TL;DR

1. What is the endgame for DeFi, and why do some projects hit a dead end?

The endgame for DeFi is essentially the beginning of the next phase of DeFi. Most projects reaching a dead end is simply a reflection of the natural lifecycle of liquidity cycles—when a project collapses due to fundamental reasons, other projects absorb its liquidity. From a higher-level perspective, the Web3 industry as a whole remains resilient, indicating that the interconnections between different liquidity cycles form a healthy ecosystem. Observing various ecosystems, projects, and protocols through this lens, we see that the lower the dimension, the shorter the lifecycle—this is a natural phenomenon. Therefore, the “turnover rate” of liquidity reflects the health of a project, while the “turnover rate” of projects reflects the health of an ecosystem. Next time, instead of hastily claiming “no one is left to take over,” it’s important to take a more cautious approach when evaluating project collapses, abstractly decoupling business logic, and not being misled by seemingly sophisticated concepts.

2. Can Berachain achieve sustainable growth?

The key collapse point for Berachain lies in whether BGT staking yields are lower than the value of converting BGT into Bera. This implies that the on-chain ecosystem can no longer sustain additional liquidity bubbles. However, as long as systemic risks do not emerge, Berachain’s native assets (BGT, Bera, Honey) will have an ecosystem to absorb potential liquidations. In practice, the situation is more complex because not all participants have full information or make perfectly rational decisions. Additionally, not all participants are investors—some project teams may purchase BGT for governance voting to unlock staking rewards and access potential liquidity. Therefore, the real collapse point should be redefined as: In a rational market, if the project’s bribery rewards from governance voting are lower than the cost of acquiring liquidity (either through bribery or direct BGT purchases), and if BGT staking yields remain lower than the conversion value of BGT to Bera, then the system is at risk of collapse.

3. The liquidity game of DeFi: Has Berachain fundamentally changed anything?

Has Berachain fundamentally overcome the technical bottlenecks of the liquidity market? The clear answer is no—it is more of an optimization than a breakthrough. However, Berachain has chosen the right application scenario: a public blockchain. If we focus solely on its mechanisms, we might mistakenly assume its potential is limited to the protocol level. In reality, BGT’s governance incentives have the power to revitalize other projects within the ecosystem. In this sense, it can be seen as a narrative on the same scale as restaking.

4. What is happening with Berachain, and what is the best way for users to participate?

After analyzing 103 projects, the following key characteristics of Berachain have been identified:

• Strong native presence, diverse GTM strategies: Most projects deployed on Bera are not multi-chain compatible but are instead natively built on Berachain. The ratio of native to non-native projects is approximately 10:1 (though some projects may originate from the same team). Contrary to intuition, not all non-NFT-native projects use NFT issuance as their go-to-market strategy—most still follow a more traditional approach.
• Complex yet fundamentally similar economic flywheels: Most projects on Berachain use Infrared to drive their economic flywheels, with some introducing additional VE(3,3) layers on top of BEX, such as Berodrome. However, the core principle remains unchanged: all incentives are denominated in tokens. As long as users understand a project’s fundamentals and market-making capabilities, they can navigate the ecosystem effectively. While different projects’ flywheels are interdependent, the failure of one project does not necessarily lead to the collapse of the entire ecosystem. As long as token allocations continue generating excess returns, users are incentivized to sustain the system and allow other projects to fill the gaps.
• High-funding projects tend to issue NFTs: Among the top 10 projects by funding, seven belong to Community/NFT/GameFi categories, and all have issued NFTs.
• Community engagement is strong but concentrated, with frequent cross-project promotion: The average Twitter view count for native Berachain projects ranges between 1,000 and 2,000+. Some projects appear to have underestimated engagement levels (follower count/average views < ecosystem average). For example, Infrared has 7,000+ followers but averages over 10,000 views per post. Many native projects actively collaborate through various means, such as integrating into economic flywheels and exchanging token allocations.
• Projects are innovating, but not in a disruptive way: NFT sector: Some projects focus on business development (BD) to attract user attention rather than overhyping utility, such as HoneyComb and Booga Beras. DeFi sector: Some projects explore liquidity solutions, such as Aori, while others refine existing VE(3,3) models, such as Berodrome. Social sector: Projects like Standard & Paws use a peer-to-peer model to assess ecosystem project quality. Launchpad sector: Projects like Ramen and Honeypot experiment with token equity segmentation and LP allocation for Fair Launch models. Ponzi/Meme sector: Some projects, such as Goldilocks, attempt to create “sustainable economies” through Floor price pools.

