Bro, I was researching a dead protocol and most of the comments were the protocol was filled with Mercenary Capital. What's that dude?
Dude, think of a brand new, super-hyped music festival. It offers amazing early-bird deals and free drinks to get people in the door on the first weekend.
Mercenary capital is like a crowd of people who show up only for the free stuff. They don't care about the bands, the community, or the vibe. They're there to drink as much free booze as possible and then leave the second the promotion ends, leaving behind a field of empty cups. They were never there for the music; they were there for the hustle.
In DeFi, these "mercenaries" are pools of money that chase the highest, hottest, most unsustainable yields. They are professional "yield farmers" who have zero loyalty to any single protocol.
So how do they actually operate?
It's a classic "farm and dump" strategy. Hereโs the playbook:
ย Infiltrate: A new DeFi protocol launches, offering insane rewards (like 1,000% APY) in its native token to attract liquidity. Mercenary capital floods in, depositing millions of dollars.
Farm: They provide liquidity (LP tokens) to the protocol, and in return, they start farming massive amounts of the protocol's reward token. The protocol's Total Value Locked (TVL) looks amazing, and on Twitter, it looks like it's a huge success.
Dump: Here's the key part. They don't keep the reward tokens. They dump them on the open market immediately and constantly for a stablecoin like USDC. This creates massive, relentless selling pressure on the token.
Exfiltrate: The second the rewards start to drop (which they always do), or a hotter new protocol appears, the mercenaries pull all their initial capital out and move to the next "festival," leaving the old protocol's liquidity pool drained.
Why is this so bad for a protocol?
Itโs absolutely devastating. The protocol is left with:
A Crashed Token Price: The constant dumping from the mercenaries tanks the token's value, crushing the faith of any real, long-term community members who bought it.
Drained Liquidity: When the mercenary capital leaves, the TVL plummets, making the protocol unusable and look like a ghost town.
A Ruined Reputation: The protocol gets branded as a "farm and dump" project, making it almost impossible to attract genuine users and rebuild.
It creates a vicious cycle where protocols are forced to offer unsustainable yields to compete, knowing they'll attract the very capital that will eventually kill them. You might've Heard About Berachain campaign. You know it right ๐คซ