The battle for “VC coins”: the dilemma of crypto project token distribution from the perspective of BERA tokens
Original article: Yogita Khatri , The Block
Compiled by: Yuliya, PANews
Berachain’s launch of the BERA token last week has reignited the debate over “VC coins,” or tokens that have large allocations held by early-stage venture capitalists. Critics have questioned the percentage of BERA’s token supply controlled by investors and insiders, and the impact of this distribution on its long-term price. Similar concerns have surfaced with other venture-backed projects, such as Aptos, Sei Network, and Starknet. The cryptocurrency community is evaluating whether these token distribution structures drive long-term growth or simply benefit early investors.
BERA stirs up negative emotions
Several industry investors have expressed their views on why these projects continue to face controversy. Rob Hadick, general partner at Dragonfly, said that the level of criticism such projects receive "is always directly related to whether the airdrop recipients and early users have made a profit." He pointed out that the performance of the BERA token failed to meet the expectations of many traders, thus stirring negative sentiment. "If the token performed better, the sentiment on Twitter might be completely different."
Currently, as multiple VC-backed tokens have underperformed, market concerns about how they are distributed have become more apparent. Many traders point to the low float (or small circulating supply) and high fully diluted valuation (FDV) of these tokens as key issues. Zaheer Ebtikar, founder and chief investment officer of crypto hedge fund Split Capital, said that excessive venture capital funds have pushed up valuations, resulting in high FDVs, because funds must deploy limited partners' funds. However, he expects that as VC financing slows down, the size of financing will shrink, bids for early-stage projects will decrease, and valuation methods will be re-evaluated.
Hadick expressed a different view on the controversy surrounding FDV. He believes that FDV is not the best way to evaluate the valuation of crypto projects because future issuance is not guaranteed and any additional supply may dilute the market value. He also pointed out that many liquidity providers and foundations receive incentives after unlocking tokens, but when these incentives end, they may not continue to hold tokens, exacerbating potential selling pressure.
During the discussion, Ed Roman, co-founder and managing partner of Hack VC (an investor in Berachain), added that FDV is actually determined by the market rather than the project, which means that the team cannot control the FDV - but they do control the supply of tokens when they are issued. He pointed out that Berachain's 21% circulation is significantly higher than other blockchain projects such as Starkware (7.28%) and Sui (5%).
Still, Roman acknowledged that Web3 projects still have room for improvement in handling long-term incentives. He said that many Web2 companies offer new stock awards after employee vesting periods to keep employees engaged. Similarly, he believes that crypto projects can introduce token-based incentives to "have a better chance of creating lasting value."
Project development should be consistent with the core community
The HYPE token of non-VC coin project Hyperliquid has risen by 140% since its launch in November and has received widespread acclaim. But Hadick said this model is difficult to replicate. Hyperliquid's success stems from "highly differentiated products and a loyal community", while also investing millions of dollars in independent development funds - these are not easily replicated by most projects.
Hyperliquid distributed 31% of its total supply to users, increasing the circulating supply through airdrops. Boris Revsin, general partner and managing director of Tribe Capital, pointed out that this high circulating supply is not achievable for all projects because they need to retain treasury funds for continued ecosystem development. He pointed out that even Ethereum, which is generally considered the fairest Layer 1 project, allocates 10% of the supply to the team and foundation, and another 40% for ecosystem growth and early miners.
Hadick said that projects should focus on the long-term healthy development of the protocol, align with the core community, and avoid excessive focus on "gamification" or transactions that only attract speculative capital in the short term after going online. He emphasized that such transactions cannot bring real value to the protocol and will only lead to short-term fluctuations in tokens rather than long-term growth.
While some VC-backed tokens fade after the initial hype, others are able to maintain long-term value. Investors believe that the difference often comes down to fundamentals, real applications and market demand.
Roman emphasized that the real appeal of a blockchain project in the early stages of its launch should be reflected through its early ecosystem. As for valuation, the market ultimately determines its height because investors consider future expectations . "The market is a voting machine in the short term and a weighing machine in the long term. If the team is strong enough, they are likely to build a protocol with significant appeal and a vibrant ecosystem."
Smokey the Bera, Berachain’s pseudonymous co-founder, revealed that Berachain’s early ecosystem has grown significantly, with projects built on its blockchain raising more than $100 million in venture funding to date to build a range of “0 to 1 applications that are both novel and superior in both financial and cultural terms.” He said these applications span “all kinds of industries, including large Web2 companies like sports franchises, media conglomerates, and even payment layers (e.g., PayPal’s PYUSD deployed on Berachain via BYUSD).”
However, Ebtikar believes that the market demand for tokens often outstrips their fundamentals. He said that some Layer 1 tokens have achieved multi-billion dollar valuations despite their lack of traction, while other projects with strong adoption have struggled to gain support. He believes that the key to ultimately determining token performance lies in "who is willing to bid for Token A or Token B." Although product-market fit is important, it is not the only determinant of success.
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