5. Where is Berachain’s breakout point, and which ecosystems have the most potential?

I believe LSDFI and graphical assets will be the key breakout points for Berachain. The former builds a more diverse economic flywheel, creating both an economic bubble and a safety net for Berachain. The latter enables projects to unlock additional liquidity while participating in the ecosystem’s flywheel to attract more users.

#1 Introduction

After testing Berachain’s products, I had discussions with several friends about product experience and project development. Here are some key insights:

1. Berachain’s POL mechanism is not strictly an innovation and raises user participation barriers, but it does not affect early adopters’ FOMO sentiment.
2. Berachain’s rise and fall are reflected in a single token rather than the “three-token model.”
3. Berachain’s NFTs are the real shovels, not the tokens.
4. Berachain is the endgame of DeFi.

The first three points are relatively neutral, but I take issue with the fourth one, as I believe DeFi’s evolution should not be confined to the peak of a single ecosystem. Instead of baseless speculation, I wrote this article to let readers decide for themselves.

#2 What is the endgame of Defi?

Why do some projects hit a dead end?

First, we need to agree on the essence of DeFi—it is a game of capital cycles, where liquidity continuously shifts between projects. If DeFi is merely understood as “new money covering old money,” we overlook key mechanisms that drive these cycles. In this regard, @thecryptoskanda’s “three-pan theory” provides a valuable perspective.

https://x.com/thecryptoskanda/status/1702031541302706539

The three types of capital cycles are:

1. Dividend-based cycles: Users earn interest from deposits, such as Bitcoin mining, Ethereum PoS, or LP yields.
2. Mutual-aid cycles: Based on P2P models, these rely on capital flow mismatches, as seen in meme coins.
3. Splitting cycles: Initial capital is split to lower entry barriers while boosting market capitalization, such as Ethereum’s ICO.

Below is an analysis of the primary factors leading to the collapse of each type of cycle:

The lifecycle of an ordinary capital cycle inevitably leads to a death spiral and stagnation. However, a well-designed cycle can be self-sustaining, continuously evolving through different combinations of cycles, much like an ouroboros. To understand a project, one must take a modular approach, breaking it down by its cycle type. Otherwise, once the narrative-driven FOMO fades, the project’s future trajectory may be misunderstood.

As the saying goes: “One begets two, two begets three, and three begets all things.” The Three-Pan Theory is not strictly limited to three categories but rather highlights the interdependence and coupling of cycles, forming a regenerative system.

Here’s a breakdown of different composite cycles and their real-world examples:

1. Dividend-first - Dividend-second: LRT. Users’ ETH is first staked in PoS (earning the first layer of dividend yield), then delegated to AVS (earning the second layer of dividend yield).
2. Dividend-first - Mutual-aid-second: Peer-to-pool lending. Users stake tokens to earn initial collateral yields, after which borrowers take loans using the collateral, further increasing the lender’s returns.
3. Dividend-first - Splitting-second: PoS chain ICOs. Native tokens participate in P2P networks to earn block rewards, while new/alt token contracts are deployed on the network to capture additional liquidity.
4. Mutual-aid-first - Dividend-second: OHM/Reserve Currency. OHM theoretically anchors at $1; when purchased at a premium, other stakers receive greater dividend returns.
5. Mutual-aid-first - Mutual-aid-second: Hybrid lending. Borrowers are first matched with P2P lenders; if liquidity is insufficient, they are then matched with peer-to-pool lenders.
6. Mutual-aid-first - Splitting-second: Runestone. Users speculate on Runestone, and later, Runestone holders receive airdrops from multiple projects.
7. Splitting-first - Dividend-second: On-chain non-native yield-bearing assets. Non-native assets are generated through ICOs and provide dividends paid in other tokens/native tokens.
8. Splitting-first - Mutual-aid-second: friend.tech. Users can create new investment targets with low barriers, following the “new money covering old money” model.
9. Splitting-first - Splitting-second: Bong Bears. Bong Bears undergo multiple rebasing rounds—Bong Bears generate Bond Bears, Bond Bears generate Boo Bears… eventually leading to Baby Bears and Band Bears.

