Market maker cashing out, play people for suckers by market makers, what can save the heavily criticized TGE? - ChainCatcher

Original Title: Between Extremes: A DeFi-Native Blueprint for Sustainable TGEs Original author: DougieDeLuca, member of Figment Capital Original text compiled by: Rhythm Little Deep

Editor’s note: This article reviews the advantages and disadvantages of two TGE models: low circulation/high FDV and fair issuance. It points out that the former benefits insiders for quick cashing out, while the latter struggles due to a 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 a transparent smart contract mechanism to balance the funding needs of the team with the public's real price discovery. At the same time, it incentivizes insiders to align with the project's long-term goals, thereby building a more sustainable token economic structure.

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

Why we need to rethink TGE

The TGE is often a defining moment in a project's lifecycle. It is 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.

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, in achieving long-term sustainable outcomes, both methods have largely failed to meet expectations. 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 presents a mid-route TGE model that utilizes on-chain liquidity to promote genuine public price discovery while ensuring that insiders—the team and investors—have incentives aligned with long-term success. Before delving into its mechanisms, let’s first examine how two mainstream TGE methods have collapsed due to their own flaws, what the market response teaches 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 liquidity/high FDV model typically involves multiple rounds of pre-TGE financing, with valuations gradually climbing and extremely low first-day circulating supply. At first, this creates the illusion of scarcity and fuels a sharp spike in prices. However, over time, the question emerged:

· 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 of the 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 to be listed on top exchanges on their first day. This highly dilutes equity and often harms the long-term prospects of the projects.

· Over-reliance on market makers (MM) for 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.

· Investors hedge locked positions: Due to long-term lock-up 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 through OTC to buyers seeking low prices, who then hedge the newly acquired discounted position and close their positions upon unlocking.

· Rebates to liquidity funds: Teams may offer "sweeteners" or private trades to liquidity funds to induce early buying after TGE, artificially driving up prices. 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 there is insufficient demand for the product (or token), the unlock may cause prices to stagnate or collapse under heavy selling pressure.

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

The Shift of Fair Issuance - and Its Own Shortcomings

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

· Limited funds: Fair distribution teams usually start the TGE with very little or no funding. Since the team's token supply is usually very low, fundraising after the TGE becomes extremely difficult, which undermines the project's long-term viability, especially when the token price continues to decline.

· Thin liquidity and poor execution: A lack of market makers and initial liquidity results in weak liquidity for fairly issued tokens during launch and maturation phases, leading to high volatility and slippage.

· CEX perpetual contracts amplify downward pressure: Many fairly issued tokens—especially in the AI field—have launched on the CEX perpetual futures market ahead of the spot market, allowing leveraged shorts to severely impact tokens with shallow on-chain liquidity, thus 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 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 once again.

Lessons learned from market reactions

Both low circulation/high FDV and fair distribution methods 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 clearly cashed out in advance.

· Depth and liquidity outweigh short-term speculation: Quick speculation or artificial price increases cannot fix fundamentally shallow markets. Sustained on-chain liquidity depth is crucial.

· Teams need runway, and liquid buyers need upside potential: Teams must raise sufficient funds to ensure the long-term survival of the project while leaving significant upside potential for new entrants in the public market.

· Market demand drives structural changes: The evolution from low circulation/high FDV to fair issuance indicates that if the market refuses to support problematic issuance methods, the team 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: When insiders abuse opaque market structures and exit quickly, trust collapses. Fair issuance drives more 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 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 adequate liquidity at all stages of the token lifecycle, a structure integrating the following elements is required:

· Transparent on-chain market depth

· A robust mechanism to curb sudden selling pressure

· Incentivize teams and investors to participate long-term after TGE

This directly introduces the concept of DeFi native TGE - a model that combines capital raising with public liquidity formation, aligning the interests of insiders with the long-term fate of the project.

Decentralized Finance 原生 TGE

The core of our proposal is:

· Transform potential sell-off pressure into structured on-chain liquidity

· Use price/time-based unlocking instead of cliff unlocking.

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

· Enable insiders—investors and teams—to utilize and even be required to use on-chain mechanisms.

The specific methods are as follows:

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

· Single-sided LP: Investors can only deposit native tokens into concentrated liquidity pools (such as Uniswap V3). By selecting a specific price range, they effectively set a conditional sell order—only selling the tokens 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 available LP share at TGE. As time or price thresholds increase, 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 certain period after conversion, preventing immediate withdrawal and secret re-entry, thus maintaining liquidity consistency.

Encourage early investors to exit before TGE

· Lower price target vs. new investors: The team can encourage early investors with extremely low costs to partially exit at high-priced rounds through oversubscription before the TGE for new investors. 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 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 often been rejected by the team.

· A healthier post-TGE structure: As a result, the investor base at the time of 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 Pool 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 LP manages smart contracts to adjust price ranges, collect fees, or withdraw, ensuring that insider sell-offs do not destroy the market.

TGE pricing with team inclusion

· Attractive and sustainable valuation: The project may perform its TGE at a valuation lower than the 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 applies the same LP constraints to its 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 moving towards CEX listing

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

Catalyst: As usage rates, trading volumes, and community traction grow, mainstream CEX listings become a real demand driver rather than a scenario for quick sell-offs.

expected benefits

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

· Real on-chain discovery: Launch at fair prices and require insiders to provide liquidity, facilitating 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 into a specific range, insiders remain locked.

· Stronger liquidity, reducing reliance on MM: Key stakeholders become initial liquidity providers, lowering dependence on market makers with potentially conflicting motivations.

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

· Strong market support: With a 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 addresses common TGE failures, it still raises further exploration:

· Liquidity concentration: A large number of holders may cluster 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 in order 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: Although forward contracts or private trades may persist, requiring insiders to fully or nearly fully disclose will promote 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 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:

· The project raises 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.

Mainstream CEX listings become real catalysts rather than instant exit channels.

The market, as the final arbiter, can reward or deny 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 to promote genuine on-chain price discovery, robust market liquidity, and deep alignment among stakeholders. The DeFi native TGE model is designed to make meaningful strides towards these goals.

The crypto ecosystem thrives on innovation and iteration. By challenging the norms of low circulation/high FDV and fair issuance, 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 inspire discussions on integrating the best aspects of various TGE models and encourage new solutions that reward real growth rather than quick exits, we will have accomplished 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.