The recent launch of Berachain’s BERA token has reignited the long-standing debate around VC-backed tokens—cryptocurrencies primarily distributed to early venture capital investors. Critics are raising concerns about the concentration of token supply among insiders and what that means for long-term price sustainability. This scrutiny isn’t isolated to BERA; similar skepticism has followed other high-profile projects like Aptos, Sei Network, and Starknet.
As more blockchain ecosystems emerge with heavy institutional backing, the crypto community is re-evaluating whether these token models foster genuine decentralization or simply enrich early financial supporters at the expense of retail users.
The Core Concern: Supply Distribution and Market Dynamics
One of the central issues fueling criticism is token supply distribution. Many observers point to two key metrics: low circulating supply and high fully diluted valuation (FDV). When a large percentage of tokens are locked up by VCs and team members, only a small fraction enters the open market initially. This creates a fragile dynamic where even modest selling pressure from early holders can significantly impact price stability.
Zaheer Ebtikar, founder and CIO of crypto hedge fund Split Capital, explains that inflated FDVs are often driven by aggressive venture funding cycles. “Too much risk capital chasing too few deals pushes valuations higher,” he says. “Funds need to deploy capital raised from limited partners, which leads to overbidding on early-stage projects.”
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However, Ebtikar believes this trend may be shifting. With venture funding cooling down in 2025, fewer funds are raising massive pools of capital—leading to more conservative valuations and a potential reset in how tokens are priced at launch.
Rob Hadick, general partner at Dragonfly Capital, argues that FDV itself is a flawed metric for assessing crypto project value. “Future token issuance isn’t guaranteed,” he notes. “And any new supply can dilute existing holders.” He also highlights a structural issue: many liquidity providers and investment funds are incentivized to hold tokens only until their vesting periods end. Once those incentives expire, there’s often little reason for them to retain the assets—leading to increased sell-side pressure.
Floating Supply: A Measure of Fairness?
Ed Roman, co-founder and managing partner at Hack VC (an investor in Berachain), counters that FDV is ultimately determined by market forces, not project teams. “Teams don’t control where FDV ends up,” Roman says. “But they do control initial float—the amount of tokens available at launch.”
He points out that Berachain launched with a 21% floating supply, which is significantly higher than other major chains like Starkware (7.28%) and Sui (5%). While still far from fully decentralized, this level of initial liquidity suggests an effort to improve accessibility compared to earlier VC-dominated launches.
Still, Roman acknowledges room for improvement in long-term incentive design. Drawing a parallel to Web2 companies, where employees receive ongoing stock grants post-vesting to maintain engagement, he suggests crypto protocols could adopt similar mechanisms. “We need better-designed token incentives that align stakeholders over time,” he says. “This increases the likelihood of building lasting value.”
The Hyperliquid Case Study: A Community-First Model?
The success of Hyperliquid’s HYPE token offers a contrasting narrative. Launched without traditional VC backing, HYPE saw its price surge over 140% since its debut in November 2024. The token was widely praised for its fair launch model, with 31% of total supply distributed directly to users via airdrops.
Hadick cautions against viewing Hyperliquid as a one-size-fits-all blueprint. “Their success came from a deeply differentiated product and an extremely loyal community,” he says. “Plus, they self-funded millions in development costs—something most startups can’t afford.”
Moreover, Boris Revsin, managing director at Tribe Capital and investor in Berachain, emphasizes that high float isn’t always sustainable. Projects must reserve substantial portions of their token supply for ecosystem growth, developer grants, and future incentives. Even Ethereum, often hailed as one of the fairest launches in crypto history, allocated 10% to the core team and foundation, and another 40% for ecosystem development and early miners.
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Long-Term Value vs. Short-Term Hype
Hadick stresses that projects should prioritize protocol health and community alignment over short-term trading gimmicks. “Too many teams focus on gameable mechanics that attract mercenary capital,” he warns. “These strategies might boost initial volume but fail to retain users once incentives dry up.”
Instead, sustainable growth comes from solving real problems and fostering organic adoption.
Market Perception vs. Fundamental Strength
While some VC-backed tokens fade after initial hype, others establish enduring value. According to investors, the difference usually lies in product-market fit, actual usage, and ecosystem strength.
Roman quotes Benjamin Graham: “The market is a voting machine in the short run and a weighing machine in the long run.” In other words, sentiment may drive early prices, but fundamentals determine long-term survival.
Smokey the Bera, Berachain’s anonymous co-founder, claims the project’s ecosystem is already thriving. Over $100 million in venture funding has been raised by teams building on Berachain, spanning innovative financial applications and culturally resonant projects. Notably, even major Web2 players are participating—PayPal deployed its PYUSD stablecoin on Berachain through BYUSD, signaling growing institutional interest.
Yet Ebtikar remains skeptical about whether fundamentals alone drive demand. “Some Layer 1s with weak utility have billion-dollar valuations,” he observes. “Others with strong adoption struggle to gain traction.” Ultimately, he says, it comes down to “who wants to bid for Token A versus Token B.” Market sentiment and narrative often outweigh technical merit.
Frequently Asked Questions (FAQ)
Q: What is a VC-backed token?
A: A VC-backed token is a cryptocurrency issued by a blockchain project that has received early funding from venture capital firms. These investors typically receive large allocations of tokens at favorable terms before public release.
Q: Why are high FDVs problematic for new tokens?
A: High fully diluted valuations can make tokens appear overvalued if most supply is locked. If early investors sell even small portions post-unlock, it can cause significant price drops due to limited circulating supply.
Q: Is a low circulating supply always bad?
A: Not necessarily. Some projects intentionally limit initial float to stabilize price and prevent manipulation. However, too low a float can reduce liquidity and increase volatility.
Q: How does Berachain compare to other Layer 1 blockchains in terms of fairness?
A: Berachain launched with a 21% floating supply—higher than many peers like Sui (5%) and Starknet (~7%). While not fully decentralized, this represents progress toward broader access.
Q: Can non-VC tokens like HYPE replace traditional funding models?
A: While community-first launches are gaining popularity, they require strong organic demand and self-funding capabilities. Most projects still rely on some form of institutional support for scalability.
Q: What makes a token distribution model "fair"?
A: Fairness typically involves broad access, minimal insider advantage, transparent vesting schedules, and incentives aligned with long-term network growth rather than short-term speculation.
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In conclusion, the backlash against VC-backed tokens like BERA reflects deeper tensions within the crypto space: decentralization ideals versus practical funding realities. While venture capital enables rapid development, it risks undermining trust if distributions appear skewed. The path forward likely lies in hybrid models—combining strategic funding with robust community incentives—that reward both builders and believers over time.