It is evident that the combination and judgment of different cycles are relatively subjective. In reality, a project may incorporate more than just one or two types of cycles—some may involve as many as four or five. But does more always mean better? This depends on a project’s allocatable resources, or more bluntly—the ability to manage operations. Allocatable resources determine how different cycles interact, whether they are parallel or serial (a concept borrowed from computer thread processing).

Parallel: Different cycles within a project do not conflict and can operate independently with separate logic. For example, in a public chain ecosystem, multiple protocols can thrive without necessarily being intertwined in terms of business operations.

Serial: Different cycles within a project may have dependencies and require sequential execution. For example, LRT protocols follow a serial process where users’ ETH is first staked in PoS, then delegated to AVS to generate a second layer of yield.

Now that we understand the essence of DeFi, let’s return to the original question: What is the endgame for DeFi, and why do some projects hit a dead end?

The endgame of DeFi is the beginning of the next DeFi. Most projects reaching a dead end simply follow the natural lifecycle of cycles, fulfilling their collapse factors, while other projects absorb their liquidity. From a higher-dimensional perspective, the Web3 industry as a whole remains resilient, which indicates that the interconnection of different cycles maintains a sustainable ecosystem. Observing various ecosystems, projects, and protocols through this lens reveals that their lifecycles become shorter as the scope narrows—this is a reasonable phenomenon. Therefore, the turnover rate of cycles represents the health of a project, while the turnover rate of projects represents the health of an ecosystem.

Next time, instead of hastily saying “there are no new entrants,” we should analyze each project’s collapse more carefully, abstract its business logic, and avoid being misled by high-sounding narratives.

Does this mean that Meme projects are the healthiest, given their low launch costs and high turnover rates? Based on this reasoning, technical breakthroughs would become irrelevant—as long as people believe in the narrative, the cycle can continue indefinitely. Is this really the case?

If we look only within the Meme sector, the constant emergence of new projects replacing old ones can indeed be seen as a healthy operation. However, if we expand the perspective to an entire blockchain ecosystem, would an ecosystem sustained only by the Meme sector truly be considered healthy? This seems counterintuitive.

In practice, when a particular sector explodes in popularity, we often joke that “X chain is rising,” treating this popularity as a sufficient but unnecessary condition. However, if we think critically, such explosions may actually result in a sudden decrease in liquidity for other sectors within that chain, or even cause the native chain token’s fate to become excessively tied to a single sector. This is not what most blockchain teams want to see (excluding Appchains).

Therefore, in most cases, a sector’s success should be seen as a necessary but insufficient condition—the popularity of one sector cannot fully determine the growth of an entire chain, but the performance of the chain can reflect the liquidity within its ecosystem.

#3 Can Berachain achieve “endless life”?

After reading the previous discussion, I believe many readers have begun forming their initial interpretations of Berachain. Before diving into the project itself, let’s take a step back and consider: What is the core of a blockchain?

Liquidity. Liquidity is the lifeblood of an ecosystem—it determines future development and reflects the overall vitality of the chain. Many so-called “pure” blockchains in the past have overlooked this key aspect, focusing solely on marketing and attempting to “drain liquidity” from other chains. And then what? Nothing. They never planned for better capital management on behalf of users.

“But isn’t retaining liquidity the responsibility of projects? What can a blockchain do? All we can do is provide the best developer tools and leave the rest to fate.”

In an ideal scenario, a blockchain can also construct narratives that allow its ecosystem to retain liquidity. However, these narratives rarely reach the scale of an entire blockchain. Currently, the best liquidity narrative at the blockchain level is LRT+AVS, while other chains remain stuck relying on narratives at the sector level, which limits their growth. For example, BTCL2 is highly dependent on the surge of inscriptions and runes.

