Mercenary capital is opportunistic capital supplied by investors aiming to capitalize on short-term incentive programs run by a platform for personal benefit. It is sometimes fleeting or ephemeral since these investors frequently withdraw their funds once they uncover more successful programs or when the benefits supplied fall below their preferred levels.
Several AMM platforms run a growth hacking program called liquidity mining and yield farming to entice small to medium-sized investors. Simply defined, the scheme gives extra benefits to liquidity providers (LPs) that stake or lock in their LP tokens (typically in the form of governance or native tokens to the platform). These incentives differ substantially based on the project’s decision.
But even with lock-in time periods, platforms adopting such systems are vulnerable to mercenary capital. This is especially true when the programs provide excessively short-term incentives to opportunists rather than community members and long-term investors.
The Dilemma of Mercenary Capital
Additional elements, such as a time restriction or a brief incentive for growth hacking programs, may potentially amplify the negative impact of mercenary capital. When the program comes to a conclusion, short-term selling pressure rises as mercenary capital suppliers withdraw their liquidity to sell off their rewards. This causes huge price decreases in the reward tokens and may trigger a chain reaction of panic selling by other investors.
While this is an issue that all platforms that use growth hacking programs ultimately confront, it may be detrimental to the platform’s long-term development. Longer lock-in staking durations for larger rewards can be used, but dealing with mercenary capital boils down to a mix of smart tokenomics, amazing goods, and strong community trust.
