TGE's Are Not IPO's
I was going to write something longer but after jotting down some notes I don’t think there’s any real point to spending too much more time on this so forgive these unpolished thoughts...
Crypto loves tokens. And to have tokens we need token generation events. But what even is the point of a TGE?
Idealists will say the point is to decentralize.
Cynics will say the point is to enrich insiders, dump on retail and get exit liquidity.
I would probably say the point is to distribute ownership such that existing users are further incentivized to continue using, supporting & evangelizing your project while new people are motivated to try it out.
There is some truth to what idealists and cynics believe. For as much as people like to argue about the spectrum of decentralization, there is definitely a minimum threshold that matters. And we’ve seen a million times over that people use TGE’s to do all the destructive things cynics talk about.
But I think the simplest reasons for launching a token should be some cocktail of:
Raise capital
Distribute ownership
Signal that decentralization matters
Align incentives
Bootstrap some sort of network effect (extremely ambiguous tbf)
Make your real supporters rich(er)
We can bicker over the importance of each of these and maybe you think only one of them actually matters (if this is you it's probably the last one). In reality, how these are weighted depends on what you're building.
But if you take the above to be true, then the next question is when do you launch a token. What you’re building and when you launch signals a lot about what YOU think the reason for launching a token is. There are 3 stages in my mind for when tokens launch...
Pre-product
This is old school ICO era token launches. Whitepaper and a dream. Or just a dream. The only reason to launch a token pre-product is to raise capital to build the product imo. I'd be happy to hear people defend other reasons but i'm extremely dubious there is a legitimate argument beyond this one. More on this in a minute…
Post-product, pre-PMF
This is where most token launches happen today since very few things have real PMF in crypto right now. Typically teams release a v1 or v2 of a product that allows users to try the thing in production. Oftentimes the most mercenary capital is sloshing around in this pool trying to maximize incentives across a huge swath of things they don’t see any long-term value in. When the incentives run out, we see if the activity was real or not. This is when the bodies wash up onshore. The majority of projects die before PMF which makes sense since most startups die, period. But some long-term winners do emerge from this bucket.
Post-PMF
Probably the optimal time to launch a token. Also the most rare. At this stage you have a product that clearly demonstrates value and the token can serve as a mechanism for rewarding the earliest contributors who helped you find PMF, scale adoption, align future incentives and distribute ownership to participants.
I’m generalizing quite a bit here but this is broadly one way to think about it. This also has an implicit assumption baked in which is that the token is at a minimum 1) necessary, and ideally 2) accretive. In simpler terms, does this even need a token or should this be a centralized company.
There is of course the VC vector to think about as well. Because I've been critical of crypto VCs in general, I will preface this by saying not all of them us are bad. Some are actually quite good, very active onchain and great resources for founders. That being said, as a generalization a lot of the criticisms levied against them ring true.
When you have venture investors on the cap table, it is going to impact your TGE. As a general rule, the less capital you raise from investors, the more flexibility you'll have come TGE time.
Jeff had the luxury of not needing to raise venture money. Not every founder can do this. His vision is also highly ambitious to the point where having insiders at all would be net negative for the ultimate goal. Not every startup is pursuing this type of end goal. Assuming you can apply the TGE he applied and expect similar results is foolish.
He and the team built an amazing product. If you build an amazing product, the chance you have a successful TGE go up dramatically. If you build no product at all, then it's not going to matter how your token is designed or how you distribute it.
You would think that with so much venture money in crypto, we would actually see fewer token launches at the pre-product stage. After all, when you’re pre-product, there’s no compelling reason to launch a token other than to raise capital. And if you’re a well-funded startup then it’s hard to justify that a token launch at the pre-product stage is anything other than a way to enrich insiders and dump on retail. If the previous statement offends you, it's probably because you launched (or are about to launch) a token that does just that.
A more charitable explanation for seemingly way-too-early-TGEs is that people are simply misconstruing the definition of product.
A community of people in a discord or on twitter is not a product.
An ecosystem of builders is not a product.
A perps exchange on the other hand is a product.
An infrastructure platform that drives onchain activity and has pricing power is a product.
This isn't meant to diminish communities or builder ecosystems at all, in fact these are undeniably necessary to build long-term sustainable value. There are no end products without these groups. It's more to emphasize that nothing really matters if these people aren't building awesome products with real demand. Electric's latest developer report says there are ~700 active devs on ICP...literally nobody in the world would trade Jeff & his team for those 700 devs. It is about shipping.
So while we continue to celebrate TGE's as if they are IPO's, this parallel is woefully lacking. IPO's reflect a mature company's decision to raise capital and tap into additional financing markets after years of proven operational success. TGE's are at-best more akin to SPACs. We are going to see an explosion of new token launches over the next 12 months and frantic shilling on the timeline. If you're not a short-term momentum trader (which most people shouldn't be) then I'd suggest thinking about the stage at which new tokens are launched and whether or not you can develop any kind of conviction in them over long periods of time. To paraphrase our favorite airline operator Sisyphus...people do not come on this site for charitable purposes.
This was originally published as a longer-form post on X, you can find me there.