Token Generation Event (TGE): Definition and Explanation
December 30, 2023 - 7 min read
A Token Generation Event Is The Creation Of A New Token On A Blockchain Network
A token generation event, or TGE, is defined as the first time a new token is launched on a blockchain network. TGEs can take the form of a public sale, a private sale, or an initial coin offering (ICO). Since the SEC’s December 2017 statement that Initial Coin Offerings (ICOs) would be classified as security offerings, many blockchain and crypto projects have rebranded their token offerings from ICOs to TGEs.
Token Generation Events may refer to the creation of a new token on an existing blockchain network, such as the creation of a new ERC-20 token on Ethereum, or they may refer to the creation of an entirely new token for a new Layer-1 blockchain.
Standard Requirements For A Successful Token Generation Event
For most blockchain projects, their Token Generation Event is among the most critical moments that will define the project’s success (or lead to its failure). In order for a TGE to go smoothly, a variety of things need to be in place well before the event occurs. Some of these things include:
A Strong Community: A TGE won’t be successful if there are no buyers, so it’s essential for projects to foster a strong community in the months (and even years) before a TGE. This includes building up accounts on Twitter, Discord, and Telegram that are active and properly moderated.
A Marketing Strategy: Even with a strong and sizeable community, a token generation needs a strong, clear, and effective marketing strategy. Investors should know well in advance when the token will be launched, the initial listing price, and, most importantly, where they can buy it. During this time, a project should make efforts to continue to expand their audience and inform them of the benefits and utility of the project. This can be done via paid advertising, gamified learn-and-earn programs, giveaways, and via other marketing strategies.
A Whitepaper/Roadmap: For a project soon to launch a TGE to be seen as legitimate by both VCs and regular retail investors, it needs to have a strong and detailed plan, which should be defined in both a whitepaper and a roadmap. The whitepaper should be easy enough for retail investors to understand the basics while providing enough technical data to satisfy more sophisticated investors, like VCs. A roadmap, in contrast, should be a more simplified timeline of the major milestones that the project hopes to hit in the future, ideally with a timeline of at least 5-10 years to assure investors that the founding team has a long-term perspective.
Regulatory Compliance: A Token Generation Event can be filled with potential regulatory and legal pitfalls, especially if the token is readily available to U.S. investors on centralized exchanges. That’s why blockchain projects considering a TGE should make sure to hire a professional legal team with significant experience guiding projects through TGEs, ICOs, IDOs, and similar token creation and distribution events. In particular, the team behind a project should take pains to ensure that their token won’t automatically be labeled a security (especially in the U.S.) and that they won’t (or won’t likely) face legal action from government regulators in any countries in which their token is available.
Liquidity: A project’s token may be amazing and filled with utility, but if people can’t easily buy it at a reasonable market price, that project’s TGE could be a serious failure, leading to a significant devaluation of the token. That’s why blockchain and crypto projects need to work with a sufficient number of centralized and decentralized exchanges to ensure that there are enough tokens available to trade to make sure that investors can buy and sell relatively large orders, and that prices don’t fluctuate significantly between exchanges. This can involve pre-negotiating listings with centralized exchanges and potentially loaning them tokens for liquidity purposes. For decentralized exchanges (DEXs), it may be useful to work with the DEX to institute a pre-sale liquidity mining/staking program to ensure that the DEX has enough liquidity to fufill user orders.
Wallet Compatibility: For a TGE to be successful, it needs to be as easy as possible to buy and sell, and that means being compatible with at least some wallets. This generally isn’t an issue for tokens issued on existing blockchain networks, like ERC-20 tokens on the Ethereum blockchain, Bitcoin forks, or even tokens on other popular Layer-1 ecosystems, like Cosmos. However, for new Layer-1 blockchains, it’s essential to make sure that users can either easily download your project’s wallet to buy and sell tokens. Ideally, for Layer-1s, at least a few other wallets will have added compatibility with the new Layer-1, so users aren’t dependent on a single, brand-new wallet to hold their tokens.
Cross-Chain Interoperability: Just like wallet compatibility, cross-chain compatibility isn’t usually an issue for tokens issued on known blockchains, however, for new Layer-1s, cross-compatibility is essential. Users will often want to bridge the native token on a new Layer-1 chain to a more popular and interoperable chain, like Ethereum. This means that they’ll need a safe, reliable, and easy-to-use blockchain bridge– and ideally more than one. This bridge will be able to create wrapped tokens which can be mor easily traded. For example, a user could use a bridge to take Sui tokens and bridge them to the Ethereum blockchain to create wrapped Sui tokens (using the ERC-20 token standard), which can then be held by any Ethereum-compatible wallet.
