Berachain, is MEME a new paradise or a DeFi utopia?

Original Title: Berachain: Memetic Playground or DeFi Utopia?

Original Author: Arnav’s Musings

Original Translation: Deep Tide TechFlow

A team that attended a crypto conference wearing huge and ridiculous bear masks, successfully raised seed funding with a valuation of 420.69 million USD to build another L1, but this time centered around bears smoking marijuana. Yes, I completely understand the skepticism around this idea. In fact, when I first heard about it, I thought it was utterly foolish.

It wasn't until I took the time to understand liquidity mining and the power of the Bera community that my perspective shifted - not just on Berachain, but on how communities fundamentally nurture, sustain, and independently thrive.

Introduction

Berachain is an EVM-compatible L1 based on the Cosmos SDK, originating from the 2021 Bong Bears NFT series. Liquidity mining 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 = Tokens that are likely 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 USD, yet the Cardano community somehow continues to grow, gaining recognition in the retail market. Other examples focusing on assets (apart from 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

Undoubtedly, Berachain possesses one of the strongest brands in the cryptocurrency space. But how strong exactly?

The market value of the Bong Bear Genesis series and its new version is over 150 million USD, 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. Take "The Honey Jar" for example, 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 worked as hard as any other project, creating numerous legendary articles, competitions, 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 for over a year even as prices reached above 0.6 ETH. Apart from the NFT collection, the community also conducted many social experiments on Mirror and Zora, where community members could 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) proves to have a higher "cult" index than any other project: they are willing to invest significant 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')."

Janitoor proposed this argument over a year ago, preparing for the influx of new users and capital, and providing rich content for them is crucial. A year later, this argument has been validated.

What's the insight? I can only say few projects (if any) can 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 more.

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 Be

rachain Discord center/project aggregator, etc.

In addition to the thriving Bera native ecosystem, any existing EVM dApp can be easily 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, which is the hottest event at ETH Denver, now a core hotspot of Framework, jointly leading the latest round of financing.

Well, Berachain has memes, so what?

I'm not going to sit here and sell you on the groundbreaking EVM-compatible CometBFT chain. I believe building EVM compatibility and integrating existing tech stacks is key. However, I can say that Proof of Liquidity (PoL) is a generational 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 staked 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:

1. Increasing the economic security of the chain reduces ecosystem liquidity

2. Stake concentration among a few participants (LSTs/NoOps)

3. Lack of coordination between dApps and underlying protocols

PoL aims to address PoS-related issues by introducing a dual-token model that separates the network token (BERA) from the governance token (BGT). With this separation, we can:

1. Systematically build liquidity while improving security, aiding efficient trading and sustainable network growth

2. Align protocols and validators to achieve excellent coordination through incentives such as 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 those who initially provide "value" or liquidity to the ecosystem, namely BGT holders (i.e., users).

It should be clarified that the goals of ETH and Berachain are fundamentally different. ETH aims to be the WW3 anti-censorship layer for all value accrual, while Berachain aims to be the canvas for an infinite economic game. Additionally, Berachain has declared itself as an ETH adjacent chain.

That's all well and good, but won't the chain suffer from impermanent loss?

I've heard many people familiar with PoL ask, won't Berachain suffer from impermanent loss due to network security relying on staking/minting LP tokens?

Firstly, there's no magic bullet to solve the issue of LP profitability. DEX designs are rapidly evolving, and we're seeing the rise of MEV-aware designs that return value to the application layer, but the fundamental issue of LP profitability remains unresolved.

So, will Berachain collapse over time due to impermanent loss? I don't think so, for the following reasons:

1. Aside from providing liquidity for DEXs, 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, any dApp (native or not) can be whitelisted for BGT emissions.

2. Unlike the MEV-Boost paradigm of proposer monopolies on ETH, PoL incentivizes validators (and even protocols) to return most profits to users. So, while LPing itself may not be profitable, LPs may receive enough kickbacks through validator bribes or increased block rewards. Therefore, I believe Berachain is the canvas for an infinite economic game, as user funds will ultimately return to users.

3. Lastly, there are options available to hedge against temporary losses on BGT-generated LPs. Smilee Finance and GammaSwapLabs have committed to providing such products on Berachain.

*Note, there will also be stable pools providing secure sources of income.

What if most of the liquidity leaves the ecosystem?

BGT will not cease production. Instead, it will flow to a smaller, more concentrated LP group at extremely high annual rates. Therefore, speculators are likely to keep Berachain in some form of balance.

Unlike PoS networks, where network rewards primarily accumulate to experienced actors, PoL brings value to its users, thus promoting long-term health of the DeFi ecosystem by attracting liquidity with liquidity.

So, will Berachain work? Doubts about a 0.1 trillion 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.

• Potential stake 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've seen. While we don't yet know what game will be played, I'm very excited to see these Beras drive the development of cryptocurrencies.

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