Making Capital Sticky: How to Stop Mercenary Capital in DeFi
After consulting with 10 different Dexes (Decentralized Exchanges) there is a common pain. How do I stop investors from dumping my governance token.
Yes we want investors to farm.
Yes we want investors to provide liquidity.
No we don’t want whales to come in and dump.
At Alpha Growth we are a bunch of big brains working to find different solutions to this problem. For Defi projects looking for growth, A big problem is mercenary capital.
Just mention mercenary capital and developers and projects instantly cringe.
mercenary capital the kind that flows in with short-term gains in mind and then exits. as soon as better incentives appear elsewhere they leave.
And you can’t blame the lowly Degen APE it’s logical. Ape want banana, Ape want bag pump. Ape dump for more banana. This thinking is often the first thing blamed for DeFi project implosion.
Degenerate APE is the loose term for people who are risk takers in the Defi space. A Degen Ape jumps into projects with out a large amount of due diligence.
But here’s the reality. The issue isn’t the people using your project. As a project creator the issue is yours. Ape is leaving when better opportunities arise. Of course they are going to do that (and, honestly, shouldn’t they?)
The issue is in your Tokenomics.
DeFi and tokenomics are evolving. Competition is Growing in Defi, both in terms of users and value retention. It’s no longer enough to launch a project with an initial round of incentives, hype and hopium. By adding complexity and seeking sustainability you can save your project from mercenaries.
To combat mercenary capital in your tokenomics must have mechanisms in place. Encourage, Increase and Discourage behavior mechanism. For the ultimate benefit not only of your project, but all stakeholders involved. This will keep investors, project developers, creators and users engaged.
At a high level, here’s how we’re thinking about this problem as we design and build sustainable tokenomics:
- Turn fast-paced capital into slow capital
- Build for leasing, not renting
- Transform gambling degens into loyalists
- Escalate investors’ commitment with increased incentives
- Keep mercenary exits easy, but add a tax on the way out
- Reward investors’ time, not just their capital
- Choose tokens pairs with specific outcomes in mind
- Overthink token optionality (and then go think about it some more)
- Match carefully with your alt pairs: who you list becomes who you are
- Bake growth strategy beyond economics in from the start
There are many ways to mercenary capital into valued yield farmers.
If you need this help we have playbooks and formulas and strategies. But what’s best for you will depend on your project, your goals, your users and your team.
If you’re interested in learning about more growth strategies for your project, we encourage you to connect on Twitter @bryancolligan. Join our Telegram for members-only alpha on projects we’re watching and DYOR resources for creating growth, credibility and engagement for your project.