With this in mind, we can redefine Berachain’s position. I believe the best way to understand Berachain is as a “liquidity navigator.” Readers unfamiliar with Berachain can find numerous analyses online discussing its three-token model and POL (Protocol-Owned Liquidity) structure. I won’t repeat those explanations here, but I’ll briefly outline Berachain’s token model:

• Three Tokens: BGT (governance), Bera (gas), Honey (algorithmic stablecoin)
• Key Process: BGT is earned through native Berachain applications (and may later be distributed through additional protocols on the mainnet). BGT is used to “direct” the allocation of BGT emissions across different LP pools. BGT is non-transferable but can be converted 1:1 into Bera. DeFi veterans can recognize this as a variation of the ve(3,3) model.
• Note: Currently, BGT can only be obtained through official protocols (BEX, BERPS, BEND), but once the mainnet launches, it will be available to all protocols deployed on Berachain.

I believe Berachain’s token model should be analyzed alongside its ecosystem rather than viewed as an isolated product. Using the three-cycle theory, we can outline how Berachain facilitates a positive ecological loop:

1. Dividend Cycle: Users and ecosystem projects stake assets as LPs, earning BGT emissions.
2. Splitting Cycle: BGT can be staked for governance or delegated to other governors. Governance participants control BGT emissions to different LP pools.
3. Mutual Assistance Cycle: Ecosystem projects provide bribing incentives to attract BGT governors, leveraging higher BGT emissions to capture additional liquidity.
4. Splitting Cycle: Users purchase various ecosystem tokens from LP pools.
5. Dividend/Splitting/Mutual Assistance Cycles: User assets flow in and out of different ecosystem projects.

The key risk of Berachain’s model is that BGT staking yields become lower than the value of converting BGT into Bera. This would indicate that the ecosystem can no longer support additional excess liquidity. However, as long as systemic risks do not emerge, Berachain’s native assets (BGT, Bera, Honey) have ecosystem-driven value backing them.

In practice, this mechanism is more complex because not all participants have perfect information or act with complete rationality. Additionally, not all participants are investors—some projects may purchase BGT for voting to receive emissions, hoping to attract liquidity. Therefore, the real collapse point should be adjusted to: In a rational market, project bribing rewards < the cost of acquiring liquidity (bribes, direct BGT purchases) / BGT staking yield < BGT-to-Bera conversion yield.

This reveals a seesaw mechanism: When Bera/BGT’s implied value is high, potential sell pressure on BGT increases. If BGT stakers decrease, BGT staking yields should rise, incentivizing more staking, which in turn lowers the implied value of Bera/BGT. Conversely, when more participants stake BGT, yields shrink, leading to a renewed increase in Bera/BGT’s implied value. This cyclical process allows a healthy Berachain ecosystem to maintain a long-term premium on Bera/BGT, ensuring continued trading volume and incentivizing projects to offer higher bribing rewards to BGT stakers.

However, in reality, the budget for bribing incentives isn’t an opaque “dark forest.” Rational projects can benchmark their competitors’ bribes or even collude to set prices, ultimately allowing the free market to determine the optimal cost of attracting liquidity. This means that over time, returns will naturally stabilize at a “market equilibrium” level.

Another hidden risk in Berachain’s model is that LP staking yields may fall below the yields offered by other DEXs on the chain. This could lead to liquidity drain due to “vampire attacks.” However, this risk is relatively minor for two reasons:

1. Berachain’s native DEX is expected to have the most trading pairs, making it the preferred platform for small projects to launch and conduct IDOs. This ensures the broadest trade routing options and minimizes large-scale liquidity outflows.
2. Berachain’s native DEX has the strongest brand recognition, making it difficult for other DEXs to compete. A relevant example is Uniswap’s quick recovery after Sushiswap’s vampire attack, highlighting the critical role of brand power in shaping user preferences.

#4 Defi Liquidity Game

Has Berachain fundamentally changed anything?

