TGE vs ICO: why crypto projects choose token generation over initial coin offerings

Token Generation (TGE) and initial cryptocurrency offering (ICO) — two sides of the same coin in the Web3 world, but not exactly the same. Although both mechanisms are related to the issuance of digital assets, TGE focuses on the distribution of utility tokens, while ICO often aims to raise capital, which may attract regulatory attention. Let’s understand how TGE works, why projects choose it, and what to consider before participating.

What Happens During TGE

When a project announces token generation, it initiates the process of creating and distributing digital assets among ecosystem users. The difference from a regular sale is that TGE is often accompanied by an airdrop — a free distribution of tokens to those who have already interacted with the project or hold a certain status in the community.

During TGE, tokens become available on cryptocurrency exchanges, providing liquidity and allowing holders to trade the asset. Utility tokens issued through TGE are programmed to perform specific functions: project governance, staking participation, paying fees within the ecosystem, or gaining access to exclusive DApp features.

Why Projects Launch TGE

Crypto projects see several practical advantages in TGE:

Attracting New Users
Token issuance creates buzz in the crypto community and attracts newcomers. The opportunity to receive (tokens via airdrop) especially motivates people to try the service and understand its potential.

Reward Early Supporters
TGE allows projects to thank those who believed in them from the start. Early users gain an advantage — often a larger percentage of tokens under better conditions.

Increase Liquidity
When a token hits exchanges, it’s easier to trade. High liquidity stabilizes the price and facilitates new investors entering the project.

Decentralized Governance
Utility tokens give holders voting rights in the project’s development. This creates a more democratic decision-making structure compared to centralized companies.

Key Difference from ICO

The main difference lies in how regulators view these processes. ICOs are often seen as a way to raise funds, similar to an IPO in traditional finance. This can lead to classifying the token as a security, complicating matters for projects in jurisdictions with strict regulation.

TGE is positioned differently: it is the distribution of utility tokens for ecosystem functioning, not an investment instrument. Although the line between them is blurred, this approach helps projects avoid excessive regulatory pressure.

What to Consider Before Participating in TGE

If you plan to take part in an upcoming token generation, conduct your own research (DYOR):

Study the whitepaper and roadmap
These documents should clearly describe the problem the project solves, how its tokenomics are structured, and what milestones are planned for the coming years.

Check the team
Who is behind the project? Do the founders have previous successful projects? Having experienced developers and managers significantly increases the chances of success.

Follow community activity
Communities on X (Twitter) and Telegram often contain real user opinions about the project. An active and positive community is a good sign.

Assess the competition
What are competitors doing? What advantages does your project have? Understanding the market position helps avoid investing in projects without a clear edge.

Learn about risks
The most obvious risk is rug pull, where founders abandon the project after a price surge. Check if the team has incentives to stay and develop the project long-term.

Examples of Successful TGE

Uniswap (UNI) — current price $5.45
Decentralized exchange launched TGE in September 2020, distributing the governance token UNI among its users. Initially, one billion tokens were created, planned to be distributed over four years. With the token release, holders gained voting rights in protocol governance.

Blast (BLAST) — latest price $0.00
Layer 2 solution based on Ethereum launched TGE on June 26, 2024. Prior to that, the token was created on the mainnet. Users who transferred Ether or USDB to the Blast network or interacted with the DApp on the platform received an airdrop of BLAST. Participants in TGE received 17% of the total token supply.

Ethena (ENA) — current price $0.23
A project that brought the synthetic dollar stablecoin USDe into DeFi launched TGE on April 2, 2024. 750 million governance tokens ENA were distributed to shard holders — loyalty tokens earned for activity within the ecosystem.

The Main Point

Token generation is not just a technical event but a pivotal moment for a project. Properly organized TGE can sharply increase the user base, boost token liquidity, and create a decentralized community that will develop the project together. However, remember: there are no guarantees of income. Every participation in TGE requires thorough analysis and understanding of what you are investing in.

Keep an eye on new TGE events in the crypto space — this could be your opportunity to enter a promising project at an early stage of its development.