The dispute over "VC coins": Looking at the dilemma of token allocation of crypto projects from BERA tokens

Original text: Yogita Khatri , The Block

Compiled by: Yuliya, PANews

Berachain's BERA token launched last week has once again sparked debate over "VC coins" (i.e. early VCs hold a large number of allocated tokens). Critics question the proportion of investors and insiders in the supply of BERA tokens and the impact of this distribution on its long-term price. Similar concerns have also emerged in other venture-backed projects, such as Aptos, Sei Network and Starknet. The cryptocurrency community is evaluating whether these token allocation structures can drive long-term growth or simply benefit early-stage investors.

BERA stirs up negative emotions

Many industry investors have expressed their opinions on the reasons why these projects continue to face controversy. Dragonfly general partner Rob Hadick said the level of criticism that such projects are “always directly related to whether airdrop recipients and early users are profitable” . He pointed out that the performance of BERA tokens failed to meet the expectations of many traders, which aroused negative emotions. "If the token performs better, sentiment on Twitter might be completely different."

Currently, as multiple VC-backed tokens perform poorly, market concerns about their distribution methods are becoming increasingly obvious. Many traders point out that the low circulation (or small-scale circulation supply) and high complete dilution valuation (FDV) of these tokens are key issues. Zaheer Ebtikar, founder and chief investment officer of crypto hedge fund Split Capital, said excessive venture capital funds push up valuations have led to high FDV because funds must deploy limited partners’ funds. However, he expects that as VC financing slows down, the scale of financing will shrink, bids for early-stage projects will be reduced, and the valuation method will be re-evaluated.

Hadick made a different view on the FDV controversy. He believes that FDV is not the best way to evaluate the valuation of crypto projects, because future issuances are not guaranteed and any new supply may dilute market value. He also noted that many liquidity providers and foundations are receiving incentives after unlocking the tokens, but when these incentives end, they may not continue to hold the tokens, exacerbating potential selling pressure.

In this discussion, Ed Roman, co-founder and managing partner of Hack VC (Berachain Investor), added that FDV is actually determined by the market rather than the project, which means that the team cannot control the level of FDV – but they It can indeed control the supply of tokens when they are issued. He noted that Berachain's 21% circulation is significantly higher than other blockchain projects such as Starkware (7.28%) and Sui (5%).

Nevertheless, Roman admits that Web3 projects still have room for improvement in handling long-term incentives. He said many Web2 companies offer new stock rewards after the employee vesting period to keep employees engaged. Similarly, he believes crypto projects can introduce token-based incentives to “more likely to create lasting value.”

Project development should be consistent with core communities

The non-VC coin project Hyperliquid's HYPE token has increased by 140% since its release in November, and has received widespread praise. But Hadick said this pattern is difficult to replicate. Hyperliquid 's success stems from "very differentiated products and loyal communities", while investing millions of dollars in self-development funds - none of which can be easily replicated by most projects.

Hyperliquid allocates 31% of its total supply to users, increasing circulation through airdrops. Boris Revsin, general partner and managing director of Tribe Capital, noted that this high circulation supply is not possible for all projects because they require the retention of treasury funds for ongoing ecosystem development. He noted that even the Layer 1 project, which is generally considered the fairest, allocates 10% of the supply to teams and foundations, and another 40% is used for ecosystem growth and early miners.

Hadick said the project should focus on the long-term healthy development of the agreement, align with the core community, and avoid over-focusing on “gamification” or transactions that only attract speculative capital in the short term after they go online. He stressed that such transactions cannot bring actual value to the agreement and will only lead to short-term volatility in the tokens, not long-term growth.

Although some VC-backed tokens gradually faded after the initial hype, some can maintain long-term value. Investors believe that this difference often depends on the basics, real applications and market demand.

Roman stressed that the real attraction of blockchain projects in the early stages of their launch should be reflected through their early ecosystems. As for valuation, the market ultimately determines its height, as investors consider future expectations . "The market is voting machines in the short term, and weighing machines in the long term. If the team is strong enough, they will likely build a protocol with a significantly attractive and dynamic ecosystem."

Berachain's anonymous co-founder Smokey the Berachain revealed that Berachain's early ecosystem has grown significantly, with projects built on its blockchain raising over $100 million in venture capital so far to create a series of "from 0 to 1" The applications, which are novel and excellent in both financial and cultural aspects.” He said the applications span "all kinds of industries, including large Web2 companies such as sports franchises, media groups, and even payment tiers (for example, PYUSD deployed on Berachain via BYUSD)".

However, Ebtikar believes that the market demand for tokens often exceeds its fundamentals. He said some Layer 1 tokens can reach billions of dollars in valuations despite their lack of appeal, while others with strong adoption rates are difficult to support. He believes that the key to ultimately determines the performance of the token 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.