Rug Pulling, Market Maker Raking, What Can Save the Much-Maligned TGE?

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

Editor's Note: The article reviews the advantages and disadvantages of two TGE models: low circulating supply/high FDV and fair distribution. It points out that the former enables insiders to cash out quickly, while the latter struggles due to insufficient funding and liquidity. Based on market lessons, it proposes a DeFi-native TGE scheme that utilizes on-chain liquidity, staged price unlocks, and a transparent smart contract mechanism to balance the team's funding needs with public price discovery. It also incentivizes insiders to align with the project's long-term goals, thus building a more sustainable tokenomic structure.

Below is the original content (slightly reorganized for readability):

Why Rethinking TGE is Necessary

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

Over the past 18 months, we have seen two mainstream TGE approaches: low circulating supply/high FDV issuance and fair distribution. These two approaches are at opposite ends of the spectrum, each with clear advantages and disadvantages. However, in achieving long-term sustainable outcomes, these approaches have mostly 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 a change is needed.

This article proposes an intermediate TGE model that leverages on-chain liquidity to promote genuine public price discovery and ensure alignment of incentives between insiders—the team and investors—and long-term success. Before delving into its mechanisms, let us first examine how the two mainstream TGE approaches have faltered 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 sustainable success.

Flaws in Recent TGE Models

Low Circulating Supply/High FDV

The low circulating supply/high FDV model typically involves multi-round pre-TGE financing, with valuation gradually increasing and an extremely low initial circulating supply on the first day. Initially, this can create a scarcity illusion that drives a sharp price surge. However, over time, issues arise:

· Private Pre-TGE Price Discovery: The team conducts multiple rounds of financing at increasingly higher valuations and negotiates to ensure listing on a mainstream centralized exchange (CEX) on the first day. By the time of the TGE, most of the price appreciation has already occurred, leaving few buyers in the public markets.

· Expensive Top-Tier Exchange Listing: Many projects need to pay up to 10% or more of the token supply as a fee to list on a top-tier exchange on the first day. This highly dilutes ownership and often harms the project's long-term prospects.

· Overreliance on Market Maker (MM) Trading: To ensure initial liquidity, projects allocate a large number of tokens to third-party market makers under loose terms. These trades lack transparency, often leading to misaligned incentives and ongoing burdens for the project.

· Investor Position Locking Hedge: Due to long-term token locking, savvy investors/funds short the asset in the external market to effectively hedge their exposure, laying the groundwork for sell pressure post-unlock.

· Discounted Over-the-Counter (OTC) Sales: Investors and teams often sell at a discount through OTC to buyers seeking lower prices, who then hedge their newly acquired discounted positions and close them out at unlock.

· Providing Liquidity Fund Kickbacks: Teams may offer "sweeteners" or private deals to liquidity funds to induce early post-TGE purchases, artificially driving up the price. This potentially illicit activity provides insiders with a brief window to exit OTC at inflated valuations.

· Investor Unlocking Triggers Unsustainable Sell Pressure: Once a large amount of tokens unlocks, retail investors must consider whether the looming supply will overwhelm the market. If there is insufficient demand for the product (or token), unlocking can lead to price stagnation or a collapse under selling pressure.

Essentially, the low circulation/high FDV model has fostered an environment where insiders can quickly cash out, often leaving retail or late buyers at a disadvantage. Projects often struggle after the first year as early profiteers lack the incentive to continue involvement.

The Shift to Fair Distribution — and Its Own Pitfalls

Disappointment with the failure of the low circulation/high FDV model has prompted the market to pivot towards supporting fair distribution. Fair distribution aims to create an open, equitable TGE structure by initially placing tokens in the hands of the public, reducing insider advantages and large-scale private allocations. Despite good intentions, this distribution strategy has gradually revealed its own flaws:

· Limited Funding: Fair distribution teams usually start the TGE with very little or no funding. As the team's token supply is usually very low, fundraising post-TGE becomes extremely challenging, hampering the project's long-term viability, especially during continuous token price declines.