Utility: In general, to be successful, most tokens must have some sort of utility (and that utility must be clearly stated) before a TGE. For example, the Uniswap token (UNI) is used to pay fees and issue rewards to liquidity miners/stakers using the Uniswap DEX, as well as to govern the Uniswap ecosystem and project treasury through the Uniswap DAO. This utility can help in regulatory matters as well, since the more utility a token has (i.e., uses other than as a store of value), the less likely it is to be labeled a security.
Decentralization: For tokens that do not want to be labeled as a security, sufficient decentralization (or at least, a plan for sufficient decentralization) is essential. Early on, there should generally be a plan to create a DAO (decentralized autonomous organization) that can govern the ecosystem that the token is intended to provide utility for. There should also be a clear divide between the company and the founders/employees of the project and the new DAO to ensure that the DAO isn’t just a corporation pretending to be decentralized.
Tokenomics: For a TGE to be successful, the team behind a project should act early to create a clear token distribution plan, and make this plan public. This plan should show the initial planned valuation and price of the token, and the percentage of the token that will be (or has been) distributed to various parties, including early investors and VCs, founders and employees, retail private sale investors, any foundations or DAOs that will be associated with the project, potential node operators (if that applies), and exactly how much of the token will be sold on exchanges during the TGE. This info should also include associated data such as the planned market cap, the planned circulating fully diluted market cap, and the planned circulating supply.
Fiat Conversion: If a project has enough liquidity and is listed on enough exchanges, has an easily usable wallet, and is relatively interoperable, the fiat conversion process– i.e., selling the token and getting fiat currency in return, should be relatively easy. However, if one or more of these ideal goals is not fulfilled, it could be hard for investors to convert their tokens into cash, (even through DEXs) and that can make a token significantly less desirable.
Token Generation Events For Security Tokens
Token Generation Events for security tokens are typically referred to as STOs (Security Token Offerings) instead of TGEs. These offerings involve significantly more regulatory compliance work, as the offering generally needs to be approved by the SEC, at least in the U.S., or by a similar regulatory body in the respective country or countries in which the token is issued.
Security tokens are generally ideal for tokenized stocks and real estate, and are generally avoided by most regular crypto and blockchain projects, as these tokens generally cannot be sold on any form of centralized or decentralized exchange due to licensing issues.
Token Generation Events For NFTs
When an NFT is generated, it is called minting, not token generation, however, the process is somewhat the same. The main difference is that most NFTs are minted one-by-one, while fungible tokens (like ERC-20 tokens) can be minted in large batches. However, this is changing rapidly, as the ERC-1155 dynamic NFT standard, which allows for batch minting, is becoming increasingly popular, and may eventually overtake the traditional ERC-721 NFT standard in overall popularity.
Other Token Generation Events
In some cases, Token Generation Events may combine some elements of traditional crypto ICOs and more regulated STOs. This may be the case for tokens that are backed 1:1 by real-world assets or currencies, such as PAX Gold (PAXG), which is backed 1:1 by physical gold bullion, or stablecoins like Tether (USDT) or USD Coin (USDC), which, in the case of Tether, is backed by U.S. dollars and other similar assets, and USD Coin, which is backed 1:1 by real U.S. dollars. In the case of something like USDC, the companies behind it (Coinbase and Circle) respectively have a money transmission license (MTL) and a U.S. banking license.
Therefore, these types of TGEs may take longer and be more expensive, as they typically involve more regulatory oversight.
In Conclusion: TGEs Continue To Be An Essential Aspect Of Crypto Capital Markets
Token Generation Events are, and will likely continue to be an essential aspect of how cryptocurrency is created. New dApps on chains like Ethereum, Polygon, and Solana pop up every day, and many have their own tokens. In addition, new Layer-1s like Sui and Aptos are also becoming increasingly popular, and these have their own native tokens as well, all of which were created during each project’s respective TGE. As mentioned in the beginning, TGEs are nearly identical to Initial Coin Offerings (ICOs), but due to regulatory pressure, few projects use the ICO term anymore, instead opting for terms like Token Generation Events, token issuances, or token launches.