What Token Generation Events (TGE) Are, the Various Types and Whats the Difference

What Is a Token Generation Event (TGE)?

A token generation event (TGE) refers to the process of creating and issuing tokens on a blockchain network. Typically, TGEs aim to raise funds and distribute tokens to  early investors, team members, or the public. Tokens created during a TGE are usually designed for specific use cases, including utility or governance, within a decentralized application (dApp).

Common Token Generation Events

Token generation events can take several forms, each with unique fundraising structures and frameworks. Below are the most popular types of TGEs.

Initial Coin Offerings (ICOs)

Initial coin offerings are one of the first and most popular crowdfunding methods in the cryptocurrency industry. In an ICO, the crypto project sells its newly minted tokens to investors in order to raise capital. The funds raised will then be used to finance the development and implementation of the project.

Security Token Offerings (STOs)

Security token offerings are used to create tokens that reflect ownership or financial interest in a company or project, and these tokens are often traditional regulated securities. As such, these tokens offer rights to dividends, profit sharing, or other financial benefits. It is worth noting these tokens are subject to relevant financial regulations.

Initial Exchange Offerings (IEOs)

In an initial exchange offering, tokens are offered directly to investors through a centralized exchange, which serves as a facilitator. This type of TGE are perceived to have greater credibility because the crypto exchange typically verifies the project before listing its token. Outside of exchanges, token launchpads have also emerged to facilitate IEOs.

Initial DEX Offerings (IDOs)

Initial DEX offerings are similar to IEOs, except that the tokens are sold on decentralized exchanges (DEXs). IDOs provide a more decentralized and community-driven approach to crypto fundraising. These token offerings are relatively more accessible and transparent because they do not rely on a centralized body.

Pros and Cons of TGE

Here are some of the benefits and risks associated with token generation events. 

Pros 

Democratized Fundraising

TGEs allow global participation, enabling projects to reach a broad investor base without the limitations of traditional funding methods.

Early Investment Opportunities

Investors have the chance to buy tokens at early-stage prices, potentially leading to high returns if the project succeeds.

Liquidity

Tokens sold during TGEs are often tradable shortly after the event, providing investors with immediate liquidity.

Decentralized Funding

Some types of TGEs bypass intermediaries, allowing projects to raise money directly from their investors without relying on centralized institutions. 

Cons

Security Risk

The decentralized nature of many TGEs increases the possibility of fraudulent projects, exposing investors to potential financial losses.

Market Volatility

Tokens purchased in TGEs can be highly volatile. Many of these tokens from TGEs often experience sharp price drops after the initial hype. This means that investors might experience significant losses if the project doesn't gain traction.

Regulatory Uncertainty

Many countries are still developing regulations around TGEs, so projects and investors face potential legal risks.  One major concern is that tokens created during a public fundraising TGE may construe the launched token as a security in many jurisdictions, notably the US. Securities are strictly regulated assets, which most projects do not want their tokens to be classified as. This led to many projects turning to private investors and venture capitalists (VCs) for their funding as an alternative to TGEs.

Crypto Airdrops

As the industry matures, many projects are turning to airdrops as an alternative TGE method to avoid potential regulatory scrutiny associated with public fundraising. In this approach, projects typically secure private funding from VCs to support their operations. Once ready, they then distribute tokens for free to select users as a reward for their participation—this is known as an airdrop. These initial private investors also receive a token allocation, but their tokens are vested, meaning they can only sell them at a later date compared to airdrop users.