The Token Generation Event (TGE) marks the beginning of token distribution and the establishment of the token unlock schedule, also known as the vesting schedule.
While there are no hard and fast rules for TGE timing, it's generally best to have the TGE take place on the same day as the public sale/initial token distribution event, or immediately thereafter. Alternatively, the TGE date can be determined based on the business plan and agreement with private investors. Once the public sale is completed and tokens are distributed, the company owner needs to list the asset on centralized or decentralized exchanges and seed initial liquidity to the secondary markets.
However, if the community is able to list the token on any decentralized platform, it can create an unhealthy trading environment through market manipulation by large token holders.
The ideal timing for a TGE and public sales is when the startup has already established a primary market, which means a working product with active customers. If the primary market has not yet been established and the token is listed on trading platforms, a short-term speculative game is likely to occur, leading to a quick dump of the token.
While investors are eager to gain access to the liquid secondary market as soon as possible, this is often not aligned with business growth progression. This makes it a tricky game for startup founders to find the right balance.
Unfortunately, many startups have launched tokens before the product, leading to a highly volatile and speculative experience for investors. Furthermore, if a great product is delivered later and there is a need to recover the secondary markets where the asset is traded, it will require much more capital than was previously needed. Therefore, it's always best to think twice before rushing with the TGE and token listing.
It's worth noting that it's possible to introduce "future tokens" a digital currency that won’t be a token or a future derivative on the token that people can collect and use on the platform. The advantage of this approach is that you can test the economy using the "future token" and motivate people to be more active while promising to open a liquid secondary market once the platform achieves certain milestones, such as 1,000,000 users or daily transactions.
DeFi and gaming projects tend to offer higher community incentives or distributions due to their specific needs. DeFi projects need liquidity and capital to get started, and incentivizing community members for bootstrapping TVL is a common strategy. Similarly, gaming projects invest heavily in early player growth and community engagement since the quality of the project is heavily dependent on the number of players in the ecosystem.
Infrastructure projects such as ENS, Axelar Network, and Biconomy tend to allocate more tokens to core team members and company funds, likely due to providing immediate utility without relying on sufficient liquidity or game players.
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What's Next?
The web3 ecosystem is constantly evolving and the next bull run is likely to bring about a shift in dynamics for all participants. Investor allocations are decreasing while team allocations are increasing. Established companies are now less likely to raise funds from venture capitalists, and new mechanics for initial token distribution, such as compliant airdrops, are becoming more popular. Public sales are also likely to gain popularity in the future.
A few years ago, founders typically reserved around 5% of tokens for themselves and their early team members. In 2021, that number increased to around 20%, more in line with traditional venture equity models. While ownership for investors has decreased, they still typically hold an average of 15% of the total token supply, down from 25% a few years ago.
We have also observed a direct uptick in the number of tokens allocated towards the community, especially through airdrops. Airdrops have seen a resurgence in popularity and have become a major inflection point for any token launch. Public sales have been replaced by reserves for a community treasury and earmarked ecosystem incentives for value-added actions, likely due to the proliferation of DAOs, which have seen a surge of interest from both crypto-native individuals and newcomers.
As a token founder, it's important to recognize that these dynamics will continue to shift as the market evolves. In a bull market, founders have the upper hand, while in a bear market, investors have the advantage. However, the one common denominator is the community, which often walks away with over half of the token distribution, even when the distribution is meant to be allocated based on governance.
This call for contributors places a strong emphasis on those capable of capital allocation and operations, particularly when it comes to treasury management and diversification. We're seeing more ownership going towards those creating meaningful value for a product, community, or protocol, rather than merely those providing capital or optimizing for secondary market liquidity or fundraising.
As we head into a new year, we can expect more token distributions to favor active contributors rather than passive ones, and less emphasis on those who are simply providing capital.
Keep an eye on future publications and read the previous ones in case you missed them.