For Defi, even though there are different forms, the core element is liquidity. Therefore, how to attract and distribute liquidity in the product structure has become a measure of sustainable development, especially for public chains. Below, the author will briefly review some of the liquidity solutions that have appeared in the past few years, and compare whether Berachain’s solution has essentially solved the liquidity problem.

Solution 1: Liquidity Mining

Projects subsidize LPs, who otherwise earn only transaction fees, with native tokens. This approach worked well in early DeFi when users weren’t overwhelmed by complex product models. These simple yet effective incentives helped quickly capture liquidity. The most classic example is Sushiswap’s “vampire attack” on Uniswap, where LP mining rewards in $SUSHI temporarily captured $1.4 billion in liquidity. However, this model had obvious issues—the rewards were not USD-denominated, and the more liquidity that entered, the lower the per-LP reward. As a result, early users who mined tokens would quickly sell them on the secondary market, accelerating the project’s collapse. A 2021 Nansen report pointed out that on the day liquidity mining started, 42% of LPs exited within 24 hours. Around 16% exited within 48 hours, and by the third day, 70% of users had withdrawn. Even today, these numbers wouldn’t be surprising—unless someone is a “diamond hands” holder or a project believer, why would they stay?

Solution 2: CLMM/Other AMM Variants

Liquidity aggregation through modifications to the traditional AMM model (i.e., CPMM, constant product market maker). The most famous iteration is CLMM, which essentially functions as multiple independent liquidity pools across different price ranges but feels seamless from a user perspective. This approach balances order books and CPMMs, improving capital efficiency while ensuring sufficient liquidity. For further understanding, readers can refer to Uniswap V3 or various V3 forks. This solution does not harm platform tokens, so most projects have adopted their own versions.

Solution 3: Dynamic Distribution AMM

This approach adjusts liquidity ranges either passively or actively, but its core idea is to maximize capital efficiency. More details on this concept can be found in Maverick Protocol. Essentially, it resembles manually redeploying CLMM ranges repeatedly. This mechanism allows users to experience lower slippage trades, but the trade-off is the establishment of a “price buffer zone,” which increases potential costs for projects managing market capitalization (for example, making price pumps more difficult). As a result, projects using dynamic distribution AMMs often involve highly correlated token pairs, such as LST/ETH.

Solution 4: VE Model

The classic VE model was introduced by Curve. Users stake governance tokens to receive certificates known as VE tokens, which determine the distribution of liquidity mining rewards across different LP pools. In simple terms, governance tokens decide the emission of governance token rewards for LPs. Since governance tokens influence liquidity mining distribution, a new demand emerged: liquidity guidance, where projects incentivize deeper liquidity to ensure sufficient trading depth. Consequently, projects are willing to offer additional rewards (often in native tokens) to “bribe” key governance participants. Initially, projects outsourced bribery platforms, but newer implementations integrate bribery modules directly into their systems.

Solution 5: Reserve Currency/OHM Forks

This approach involves selling bonds at a discount to acquire liquidity, which is then used to issue stablecoins. Since these stablecoins are supposed to be pegged at $1, any excess demand results in surplus liquidity being treated as profit, which is distributed to stablecoin stakers. In theory, this model can sustain itself, but in reality, users did not treat these tokens as stablecoins. Instead, they overbought them and staked them to earn treasury revenue. The combination of staking, bond issuance, and secondary market purchases pushed the stablecoin’s price to unsustainable levels. If a large number of holders decided to take profits and exit, it would trigger further liquidations, eventually driving the stablecoin below its $1 peg. This dynamic is known as the (3,3) model. As seen above, most users opted to stake, which, when represented in a 3x3 matrix, results in (3,3).

