Exploring the public chain Berachain: MEME Wonderland or DeFi Utopia?
Written by: Arnav’s Musings
Translated by: DeepTechFlow
A team that wore huge and ridiculous bear masks to attend a crypto conference and successfully raised seed funding with a valuation of $420.69 million to build another L1, but this time centered around bears smoking marijuana. Yes, I completely understand the skepticism about this idea. In fact, when I first heard about this concept, I thought it was utterly foolish.
It wasn't until I took the time to understand proof of liquidity and the power of the Bera community that my perspective changed—not just about Berachain, but about how communities fundamentally nurture, sustain, and independently thrive.
Introduction
Berachain is an EVM-compatible L1 built on the Cosmos SDK, originating from the 2021 Bong Bears NFT series. Proof of liquidity emerged from these memes, which is at the core of Berachain's mission.
Before you cast doubt on Berachain, ask yourself why you invest in other tokens? Why do some tokens, despite having few users, maintain outrageously high fully diluted valuations (FDV)? The answer is simple, I believe all tokens fall within this range:
- Cult = Time + Effort + Money invested by a community in an asset
- PMF = Continuous demand for a given protocol (or speculation on PMF)
- A quadrant = Sent to Valhalla
- B quadrant = Tokens with high FDV in the current crypto space
- C quadrant = You should probably pivot to AI
- D quadrant = Many tokens that are about to become middleware/infrastructure
Many cryptocurrencies have multi-billion dollar FDVs solely based on strong community support. Take Cardano, for example, despite having no users and total value locked (TVL), its FDV reaches around $18 billion. Yet the Cardano community somehow continues to grow, gaining recognition in the retail market. Other examples focusing on assets (besides memes) include Litecoin, Cronos, and more.
Is this a bad thing? Just like internet protocols (HTTPS, TCP/IP, etc.), blockchain itself will eventually become synonymous, meaning the main difference between successful blockchains lies in branding. People trust brands, so a blockchain either becomes a brand or fades away.
Bera Community
It goes without saying that Berachain possesses one of the strongest brands in the cryptocurrency space. But how strong is it exactly?
The initial Bong Bear series and its new versions are valued at over $150 million, with prices, quantities, and holdings steadily increasing over the past 2 years.
One interesting anecdote is that early holders received substantial returns (e.g., Chainlink, Axie, etc.), your community thrived autonomously, almost forming its own life. For example, "The Honey Jar," a Berachain community operation project led by Janitoor. Jani was initially a major holder of Bong Bear and now runs a team of over 20 people, attracting over 100,000 users to join the Berachain ecosystem.
The Honey Jar
The Honey Jar or THJ, is the core of the Berachain community, founded by Jani in January 2023. In the bear market, THJ works as hard as any other project, creating numerous legendary articles, contests, podcasts, spaces, NFT minting, etc., gradually establishing one of the most productive communities in the crypto space. The core of this community is an NFT collection called "Honeycomb," consisting of 16,420 NFTs, serving as the "welfare aggregator" of the THJ ecosystem.
One interesting statistic about the NFT collection: 4,229 people received NFTs for free, with 1,569 holding them for over a year even though the price has reached over 0.6 ETH. In addition to the NFT collection, the community has conducted many social experiments on Mirror and Zora, where community members can mint THJ legendary articles/assets. THJ quickly became the highest-earning author on Mirror, with over 25% of all Mirror fundraising being THJ assets.
The THJ community also dominates on Base and Optimism on Zora.
Essentially, the THJ "community (and the extended Berachain) demonstrates a higher "cult" index than any other project: they are willing to invest a significant amount of time, effort, and money.
But why go through all this trouble before the mainnet?
Janitoor (@deepname99) states, "THJ's strategy has always been to create outposts in large communities, protocols, and L1s, by allowing others to experience Beraculture and Berapil, giving them a chance to earn some fur in the game, creating a wormhole to Berachain ('Berachain is the target chain')." Jani proposed this argument over a year ago, preparing for the influx of new users and capital, and providing them with rich content is crucial. A year later, this assertion has been validated.
What's the takeaway? I can only say few projects (if any) have a superweapon like THJ.
Ecosystem
There is a rich community consisting of over 60 exclusive Berachain projects: from re-staking protocols, independent games, money markets, NFT AMMs, liquidity aggregators, launchpads, and more. Additionally, there are many venture-backed native Berachain projects, including Infrared Finance, Kodiak, Beraborrow, Gummi, Beratone, and others.
