What is a Token Generation Event (TGE)?

Image: Berachain announces TGE (https://x.com/berachain/status/1886784576900538430）

Token Generation Event (TGE) is a fundraising method based on blockchain technology, usually used by emerging blockchain projects and companies to launch new cryptographic tokens. Through TGE, project teams can sell tokens to global investors and early supporters in exchange for funding, providing financial support for the development and expansion of the project.

The core of TGE is the issuance of "Utility Tokens". Utility tokens are usually associated with specific products, services, or decentralized applications (DApps), and their main function is to provide access or facilitate transactions on a specific platform. Unlike traditional securities, utility tokens typically do not represent ownership or dividend distribution in a company, but focus on providing some form of "utility" value to the holders.

The relationship between TGE and ICO:
The token generation event is to some extent intertwined with the initial coin offering (ICO). ICO (Initial Coin Offering) is a way of crowdfunding through cryptocurrency, which first appeared in 2014. At that time, many blockchain projects (such as Ethereum) raised a large amount of funds through ICO and launched their own tokens. However, as the ICO market became overheated, many scams and non-compliant projects emerged, which affected the reputation of ICOs.

One major difference between TGE and ICO is that TGE focuses more on issuing 'utility tokens', while ICOs often cover a wider range of token forms, including some that can be considered as securities. Therefore, although their goals are similar, TGEs are relatively clear in terms of legal regulation and product value definition.

Advantages of TGE

Global Accessibility: One of the significant advantages of TGE is its global accessibility. Due to the decentralized nature of blockchain technology, TGE allows investors from all over the world to participate easily. This enables even a small startup project to attract funding support from around the world.

Decentralized Crowdfunding: Compared with traditional financing methods, TGE is a decentralized form of financing. It does not rely on traditional financial intermediaries such as banks and investment institutions, but achieves decentralization through blockchain technology. This not only reduces intermediary costs, but also improves the liquidity and transparency of funds.

Innovation Opportunity: TGE provides innovators with a platform to turn their ideas into reality through decentralized applications (DApps) and other means. With TGE, developers can quickly implement projects and attract users, injecting more creativity and vitality into the global blockchain ecosystem.

Efficient Financing: Traditional financing methods may require long preparation and approval processes, while TGE uses blockchain technology to greatly simplify the process of fundraising. Through smart contracts, project parties can directly issue tokens to investors without the need for third-party intervention, thereby improving financing efficiency.

Inclusive Participation: Due to the TGE not being restricted by the traditional financial system, any interested users and investors can participate, regardless of their level of experience. This provides more investment opportunities for ordinary investors and breaks down the high barriers in traditional financing methods.

Disadvantages of TGE

Regulatory Uncertainty: Despite the decentralized and transparent nature of TGE, investors may face significant legal risks due to the lack of a unified regulatory framework. Different countries and regions have varying regulatory policies for cryptocurrencies, posing considerable challenges for investors.

Market Volatility: The high volatility of the cryptocurrency market is a major risk for TGE. Due to changes in market sentiment, the value of tokens may fluctuate significantly, and even experience sharp declines, resulting in potential losses for investors.

Feasibility of the project: Although TGE provides financial support for the project, not all projects funded through TGE can be successfully implemented. Some projects may ultimately fail due to lack of substantive progress or team capability issues, which is a potential risk for investors.

Security Vulnerabilities: TGE platform may become a target for hackers. Some platforms may have security vulnerabilities that result in users' funds or personal information being stolen. This is an important issue that TGE faces and requires the platform to strengthen its security measures.

Team Credibility: The credibility of the project team is crucial. In the past, there have been some project teams that have taken investor funds after a successful TGE, resulting in losses for investors. Therefore, investors need to conduct thorough due diligence before participating in a TGE to ensure the transparency and credibility of the project team.

Other common concepts in token economics

Image: BERA Token Distribution Examplehttps://docs.berachain.com/learn/pol/tokens/tokenomics）

In addition to TGE, there are some important concepts related to token economics. It is very important for investors participating in TGE to understand these concepts.

Vesting Period

• Definition: The lock-up period refers to the period of time after the token is issued, during which team members, advisors, or investors must wait before they can unlock and use the tokens they hold. The lock-up period is usually to ensure that the project team and members have a long-term commitment to the project, preventing them from quickly selling the tokens in the short term.
• Function: Locking period can prevent tokens from entering the market in a short period of time, causing drastic fluctuations in market prices, and also helps to maintain the stability and reputation of the project.
• Unlocking arrangement: Typically, the unlocking of lock-up periods is done gradually, such as unlocking a certain percentage each month, or unlocking all at once at a specified time point.

Team Tokens

• Definition: Team tokens refer to the portion of tokens that project teams or founding members allocate to themselves during token issuance. Since these tokens belong to the team or founding members, there is usually a lock-up period to ensure that they will not sell these tokens prematurely before the success of the project.
• Unlock Period: The unlock period for team tokens is usually longer, ranging from 1 year, 2 years, or even longer, depending on the project requirements and agreements between the team and investors.

Token Unlocking

• Definition: Token unlocking refers to the ability for investors or team members to fully or partially transfer, sell, or use their tokens after the lock-up period ends. Unlocking is usually done gradually according to a predetermined schedule.
• Unlocking method: Some projects choose to unlock all tokens at once on a specific date, while others use a "linear unlocking" method, unlocking a certain percentage of tokens monthly or quarterly.

Linear Unlocking

• Definition: Linear unlocking refers to the gradual release of tokens during the unlocking period according to a fixed ratio. For example, if a project has a 12-month unlocking period and releases a certain percentage of tokens each month, then 10% of the tokens will be released each month until the lock-up period ends.
• Purpose: This unlocking method helps reduce the impact on the supply of tokens in the market, making the token price more stable.

Figure: BERA linear unlock schematic diagram（https://docs.berachain.com/learn/pol/tokens/tokenomics）

Cliff Vesting

• Definition: Gradual unlocking usually refers to tokens that are completely locked in the early stage (usually several months or a year), and then all tokens are unlocked at once in a short period of time (such as a few months). This unlocking method is usually used for team tokens.
• Purpose: The gradual unlocking period helps prevent team members from engaging in speculative activities in the early stages of the project, ensuring that their interests are closely linked to the long-term development of the project.

Summary

Token Generation Events (TGEs) provide a innovative way of financing for blockchain projects and bring abundant investment opportunities for investors. However, caution must be exercised when participating in TGEs, with thorough market research and risk assessment. Investors should pay attention to key factors such as the project's whitepaper, team background, token economics, and project progress in order to find truly promising investment opportunities in blockchain projects.

By understanding and participating in TGE, investors can gain more opportunities in this rapidly developing industry, while also being prepared for potential risks.