· Low Liquidity and Poor Execution: The lack of market makers and initial liquidity results in fair-launched tokens having poor liquidity during launch and maturation, leading to high volatility and slippage.

· CEX Perpetual Contracts Amplifying Downside Pressure: Many fair-launched tokens—especially in the AI space—had already been listed on centralized exchanges (CEXs) with perpetual futures contracts before entering the spot market, allowing leveraged short positions to significantly impact tokens with shallow on-chain liquidity, thus driving down prices.

· Long-Term Price Ceiling: Limited on-chain liquidity combined with leveraged shorting ultimately creates an environment where demand struggles to surpass suppressive sell pressure.

Fair launch initially stood as a beacon of hope, encouraging a more "open" participation. However, it ultimately failed to establish a sustainable long-term market structure. The market is once again seeking alternative solutions.

Market Response Learnings

Both low circulating supply/high fully diluted valuation (FDV) and fair launch approaches failed in their own ways. Observing the market's response to both, we learn the following lessons:

· Public Price Discovery Is Critical: If the public buyers cannot participate effectively in price discovery, they will lose interest, especially when insiders clearly cash out well in advance.

· Depth and Liquidity Trump Short-Term Hype: Quick speculation or pump-and-dumps cannot fix a fundamentally illiquid market. Sustained on-chain liquidity depth is crucial.

· Teams Need Runway, Retail Buyers Need Upside: Teams must raise enough funds to ensure the project's long-term survival while leaving significant upside potential for public market newcomers.

· Market Demand Drives Structural Change: The evolution from low circulating supply/high FDV to fair launch indicates that if the market refuses to support flawed issuance methods, teams will adapt. However, relying solely on fair launch cannot guarantee success without liquidity building and long-term market strategy.

· Transparency Is Non-Negotiable: When insiders exploit opaque market structures to swiftly exit, trust collapses. Fair launch has spurred more on-chain openness, but true accountability and clarity remain incomplete.

Why On-Chain Liquidity Is the Next Step

Reflecting on these failures and market pushback highlights a core principle: a long-term sustainable market needs to conduct price discovery openly on-chain, where insiders cannot easily offload tokens in private. On-chain trading fosters real-time accountability, clearly showing who holds what assets and at what price they sell.

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

· Transparent On-Chain Market Depth

· Robust Mechanism to Restrain Sudden Sell Pressure

· Incentivize Team and Investors for Long-Term Engagement Post TGE

This directly leads to the concept of a DeFi-native TGE—an amalgamation of capital raising and public liquidity formation, aligning insiders with the project's long-term destiny.

DeFi-Native TGE

Our proposal core lies in:

· Transforming potential sell pressure into structured on-chain liquidity

· Employing price/time-based vesting instead of large cliff-vesting

· Proposing a transparent sustainable path to mainstream CEX listing

· Enabling insiders—investors and team members—to activate or even necessitate on-chain mechanisms

The specific approach is as follows:

Phased Liquidity Provision (Single-Sided and Dual-Sided)

· Single-Sided LP: Investors can deposit only the native token into a concentrated liquidity pool (e.g., Uniswap V3). By selecting a specific price range, they effectively set a conditional sell order—the token is sold only when the market reaches that range.

· Dual-Sided LP: To provide deeper liquidity and reduce slippage, participants (including the team) can pair the token with a stablecoin or other assets (e.g., ETH). This facilitates immediate market depth.

Price-Based Vesting and Locking LP Positions

· Gradual Unlocking: The project restricts the LP share each investor can have at TGE. With time or price threshold increases, more shares unlock, preventing sudden supply shocks.

· LP Locking: To restrain speculative behavior (e.g., manipulating prices to hit the LP range), liquidity providers need to lock their position for a period post-token conversion, unable to withdraw immediately and re-enter stealthily, maintaining liquidity consistency.

