has been edited):

Why we need to rethink TGE ###

The TGE is often a defining moment in the lifecycle of a project. It marks the most significant shift of a 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.

Over the past 18 months, we have seen two mainstream TGE methods - low circulation/high FDV issuance and fair issuance. These two methods are at opposite ends of the spectrum, each with distinct advantages and disadvantages. However, both methods have largely failed to meet the mark in achieving long-term sustainable outcomes. 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 needed.

This paper proposes a middle-of-the-road TGE model that leverages on-chain liquidity, facilitates authentic public price discovery, and ensures that insiders – teams and investors – are motivated to align with long-term success. Before we dive into its mechanics, let’s take a look at how the two mainstream TGE approaches have collapsed due to their own flaws, what the market reaction has taught us, and why an on-chain-centric approach is the logical next step for projects pursuing lasting success.

Recent defects in the TGE model

Low Circulation/High FDV

The low circulation/high FDV model usually involves multiple rounds of pre-financing before the TGE, with valuations gradually rising and an extremely low circulating supply on the first day. Initially, this can create an illusion of scarcity, driving prices to soar dramatically. However, over time, issues begin to surface:

· Private pre-TGE price discovery: The team conducts multiple rounds of financing at increasing valuations and negotiates to ensure listing on mainstream centralized exchanges (CEX) on the first day. By the time of TGE, most of the price appreciation has occurred, and there are few marginal buyers in the public market.

· Expensive listings on top exchanges: 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 highly dilutes equity and often undermines 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 placing a continuous burden on the project.

· Investors hedge their 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) Sales: Investors and teams often sell at a discounted price to buyers seeking lower prices through OTC, and buyers subsequently hedge the newly acquired discounted positions and close them when unlocked.

· Providing rebates to liquidity funds: Teams may offer “sweeteners” or private trades to liquidity funds to induce early purchases after the TGE, artificially driving up prices. This potentially illegal activity offers insiders a brief window for an overvalued OTC exit.

· 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 there is insufficient demand for the product (or token), the unlock may lead to price stagnation or collapse under the heavy pressure of selling.

Essentially, the low circulation/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, as early profit-taking insiders lack the incentive to continue participating.

The Transformation of Fair Distribution - and Its Own Shortcomings

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 equitable TGE structure that puts tokens in the hands of the public from the very beginning, 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 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, leading to impaired long-term viability of the project, especially when the token price continues to decline.

· Thin liquidity and poor execution: The lack of market makers and initial liquidity, along with weak liquidity for fairly issued tokens during their launch and maturation phases, leads to high volatility and high slippage.

· CEX perpetual contracts amplify downward pressure: Many fairly issued tokens—especially in the AI field—have already launched in the perpetual futures market on CEX before hitting the spot market, allowing leveraged shorts to heavily impact tokens with shallow on-chain liquidity, thereby driving down prices.

· Long-term price ceiling: A combination of limited on-chain liquidity and leveraged short selling ultimately creates an environment where demand struggles to surpass the suppressive selling pressure.

Fair issuance initially came 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 to look for alternatives again.

Lessons Learned from Market Reactions

Both low circulation/high FDV and fair issuance have failed in their own ways. Observing the market’s reaction to both, we 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 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, and 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 in the public market.

· Market demand drives structural change: The evolution from low circulation/high FDV to fair distribution indicates that if the market refuses to support problematic issuance methods, the team will adjust. However, relying solely on fair distribution cannot guarantee success in the absence of liquidity building and long-term market strategy.

· Transparency is non-negotiable: When insiders exploit opaque market structures and exit quickly, trust collapses. Fair issuance promotes greater on-chain openness, but true accountability and clarity remain incomplete.

Why is on-chain liquidity the next step?

Reflecting on these failures and the market’s resistance highlights a core principle: a long-term sustainable market requires on-chain price discovery, where insiders cannot easily privately sell tokens. 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 each stage of the token lifecycle, a structure integrating the following elements is required:

· Transparent on-chain market depth

· A robust mechanism to curb sudden sell-off pressures

· Encourage teams and investors to participate long-term after the TGE

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

Decentralized Finance native TGE

The core of our proposal is:

· Convert potential selling pressure into structured on-chain liquidity

· Replace the cliff unlocking with price/time-based unlocking

· Propose a transparent and sustainable path to listing on mainstream CEXs

· Enable insiders - investors and team - to use on-chain mechanisms even if required.

