The launch of BERAToken on Berachain last week has once again sparked debate about "VC coins" (, which refers to Tokens) held by early-stage investors in large allocations. Critics question the proportion of investors and insiders who control the supply of BERAToken and the impact of this distribution on its long-term price. Similar concerns have also arisen in other venture-backed projects, such as Aptos, Sei Network, and Starknet. The encryption community is evaluating whether these Token distribution structures can promote long-term growth or simply benefit early investors.
VC insights
In response to the ongoing controversies surrounding these projects, several industry investors have expressed their own views. Rob Hadick, a general partner at Dragonfly, said that the level of criticism these projects face is always directly related to whether airdrop recipients and early users are profitable. He pointed out that the performance of BERAToken failed to meet the expectations of many traders, thus generating negative emotions. 'If the token performed better, the sentiment on Twitter could be completely different.'
Currently, with the underperformance of Tokens supported by multiple VCs, concerns about their allocation are becoming more apparent. Many traders point out that the low circulation (or small circulating supply) and high Fully Diluted Valuation (FDV) of these Tokens are key issues. Zaheer Ebtikar, the founder and CIO of the encryption hedge fund Split Capital, said that excessive venture capital funding has driven up valuations, as funds have to deploy limited partners' capital. However, he expects that with the slowdown in VC financing, the scale of financing will shrink, the number of bids for early-stage projects will decrease, and valuation methods will be reassessed.
For the controversy over FDV, Hadick has put forward different views. He believes that FDV is not the best way to evaluate the valuation of encryption 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, thereby exacerbating potential selling pressure.
In this discussion, Ed Roman, co-founder and managing partner of Hack VC(Berachain investor ), pointed out that FDV is actually determined by the market rather than the project, which means that the team cannot control the ups and downs of FDV, but they can control the supply of tokens issued. He pointed out that Berachain's circulating supply of 21% is significantly higher than other blockchain projects, such as Starkware (7.28%) and Sui (5%).
Nevertheless, Roman also acknowledges that Web3 projects still have room for improvement in dealing with long-term incentives. He stated that many Web2 companies would offer new stock incentives to employees after the vesting period to maintain their engagement. Similarly, he believes encryption projects can introduce token-based incentive measures to "more likely create enduring value".
Hyperliquid
The HYPEToken of the non-VC coin project Hyperliquid has risen by 140% since its release in November, receiving wide acclaim. However, Hadick stated that this model is difficult to replicate. The success of Hyperliquid comes from "highly differentiated products and loyal community," as well as the investment of millions of dollars in independent development funds—none of which is easily replicable 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 not all projects can achieve such a high circulation supply as they need to reserve treasury funds for ongoing ecosystem development. He noted that even the generally considered most fair Layer 1 project, Ethereum, allocated 10% of its supply to the team and foundation, with an additional 40% used for ecosystem growth and early miners.
Hadick stated that the project should focus on the long-term healthy development of the protocol and be consistent with the core community, avoiding excessive focus on 'gamification' or trading that only attracts speculative capital in the short term after going online. He emphasized that such trading cannot bring actual value to the protocol, and will only cause short-term fluctuations in the Token, rather than long-term growth.
Summary
Although some VC-supported Tokens have gradually faded after the initial speculation, there are also some that can maintain long-term value. Investors believe that this difference often depends on the fundamentals, real-world applications, and market demand.
Roman emphasizes that the true appeal of a blockchain project in its early stages should be reflected through its early ecosystem. As for valuation, the market ultimately determines its height, as investors will consider future expectations. "In the short term, the market is a voting machine, and in the long term, it is a weighing machine. If the team is strong enough, they are likely to build a protocol with significant appeal and a vibrant ecosystem."
Smokey the Bera, the anonymous co-founder of Berachain, revealed that the early ecosystem of Berachain has grown significantly. Projects built on its blockchain have raised over $100 million in venture capital to create a series of "0 to 1" applications that are innovative and excellent in both financial and cultural aspects. These applications span across "all kinds of industries, including large Web2 companies such as sports franchises, media groups, and even payment layers (e.g., PayPal's PYUSD deployed on Berachain via BYUSD)."
However, Ebtikar believes that the market demand for Token often exceeds its fundamentals. He said that some Layer 1 Tokens, despite their lack of attractiveness, can reach valuations of billions of dollars, while other projects with strong adoption rates struggle to gain support. He believes that the key to determining Token performance ultimately lies in 'who is willing to bid for Token A or Token B.' Although the fit between the product and the market is important, it is not the only determining factor for success.