Incentivizing Early Investors to Exit Pre-TGE

· Lower Price Targets vs. New Investors: The team can incentivize early investors with very low-cost entry to partially exit before TGE through oversubscribed high-price rounds for new investors. This can be achieved through a 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—with a higher entry price—have a lower tendency to sell early post-launch. It is worth noting that historically, such transfers have often been rejected by teams.

· Healthier Post-TGE Structure: Therefore, the investor base at TGE is more likely to hold tokens for higher multiples, reducing immediate sell pressure, and evenly distributing liquidity within the price range.

Smart Contract Governance and Compliance

· Compliance Pool and Structured Withdrawals: Through enforced 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: Smart contracts govern how and when LPs adjust price ranges, collect fees, or withdraw, ensuring insider sell-offs do not crash the market.

TGE Pricing and Team Inclusion

· Attractive and Sustainable Valuation: Projects may undergo TGE at a valuation lower than the typical low float/high FDV, attracting genuine buyer interest. Over time, on-chain price and trading volume can naturally increase, eventually attracting mainstream listings.

· Team Allocation Inclusion: The team is subject to the same LP constraints on their holdings, signaling true alignment. In an environment where market demands transparency, team positions can also be publicly monitored, curbing silent OTC sales or sudden insider exits.

Gradual Move Towards CEX Listing

Delayed Early Listing: Initially reducing exposure on major exchanges helps the market discover price on-chain without immediate insider exit pathways.

Catalyst: With increasing utilization, trading volume, and community traction, mainstream CEX listings become a genuine demand-driven factor rather than a quick sell-off scenario.

Expected Benefits

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

· Authentic On-Chain Discovery: Launching at a fair price and requiring insiders to provide liquidity promotes real-time transparent price formation.

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

· Enhanced Liquidity, Reduced MM Dependency: Key stakeholders become initial liquidity providers, reducing reliance on market makers with potential conflicts of interest.

· Unity Between Teams and Investors: If core contributors also face liquidity constraints, they cannot silently abandon the project; success is shared.

· Robust Market Support: Combining gradual CEX listing, the project goes through incremental catalysts while building a stronger on-chain reputation.

· Experimentation Space: Due to this programmable approach, the team can adjust lock-up periods, price thresholds, or whitelist pools to pursue the optimum outcome.

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

Issues and Considerations

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

· Liquidity Concentration: Could a large number of holders cluster in similar ranges, forming a price "wall"? 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 Regulation: Are there compliance requirements (such as KYC/AML) that investors need to meet to participate?

· Investor Education and Tools: Is there a need for a dedicated dashboard or third-party manager to help inexperienced or resource-constrained insiders handle advanced LP strategies?

· Team Transparency: While forward contracts or private sales may continue, requiring insiders to fully or nearly fully disclose will drive honesty.

Summary

From low supply/high FDV to fair distribution, the crypto world oscillates between extremes—a model that brings short-term profits for insiders versus one lacking enough funding or sustainable liquidity to succeed. Both choices lead participants to optimize short-term outcomes, feeling disillusioned by transient pumps and manipulation.

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

· Projects raise sufficient capital without relying on exploitative trading.

· Genuine on-chain price discovery and liquidity development, building trust with retail and institutional investors.

· Early investors with lower price targets can safely exit pre-TGE to newcomers with higher costs and valuations, optimizing secondary market health.

· Mainstream CEX listings become a true catalyst rather than an immediate exit ramp.

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

While not a one-size-fits-all TGE model for every project, it is clear that we need a blueprint to promote genuine on-chain price discovery, robust market liquidity, and deep alignment among stakeholders. The DeFi-native TGE model aims to take a meaningful step towards these goals.

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

Ultimately, if this article can inspire a discussion on integrating the best aspects of various TGE models, encouraging rewards for real growth rather than quick exits through new solutions, then we have accomplished our mission. Let us together build a token issuance environment where everyone can benefit from sustained success, where the market fairly rewards those who strive for a brighter future in crypto — the builders, investors, and community members.

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