The specific methods are as follows:

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

· Single-sided LP: Investors can deposit native tokens into a concentrated 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 teams) can pair tokens with stablecoins or other assets (such as ETH). This facilitates instant market depth.

Price-based unlocking and locking of LP positions

· Gradual Unlock: The project limits each investor’s LP share during TGE. As time or price thresholds increase, more shares are unlocked to prevent sudden supply shocks.

· Locking LP: In order to curb speculative behavior (such as driving up prices to reach the LP range), liquidity providers must lock their tokens for a period of time after the token conversion, unable to withdraw immediately and secretly re-enter, to maintain liquidity consistency.

Encourage early investors to exit before TGE

· Lower price target vs. new investors: The team can encourage early investors with very low costs to partially exit through oversubscription at high-priced rounds before the TGE for new investors. This can be achieved through the transfer from existing investors to new investors, ultimately approved by the team. In this scenario, early investors can profit without selling on the public market, while new supporters—entering at a higher price—are less inclined to sell early after the launch. It should be noted that such transfers have historically often been rejected by the team.

· A 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 selling pressure and distributing liquidity more evenly within the price range.

Smart Contract Control and Compliance

· Compliance pools and structured withdrawals: Through mandatory policy constraints (such as AML fund flow checks), locked tokens can only flow into approved on-chain markets in a publicly visible, rule-based manner.

· Gradual access: How and when smart contract management LP adjusts price ranges, collects fees, or withdraws, ensuring that insider sell-offs do not destroy the market.

TGE Pricing and Team Inclusion

· Attractive and sustainable valuation: Projects may carry out TGE at valuations lower than typical low circulation/high FDV, attracting genuine buyer interest. Over time, on-chain prices and trading volumes can naturally rise, ultimately attracting mainstream listings.

· Inclusion in team allocation: The team is subject to the same LP constraints for their holdings, indicating true consistency. In an environment where the market demands transparency, the team’s positions can also be publicly monitored, curbing silent OTC sales or sudden internal exits.

Gradually Moving 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, trading volume, and community traction increase, mainstream CEX listings become a real demand driver rather than a quick sell-off scenario.

expected benefits

This DeFi native TGE model solves many problems while supporting deeper public price discovery:

· Real on-chain discovery: Launch at fair prices and require insiders to provide liquidity, promoting real-time transparent price formation.

· Healthier unlocking model: Price-based token unlocking reduces the fear of large cliff sell-offs. If buyers do not push the price to a specific range, insiders remain locked.

· Stronger liquidity, reducing reliance on market makers: Key stakeholders become initial liquidity providers, decreasing dependence on market makers that may have conflicting incentives.

· Team and investors united: If core contributors also face liquidity constraints, they cannot quietly abandon the project; success is shared.

· Strong market support: The project experiences incremental catalysts while establishing a stronger on-chain reputation in conjunction with gradual CEX listings.

· Experimental Space: Since this method is programmable, the team can adjust the locking period, price thresholds, or whitelist pools to pursue optimal results.

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

Questions and Thoughts

Even if this model addresses 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-limited insiders handle advanced LP strategies?

· Team transparency: Although forward contracts or private trades may continue, requiring insiders to fully or nearly fully disclose will drive honesty.

Summary

From low circulation/high FDV to fair issuance, the crypto world swings between extremes—one that brings short-term profits for insiders, and the other that lacks sufficient funding or sustainable liquidity to succeed. Both options leave participants optimizing for very short-term results, 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:

· Projects raise sufficient 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 CEX becomes a true catalyst, rather than an instant exit channel.

The market, as the ultimate arbiter, can reward or reject issuance based on the degree of alignment with these principles.

Although there is no single TGE model suitable for every project, it is clear that we need a blueprint that promotes authentic 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 circulation/high FDV and fair distribution, we can pave the way for a healthier incentive structure—ensuring that long-term value creation outweighs short-term speculation.

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