The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
The dispute over 'VC coins': Understanding the encryption project Token distribution dilemma from BERAToken
Original text: Yogita Khatri, The Block
Translation: Yuliya, PANews
The launch of BERAToken on Berachain last week has once again sparked debate about "VC coins" (, which refers to Tokens) held by early-stage investors in large allocations. Critics question the proportion of investors and insiders who control the supply of BERAToken and the impact of this distribution on its long-term price. Similar concerns have also arisen in other venture-backed projects, such as Aptos, Sei Network, and Starknet. The encryption community is evaluating whether these Token distribution structures can promote long-term growth or simply benefit early investors.
VC insights
In response to the ongoing controversies surrounding these projects, several industry investors have expressed their own views. Rob Hadick, a general partner at Dragonfly, said that the level of criticism these projects face is always directly related to whether airdrop recipients and early users are profitable. He pointed out that the performance of BERAToken failed to meet the expectations of many traders, thus generating negative emotions. 'If the token performed better, the sentiment on Twitter could be completely different.'
Currently, with the underperformance of Tokens supported by multiple VCs, concerns about their allocation are becoming more apparent. Many traders point out that the low circulation (or small circulating supply) and high Fully Diluted Valuation (FDV) of these Tokens are key issues. Zaheer Ebtikar, the founder and CIO of the encryption hedge fund Split Capital, said that excessive venture capital funding has driven up valuations, as funds have to deploy limited partners' capital. However, he expects that with the slowdown in VC financing, the scale of financing will shrink, the number of bids for early-stage projects will decrease, and valuation methods will be reassessed.
For the controversy over FDV, Hadick has put forward different views. He believes that FDV is not the best way to evaluate the valuation of encryption 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, thereby exacerbating potential selling pressure.
In this discussion, Ed Roman, co-founder and managing partner of Hack VC(Berachain investor ), pointed out that FDV is actually determined by the market rather than the project, which means that the team cannot control the ups and downs of FDV, but they can control the supply of tokens issued. He pointed out that Berachain's circulating supply of 21% is significantly higher than other blockchain projects, such as Starkware (7.28%) and Sui (5%).
Nevertheless, Roman also acknowledges that Web3 projects still have room for improvement in dealing with long-term incentives. He stated that many Web2 companies would offer new stock incentives to employees after the vesting period to maintain their engagement. Similarly, he believes encryption projects can introduce token-based incentive measures to "more likely create enduring value".
Hyperliquid
The HYPEToken of the non-VC coin project Hyperliquid has risen by 140% since its release in November, receiving wide acclaim. However, Hadick stated that this model is difficult to replicate. The success of Hyperliquid comes from "highly differentiated products and loyal community," as well as the investment of millions of dollars in independent development funds—none of which is easily replicable 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 not all projects can achieve such a high circulation supply as they need to reserve treasury funds for ongoing ecosystem development. He noted that even the generally considered most fair Layer 1 project, Ethereum, allocated 10% of its supply to the team and foundation, with an additional 40% used for ecosystem growth and early miners.
Hadick stated that the project should focus on the long-term healthy development of the protocol and be consistent with the core community, avoiding excessive focus on 'gamification' or trading that only attracts speculative capital in the short term after going online. He emphasized that such trading cannot bring actual value to the protocol, and will only cause short-term fluctuations in the Token, rather than long-term growth.
Summary
Although some VC-supported Tokens have gradually faded after the initial speculation, there are also some that can maintain long-term value. Investors believe that this difference often depends on the fundamentals, real-world applications, and market demand.
Roman emphasizes that the true appeal of a blockchain project in its early stages should be reflected through its early ecosystem. As for valuation, the market ultimately determines its height, as investors will consider future expectations. "In the short term, the market is a voting machine, and in the long term, it is a weighing machine. If the team is strong enough, they are likely to build a protocol with significant appeal and a vibrant ecosystem."
Smokey the Bera, the anonymous co-founder of Berachain, revealed that the early ecosystem of Berachain has grown significantly. Projects built on its blockchain have raised over $100 million in venture capital to create a series of "0 to 1" applications that are innovative and excellent in both financial and cultural aspects. These applications span across "all kinds of industries, including large Web2 companies such as sports franchises, media groups, and even payment layers (e.g., PayPal's PYUSD deployed on Berachain via BYUSD)."
However, Ebtikar believes that the market demand for Token often exceeds its fundamentals. He said that some Layer 1 Tokens, despite their lack of attractiveness, can reach valuations of billions of dollars, while other projects with strong adoption rates struggle to gain support. He believes that the key to determining Token performance ultimately lies in 'who is willing to bid for Token A or Token B.' Although the fit between the product and the market is important, it is not the only determining factor for success.