Low circulation, high FDV and fair issuance: TGE model dilemma and reconstruction of DeFi native solution

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: The article reviews the advantages and disadvantages of the two TGE models of low circulation/high FDV and fair issuance, pointing out that the former is conducive to insiders to cash out quickly, while the latter is unsustainable due to insufficient funds and liquidity. Based on market lessons, a DeFi native TGE solution is proposed, which uses on-chain liquidity, phased price unlocking and transparent smart contract mechanisms to balance the team's funding needs with the public's real price discovery, while incentivizing 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 reorganized):

Why we need to rethink TGE

The TGE is often a defining point in a project’s lifecycle. It is the moment when a project most significantly transitions from the private to the public realm. Different stakeholders have different 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 approaches - low circulation/high FDV issuance and fair issuance. These two approaches are at opposite ends of the spectrum, each with distinct advantages and disadvantages. However, both approaches have mostly failed to achieve long-term sustainable results. As the crypto ecosystem continues to evolve, we believe it is time to take a step back, learn lessons from history, and decide if changes are needed.

This article proposes a middle-of-the-road TGE model that leverages on-chain liquidity, promotes true public price discovery, and ensures that the incentives of insiders — teams and investors — are aligned with long-term success. Before diving into its mechanics, let’s take a look at how the two mainstream TGE approaches collapsed due to their own flaws, what the market reaction teaches us, and why an on-chain-centric approach is the logical next step for projects pursuing lasting success.

Shortcomings of recent TGE models

Low flow rate/high FDV

The low circulation/high FDV model usually involves multiple rounds of pre-TGE financing, with gradually increasing valuations and extremely low circulating supply on the first day. Initially, this can create an illusion of scarcity and drive prices up dramatically. However, over time, problems emerge:

Private pre-TGE price discovery: The team raises multiple rounds of funding at increasingly higher valuations and negotiates to secure a first-day listing on a major centralized exchange (CEX). By the time of the TGE, most of the price appreciation has already occurred, and there are few fringe buyers in the public market.

· Expensive top exchange listings: Many projects are required to pay up to 10% or more of their token supply as fees to be listed on top exchanges on their first day. This is highly dilutive and often hurts the long-term prospects of the project.

Over-reliance on market maker (MM) transactions: To ensure initial liquidity, projects allocate large amounts of tokens to third-party market makers under loose conditions. These transactions lack transparency, often lead to misaligned incentives, and impose ongoing burdens on projects.

Investors hedge their locked positions: As tokens are locked for a long time, smart investors/funds short the assets in the external market, effectively neutralizing their exposure and laying the groundwork for selling pressure after unlocking.

Discounted OTC (Over-the-Counter) Sales: Investors and teams often sell at a discount to bargain-hunting buyers via OTC, who then hedge their newly acquired discounted positions and close out their positions when unlocked.

Kickbacks to Liquidity Funds: Teams may provide “sweeteners” or side deals to liquidity funds to induce early post-TGE buying, artificially driving up prices. This potentially illegal activity provides insiders with a brief window to exit OTC at an inflated valuation.

Unlocking by investors triggers 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), unlocking may cause the price to stagnate or collapse under the pressure of selling.

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

The Fair Launch Transformation — and Its Shortcomings

Frustration with the failure of the low circulation/high FDV model has led the market to support the fair launch. The fair launch aims to create an open and equal TGE structure, put the tokens in the hands of the public from the beginning, reduce insider advantages and large-scale private placement allocations. Although well-intentioned, this launch strategy has gradually exposed its own flaws:

Limited Funding: Fair launch teams often launch a TGE with little or no funding. Since the supply of tokens held by the team is usually low, raising funds after the TGE is extremely difficult, which can damage the long-term viability of the project, especially if the token price continues to fall.

Thin liquidity and poor execution: Lacking market makers and initial liquidity, fair-issued tokens have thin liquidity during launch and maturity, leading to high volatility and high slippage.

CEX perpetual contracts amplify downward pressure: Many fair launch tokens — especially in the AI space — have launched perpetual futures markets on CEXs before spot markets, enabling leveraged shorts to hit tokens with shallow on-chain liquidity, driving down prices.

Long-term price ceiling: Limited on-chain liquidity combined with leveraged short selling ultimately creates an environment where demand struggles to overcome repressive selling pressure.

The fair launch initially acted 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 look for alternatives.

Lessons from market reactions

Both the low circulation/high FDV and fair launch approaches failed in their own ways. By observing how the market reacted to both, we learned the following lessons:

Public price discovery is critical: If public buyers cannot effectively participate in price discovery, they will lose interest, especially after it becomes clear that insiders have cashed out early.

Depth and liquidity trump short-term speculation: A quick speculation or artificial pump cannot fix a fundamentally shallow market. Sustained on-chain liquidity depth is critical.

Teams need runway, liquid buyers need upside: Teams need to raise enough capital to ensure the long-term viability of their projects while leaving significant upside potential for new public market entrants.

Market demand drives structural change: The evolution from low circulation/high FDV to fair launch shows that teams will adjust if the market refuses to support a problematic launch method. However, fair launch alone cannot guarantee success in the absence of liquidity construction and long-term market strategy.

Transparency is non-negotiable: Trust breaks down when insiders abuse opaque market structures for a quick exit. Fair launches drive more on-chain openness, but true accountability and clarity remain incomplete.