Other examples of Berachain community efforts include The HoneyCast, a native Berachain podcast that has been running for about 2 years; Beraland, a community-operated Berachain Discord hub/project aggregator, and more.
In addition to the thriving Bera native ecosystem, any existing EVM dApp can easily be ported to Berachain. Some multi-chain deployments include Ambient, Thetanuts, Concrete... and many more yet to be announced.
Of course, it's hard to talk about the Bera ecosystem without mentioning Berapalooza, the hottest event at ETH Denver, now a core hotspot for Framework, jointly leading the latest round of funding.
Well, Berachain has memes, so what? I'm not here to pitch you the groundbreaking EVM-compatible CometBFT chain. I believe establishing EVM compatibility and integrating existing tech stacks is key. However, I can say that proof of liquidity (PoL) is an intergenerational experiment in DeFi.
ELI5 Proof of Liquidity
PoL is a novel reward mechanism designed to align users, dApps, and validators. In essence, users hold/mint LP tokens and earn BGT, which can be delegated to validators who receive block rewards proportional to their BGT stake. Thus, security is directly linked to liquidity. For more details, please refer to:
Proof of Stake (PoS) networks still have some limitations:
- Increasing the economic security of the chain reduces ecosystem liquidity
- Stake is concentrated among a few participants (LSTs/NoOps)
- dA
- pps and underlying protocols lack coordination
PoL aims to address issues related to PoS by introducing a dual-token model that separates network tokens (BERA) from governance tokens (BGT). With this separation, we can:
- Systematically build liquidity while improving security, which helps facilitate efficient trading and sustainable network growth
- Align protocols and validators to achieve excellent coordination through incentives provided via LP pools, bribes, governance tokens, etc.
The most exciting part of PoL is that it allows any dApp to "accelerate" its growth in a utilitarian way, a decision made by BGT holders (i.e., users) who initially provide "value" or liquidity to the ecosystem.
It is important to clarify that the goals of ETH and Berachain are fundamentally different. ETH aims to be a censorship-resistant layer for all value accumulation, while Berachain aims to be the canvas for an infinite economic game. Additionally, Berachain has declared itself as an adjacent chain to ETH.
That's great, but won't the chain suffer from impermanent loss?
I've heard many people familiar with PoL say, won't Berachain suffer from impermanent loss due to network security relying on staking/minting LP tokens?
Firstly, there is no magic solution to the issue of LP profitability. DEX designs are rapidly improving, and we are also witnessing the rise of MEV-aware designs that bring value back to the application layer, but the fundamental issue of LP profitability remains unresolved.
So, will Berachain collapse over time due to impermanent loss? I believe not, for the following reasons:
Aside from providing liquidity for DEX, there are other ways to earn BGT. Various venues will be whitelisted (WL) for BGT emissions, whether it's money markets, options protocols, etc. *Note that any dApp (native or not) can be whitelisted for BGT emissions.
Unlike the MEV-Boost paradigm of proposer monopolies on ETH, PoL incentivizes validators (and even protocols) to return most profits to users. Therefore, while LPing itself may not be profitable, LPs may receive enough kickbacks through validator bribes or increased block rewards. Thus, I believe Berachain is the canvas for an infinite economic game, as users' money will ultimately return to them.
Lastly, there are options available to hedge against temporary losses incurred by BGT LPs. Smilee Finance and GammaSwapLabs have committed to providing such products on Berachain.
*Note that stable pools will also provide secure sources of income.
What if most liquidity leaves the ecosystem?
BGT production will not stop. Instead, it will flow to a smaller, more concentrated group of LPs at extremely high annual rates. Therefore, speculators are likely to help maintain some balance for Berachain.
Unlike PoS networks where network rewards mainly accumulate to experienced actors, PoL brings value to its users, promoting long-term healthy development of the DeFi ecosystem by attracting liquidity.
Will Berachain work? Doubts about a $100 billion FDV
Frankly, I don't know if Berachain will work. I have a few concerns:
I believe PoL can only work as expected in an efficient market.
Similar to LRT, I wonder how much behind-the-scenes trading will occur to gain more BGT authorization/emissions.
Possibility of equity concentration around a single LST provider.
But here's what I have to say. As someone who has worked in the DeFi space for over 6 years, Berachain is one of the largest and most pioneering DeFi experiments I have seen. While we don't yet know what game will be played, I am very excited to see these Beras drive the development of cryptocurrencies.
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