The "VC Coin" Debate: Examining Token Distribution Challenges in Crypto Projects through BERA Token
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The "VC Coin" Debate: Examining Token Distribution Challenges in Crypto Projects through BERA Token
Projects should focus on the long-term healthy development of the protocol and align with the core community, avoiding excessive emphasis on "gamification" or transactions that only attract speculative capital in the short term immediately after launch.
Navigating Web3 tides with focused insightsOriginal: Yogita Khatri, The Block
Translation: Yuliya, PANews
Berachain's recently launched BERA token has reignited debate over "VC coins"—tokens where early venture capitalists receive large allocations. Critics are questioning the proportion of the BERA token supply controlled by investors and insiders, as well as how this distribution model may impact its long-term price. Similar concerns have emerged around other venture-backed projects such as Aptos, Sei Network, and Starknet. The crypto community is assessing whether these token distribution models drive long-term growth or primarily benefit early investors.
BERA Sparks Negative Sentiment
Several industry investors shared their insights on why these projects continue to face controversy. Rob Hadick, General Partner at Dragonfly, said the level of criticism such projects receive is “always directly tied to whether airdrop recipients and early users profited”. He noted that BERA’s performance failed to meet many traders’ expectations, fueling negative sentiment. "If the token had performed better, Twitter sentiment would likely be completely different."
Currently, as multiple VC-backed tokens underperform, market concerns over their distribution models are becoming more pronounced. Many traders point out that low circulating supply (or small float) combined with high fully diluted valuation (FDV) are key issues. Zaheer Ebtikar, founder and CIO of crypto hedge fund Split Capital, said excessive venture capital funding drives up valuations leading to high FDVs, as funds must deploy limited partners’ capital. However, he expects financing sizes to shrink, early-stage bidding to decline, and valuation methods to be reassessed as VC funding slows down.
On the debate over FDV, Hadick offered a different perspective. He argued that FDV is not the best way to evaluate crypto project valuations, since future issuance isn't guaranteed and any additional supply could dilute market cap. He also noted that many liquidity providers and funds receive incentives after unlocking tokens, but once those incentives end, they may not continue holding, increasing potential selling pressure.
In this discussion, Ed Roman, Co-Founder and Managing Partner at Hack VC (an investor in Berachain), added that FDV is ultimately determined by the market, not the project—meaning teams cannot control how high or low the FDV is—but they can control the initial circulating supply. He pointed out that Berachain’s 21% circulating supply is significantly higher than other blockchain projects like Starkware (7.28%) and Sui (5%).
Nonetheless, Roman acknowledged that Web3 projects still have room for improvement in handling long-term incentives. He said many Web2 companies offer new stock grants after employee vesting periods to maintain engagement. Similarly, he believes crypto projects could introduce token-based incentives to “more likely create lasting value.”
Project Development Should Align With Core Community
Hyperliquid’s HYPE token, from the non-VC-backed project, rose 140% since its November launch and received widespread praise. But Hadick said this model is difficult to replicate. Hyperliquid’s success stemmed from an “exceptionally differentiated product and loyal community,” along with millions in self-funded development—not something most projects can easily copy.
Hyperliquid allocated 31% of its total supply to users, increasing circulation via airdrops. Boris Revsin, General Partner and Managing Director at Tribe Capital, noted that such a high circulating supply isn’t feasible for all projects, as they need to retain treasury funds for ongoing ecosystem development. He pointed out that even Ethereum, often considered the fairest Layer 1, allocated 10% of its supply to the team and foundation, and another 40% for ecosystem growth and early miners.
Hadick said projects should focus on the protocol’s long-term health and alignment with core communities, avoiding overemphasis on “gambles” or deals that only attract speculative capital shortly after launch. He emphasized that such deals bring no real value to the protocol and only cause short-term token volatility rather than long-term growth.
While some VC-backed tokens fade after initial hype, others manage to sustain long-term value. Investors believe this divergence often comes down to fundamentals, real usage, and market demand.
Roman stressed that a blockchain project’s true appeal in its early stages should be reflected in its nascent ecosystem. As for valuation, the market ultimately determines its level, as investors weigh future expectations. "The market is a voting machine in the short run and a weighing machine in the long run. If the team is strong enough, they’re likely to build a protocol with significant appeal and a vibrant ecosystem."
Smokey the Bera, Berachain’s anonymous co-founder, revealed that Berachain’s early ecosystem has grown significantly, with projects built on its chain having collectively raised over $100 million in venture funding to develop a series of “zero-to-one applications that are novel and excellent both financially and culturally.” He said these span “all kinds of industries, including major Web2 companies such as sports franchises, media groups, and even payment layers (e.g., PayPal deploying PYUSD on Berachain via BYUSD).”
However, Ebtikar believes market demand for tokens often goes beyond fundamentals. He noted that certain Layer 1 tokens reach billion-dollar valuations despite lacking appeal, while others with strong adoption struggle to gain support. Ultimately, he said, what determines token performance is “who is willing to bid for token A or token B.” While product-market fit matters, it’s not the sole determinant of success.
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