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$blendtintbybasealpha is a VMT parameter that allows tinting of a mesh's material using the $basetexture's alpha channel as a mask to determine tint intensity (but not the tint's RGB color!) Applying an actual color RGB values is done elsewhere - either in-game or in Hammer with entities using the 'rendercolor' keyvalue. This technique is used in games like Left 4 Dead to allow for recoloring of the vehicle props, and in Team Fortress 2 for painting hats.

Bug.png Bug: Not compatible with $alphatest or $translucent, this parameter will override both. Use the Modulate shader as a workaround.
Note.png Note: Only compatible with VertexLitGeneric.

The tint mask simply controls the intensity of tinting. The more alpha, the more intense tinting is.

$blendtintcoloroverbase, a related parameter, controls the amount of color replacement versus tinting. (replacing the color per pixel entirely, versus adding more color to make the colors closer to the tint RGB color.) A value of '0' will be full tint while a value of '1.00' will replace the albedo in the mask area with the color defined with $color2.