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Berachain is a mysterious project, and the vast majority of crypto Twitter users have no idea what they are actually trying to build. This post will express my honest thoughts on Berachain.
DeFi faces an endless liquidity problem. New protocols often have difficulty attracting liquidity, causing many new infrastructures to fail and eventually become a neglected place.
DeFi's liquidity problem is very similar to the economic security problem. Before Eigenlayer, it was very difficult to provide economic security for new web3 service protocols. Now it has become easy because Eigenlayer has built a coordination layer that connects ETH validators to web3 service protocols.
Now, ETH validators can provide security for new web3 services directly on Eigenlayer, and projects can simply focus on innovation and product design, with security issues largely resolved.
In terms of DeFi liquidity, if we find a way that the liquidity pool of new DeFi applications can obtain liquidity directly through the validator's staked token pool, and you as a staker can get rewards through token inflation, transaction fees, exchange fees, and block capture fees, in simple terms, it is like a 4x reward increase.
That would be crazy, right?
As a staker, I would not refuse such a reward increase. And as a DeFi project owner, I would be happy to connect my application to such a blockchain infrastructure, which can directly handle my liquidity through validators. Berachain is the infrastructure needed to solve the DeFi liquidity problem.
They established a consensus mechanism called Proof of Liquidity where stakers will delegate their staked tokens to validators and receive rewards, and can only retrieve their staked tokens after they provide liquidity in the supported asset pools.
Berachain has 3 tokens:
BGT (collateral and governance token)
BERA (gas fee token)
HONEY (stablecoin pegged to USDC)
BGT plays the role of collateral and governance token in the Berachain ecosystem. You can’t actually mint BGT, but you can redeem BGT for BERA.
BGT is a non-transferable token, similar to SBT. The only way to earn BGT is to provide liquidity in the liquidity pools of the native DeFi applications in the Berachain ecosystem. As of now, they have 3 native DeFi applications:
BEX - AMM-based decentralized exchange similar to Uniswap
BEND - a lending protocol like Aave
BERPS - Perps exchange like GMX
In order to get issued BGT, you need to provide liquidity in any of the assets supported by these dapps. Governance will decide how much BGT is distributed to which liquidity pools, and as a DAO member, you will play a key role in this.
Validators can also bribe you to approve their desired token inflation for certain liquidity pools. Once you stake BGT, you can become part of the governance and earn bribes while also receiving BGT token inflation rewards and capture fees.
As a staker, you may receive fee rewards from BEX, BPerps, BEND, and block capture fees. Your base token inflation rewards will receive a 4x markup, and you will also have a role in determining what percentage of token inflation is allocated to liquidity pools.
Transaction fees on Berachain will be paid in BERA, and Berachain will burn 100% of transaction fees, passing priority fees to validators, similar to Ethereum and Polygon.
Berachain is building their own parallel EVM called Polaris, which will provide a channel for the ETH DeFi ecosystem to access Berachain.
As long as people remain motivated enough to provide liquidity, the entire flywheel around Berachain will operate efficiently, and as long as they continue to earn profitable annualized returns, they will remain motivated.
It will be interesting to see how the whole thing works when the mainnet goes live. I like the concept and would love to explore this ecosystem further.
Failure caused by insufficient cognition comes from information gaps, which is essentially due to disconnection between circles.
It is important to embrace a professional circle, which will help you take off and turn around quickly.
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