Why on-chain liquidity is the next step

Looking back at these failures and market resistance highlights a core principle: long-term sustainable markets require open price discovery on-chain, where insiders cannot easily sell tokens privately. On-chain transactions facilitate real-time accountability, clearly showing who holds what assets and at what price.

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

Transparent on-chain market depth

A robust mechanism to contain sudden selling pressure

· Incentivize teams and investors to participate long term after TGE

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

DeFi native TGE

The core of our proposal is:

Convert potential selling pressure into structured on-chain liquidity

Replace big cliff unlocks with price/time based unlocks

Propose a transparent and sustainable path to mainstream CEX listing

Make it possible or even necessary for insiders — investors and teams — to use on-chain mechanisms

The specific method is as follows:

Phased liquidity provision (unilateral and bilateral)

· One-sided LP: Investors can simply deposit native tokens into a centralized liquidity pool (such as Uniswap V3). By selecting a specific price range, they effectively set a conditional sell order - the token 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.

Unlocking and locking LP positions based on price

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

· Locking LP: To curb speculative behavior (such as pushing up the price to hit the LP range), liquidity providers still need to lock their tokens for a period of time after the token conversion. They cannot withdraw immediately and re-enter secretly to maintain liquidity consistency.

Encourage early investors to exit before TGE

· Lower price target vs. new investors: Teams can encourage very low-cost early investors to partially exit to new investors in an oversubscribed, high-priced round before the TGE. This can be done via transfers from existing investors to new investors, ultimately approved by the team. In this scenario, early investors can profit without having to sell in the public market, while new backers - who entered at a higher price - have a lower propensity to sell early after launch. Note that such transfers have historically been rejected by teams.

Healthier post-TGE structure: As a result, the investor base at the time of the TGE is more likely to hold tokens for higher multiples, reducing immediate selling pressure and distributing liquidity more evenly across the price range.

Smart Contract Control and Compliance

Compliant pools and structured withdrawals: By enforcing policy constraints (such as AML fund flow checks), locked tokens can only flow into approved on-chain markets in a publicly visible, rules-based manner.

Progressive access: Smart contracts govern how and when LPs adjust price bands, collect fees, or withdraw, ensuring that waves of insider selling don’t destroy the market.

TGE Pricing and Team Inclusion

Attractive and sustainable valuations: Projects may conduct TGEs at valuations below typical low circulation/high FDV, attracting real buyer interest. Over time, on-chain prices and trading volumes can naturally increase, eventually attracting mainstream listings.

· Inclusion of team allocations: Teams apply the same LP constraints to their holdings, demonstrating true alignment. In an environment where the market demands transparency, team positions can also be monitored publicly, curbing silent OTC selling or sudden internal exits.

Gradually moving towards CEX listing

Delayed Early Listing: Initially reducing exposure to large exchanges helps the market discover price on-chain without instant exit channels for insiders.

Catalyst: As usage, volume, and community traction grow, major CEX listings become true demand drivers rather than quick-sell scenarios.

Expected Benefits

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

True on-chain discovery: Launching at a fair price and requiring insiders to provide liquidity, facilitating real-time and transparent price formation.

Healthier unlocking patterns: Price-based token unlocking reduces fear of big cliff sell-offs. If buyers don’t push the price to a certain range, insiders stay locked up.

Stronger liquidity and reduced reliance on MMs: Key stakeholders become initial liquidity providers, reducing reliance on market makers with potentially conflicting incentives.

Team and investor solidarity: Core contributors cannot quietly abandon a project if they also face liquidity constraints; success is shared.

· Robust market support: Combined with gradual CEX listings, the project experiences incremental catalysts as it builds a stronger on-chain reputation.

Room for experimentation: Because this approach is programmable, teams can adjust lockup periods, price thresholds, or whitelist pools to pursue optimal outcomes.

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

Questions and thoughts

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

Liquidity concentration: A large number of holders may gather in a similar range, forming a price “wall”? If so, how to prevent it?

Order Books vs. AMMs: Are centralized liquidity AMMs always superior, or are hybrid approaches better suited for certain tokens?

· Enforcement and Regulation: Are there compliance requirements (e.g. KYC/AML) that investors need to meet in order to participate?

Investor education and tools: Is there a need for a dedicated dashboard or third-party administrator to help less experienced or resource-constrained insiders navigate advanced LP strategies?

· Team transparency: While forward contracts or side deals may continue, requiring full or near-full disclosure from insiders will drive honesty.

Summarize

From low circulation/high FDV to fair launch, the crypto world oscillates between extremes — one that delivers short-term profits to insiders, and another that lacks sufficient funding or sustainable liquidity to succeed. Both options leave participants optimizing for very short-term results and becoming disillusioned with short-term hype and manipulation.

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

Projects raise enough capital without relying on exploitative deals.

True on-chain price discovery and liquidity development, building 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 the health of the secondary market.

Mainstream CEX listing becomes a real catalyst rather than an immediate exit channel.

The market acts as the ultimate arbiter, rewarding or denying issuance based on alignment with these principles.

While no single TGE model is right for every project, it is clear that we need a blueprint that promotes true on-chain price discovery, robust market liquidity, and deep alignment among stakeholders. The DeFi native TGE model aims to take a meaningful step toward 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 healthier incentive structures - ensuring long-term value creation trumps short-term hype.

Ultimately, if this article can spark a discussion about combining 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 continued success and the market can fairly reward the builders, investors, and community members who work hard for the bright future of crypto.