An organization working on a blockchain-based project can issue valuable tokens acceptable to a community. Tokens are cryptocurrencies that represent an asset or specific use and reside on a respective blockchain. They can be used for investment purposes, making purchases, or as a store of value. For example, ERC-20 tokens reside on the Ethereum blockchain.
A Token Generation Event (TGE), sometimes referred to as token launch, is an approach used by businesses and projects to crowdsource funds by generating and offering tokens in a blockchain-based network. Token Generation Events are commonly used as an instrument to obtain publicity and engagement in crypto/blockchain communities with the goal of fundraising.
What Is A Token Generation Event? (In-Depth)
Token Generation can be summed up as one of the ways blockchain developers actually create their tokens and this process involves a few different stages. Firstly a project has to be outlined, essentially imagining the use and function of the token and its desired role on the blockchain. Then by establishing the token’s legal compliance, a framework can be drawn up, and the development of the token can begin.
After a process of coding, testing and re-testing, a whitepaper can eventually be created. Whitepapers serve as the means of conveying information about the token to the public and to its potential investors. This paper will include the token’s technical aspects, its overall business goals, as well as background information about the project and its development staff.
A competent and well-received whitepaper, with a combined social media presence, will help generate interest, and hopefully, begin to create a community surrounding the project. Then with a little marketing know-how and a successful press release, the project leads can outline the scheduled release of the token via its listing on various markets. This hopefully anticipated event can be referred to as a ‘Token Generation Event.’
Reason for TGEs Adoption
Initial coin offerings (ICOs), similar to TGEs, was the method used by businesses/organizations to fund their projects. In December 2017, the SEC classified tokens from ICOs as securities in a public statement issued by the SEC Chair, Jay Clayton stating that
“…a token constitutes an investment contract and therefore is a security under our federal securities laws. Specifically, we concluded that a token offering represents an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”
Besides this statement clearly subjecting ICOs to high regulatory standards, this further meant that its proceeds are taxable under the US securities law.
Many businesses and start-ups in the crypto community now prefer to brand their fundraising events as TGEs ensuring their token is not labelled as a security to avoid heavy regulatory scrutiny and associated taxes.