Berachain’s BERA Token Launch

Berachain’s BERA token launch this week has sparked discussions around “VC coins”— tokens heavily allocated to early venture capital investors.

Critics question the proportion of BERA’s supply owned by insiders and its implications for price stability. Similar issues arose with other venture-backed projects like Aptos, Sei Network, and Starknet, as communities analyze whether such token distributions foster lasting growth or primarily benefit early investors.

Investor Insights

I spoke with investors to discuss the backlash against these launches. Rob Hadick, general partner at Dragonfly, noted that criticism correlates with airdrop recipients’ profitability. He observed that Berachain’s BERA token didn’t meet many traders’ expectations, contributing to negative sentiment. “Had the token performed better, you’d likely see a very different sentiment on Twitter,” he remarked.

With several VC-backed tokens underperforming, allocation concerns have surfaced. Traders point to low float (small circulating supply) and high fully diluted valuations (FDV) as significant issues. Zaheer Ebtikar, founder and CIO of crypto hedge fund Split Capital, explained that inflated FDVs often result from excessive venture funding. He anticipates a shift as VC funding decreases, leading to smaller fundraising rounds and a reevaluation of project valuations.

Hadick argued that FDV is not the ideal metric for determining a crypto project’s value, given that future token issuance isn’t assured and could dilute market cap. He also emphasized that liquidity providers may sell unlocked tokens once incentives expire, increasing sell pressure.

Market Dynamics

Ed Roman, co-founder of Hack VC, added that the market, rather than projects, dictates FDV. Berachain’s 21% float surpasses other projects like Starkware (7.28%) and Sui (5%). Still, he acknowledged the need for web3 projects to enhance their long-term incentive structures. For instance, web2 firms grant new stock options to keep employees engaged—crypto could adopt similar token-based incentives to foster lasting value.

The Hyperliquid Example

Hyperliquid’s recent HYPE token launch, a non-VC coin, received acclaim and surged 140% since its November launch. Hadick suggested this model isn’t easily replicable, attributing Hyperliquid’s success to its unique product and a fiercely dedicated community, along with a self-funded development totaling millions—in contrast to many projects’ constraints.

Hyperliquid distributed 31% of its total token supply through an airdrop, which boosted circulating supply. Boris Revsin from Tribe Capital noted that high distributions aren’t practical for all projects due to the need to reserve funds for ecosystem growth. He pointed out that even Ethereum, considered a fair launch, allocated 10% to the team and 40% for ecosystem and early miner growth.

Hadick advised projects to prioritize long-term protocol health, community alignment, and avoid short-term, superficial incentives that draw transient capital.

Key Takeaways

While some VC-backed tokens diminish post-hype, others maintain long-term value based on fundamentals, adoption, and market demand. Roman stated that early ecosystem traction signifies a project’s true potential; markets ultimately determine valuations as investors weigh future expectations. “Markets are (short-term) voting machines, and (long-term) weighing machines,” he noted.

Berachain’s co-founder, Smokey the Bera, reported substantial growth in its early ecosystem, with projects raising over $100 million for innovative applications across various sectors, including sports and media.

Ebtikar contended that market demand for tokens often overshadows their fundamentals, highlighting that some Layer 1 tokens attain vast valuations with minimal traction, while others with robust adoption struggle for recognition. Ultimately, success hinges on market interest rather than solely product-market fit.

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