Solution 6: VE(3,3) Model

Unlike the standard VE model, VE(3,3) focuses more on achieving local optimal consensus. To facilitate this, projects create an environment that guides governance token holders toward locally optimal choices. In the VE model mentioned earlier, LP fees are distributed as global dividends, meaning all governance token stakers receive rewards. However, in VE(3,3), LP fees are mostly allocated only to those who vote for a specific pool. Stakers must estimate the future distribution of LP fees and vote accordingly. In a way, bribery platforms provide a localized consensus mechanism, allowing users to actively maximize their earnings. This leads to internal competition within the liquidity market, as both LP fee isolation and bribery markets create incentives for strategic participation. Additionally, the model attempts to attract liquidity under a “single-blind” condition, where liquidity providers’ actual contributions remain unknown, adding an element of uncertainty. The key difference between bribery markets and LP fees lies in how returns are denominated. Bribery markets typically reward participants in project tokens, whereas LP fees are more commonly denominated in USD-pegged assets. This distinction allows bribery markets to act as a buffer for the entire DEX, helping to sustain governance token prices even as the yield bubble begins to burst.

Solution 7: Reverse VE(3,3) Model

While standard (3,3) prioritizes globally optimal yield, the reverse (3,3) model increases the cost of unstaking or holding tokens through a loss mechanism. Some may interpret this as the risk of token depreciation for traders, but projects often label it as a “native deflation mechanism.” This model is commonly seen in closed communities, where holding tokens comes with inherent penalties. More conservative implementations exist, such as GMX, where unstaking does not directly lead to capital depreciation but may result in reduced dividend earnings. Readers can look up GMX’s mechanics for further details. Projects adopting this model must have a strong understanding of their business lifecycle and design logic. Otherwise, mismanagement can accelerate the project’s collapse—whether through overvaluation or rapid devaluation—both of which are undesirable for long-term sustainability.

Solution 8: Liquidity Guidance

Liquidity guidance involves two main roles: Liquidity Providers (LPs) and Liquidity Directors (LDs). LPs provide liquidity as usual, while LDs decide where that liquidity should be allocated. Tokemak is one of the few projects implementing this model, with its v2 iteration incorporating internal algorithms to determine the optimal liquidity routing. This ensures LPs receive the highest collateralized returns while liquidity buyers can clearly determine the cost of “renting” liquidity. Although a liquidity marketplace has yet to be launched, Tokemak has already accumulated over $8 million in liquidity. However, historical price trends suggest that this narrative only gained attention during the previous DeFi Summer, with limited impact during the bear market and the current bull cycle. Whether liquidity markets require full transparency remains an open question. The author believes that a certain degree of “clear pricing” is necessary for liquidity markets. Without transparency, inefficiencies arise, leading to misallocated rewards and suboptimal competition for capital. Ultimately, this model could serve as a concluding piece in the liquidity market competition, much like MEV-boost in the MEV “dark forest.”

Solution 9: VE-LP / Proof of Bond (POB)

This brings us to the focal point of this discussion and the reason why Berachain’s POL is not necessarily a groundbreaking innovation. The core idea behind VE-LP/POB is to use liquidity as both an entry ticket and a safeguard for the project. VE-LP is exemplified by Balancer, while POB is seen in THORChain. Balancer allows users to provide liquidity in BPL/WETH pairs, with the resulting LP tokens eligible for staking to obtain veBAL, which grants fee-sharing and governance rights. In THORChain’s POB model, node operators must stake native tokens as collateral, and in the event of LP losses, 1.5 times the staked assets are deducted as compensation. The network’s total liquidity cap is limited to one-third of the governance token supply. If the network becomes insecure or inefficient, the balance is restored through liquidity mining and node operator reward adjustments. For instance, if staked collateral is insufficient to cover on-chain liquidity losses, the next cycle’s node rewards (denominated in governance tokens) are increased. Regardless of implementation details, the key challenge of these models is the entry barrier. Setting an appropriate entry threshold is crucial for ensuring adequate liquidity. Revisiting Berachain’s POL and three-token model, it essentially represents a hybrid of VE(3,3) and VE-LP. As described earlier, the BGT bribery market aligns with the VE(3,3) framework, while POL follows the VE-LP approach. The former focuses on governance token value management, while the latter determines entry barriers. In most VE models, governance tokens are freely traded on secondary markets, allowing ecosystem projects to acquire liquidity easily. However, this exposes VE model projects to token volatility risks. POL, on the other hand, slows down governance token (BGT) acquisition, providing more time and flexibility for token management. Additionally, by allowing multiple asset types for collateralization, POL lowers the entry barrier in exchange for broader liquidity participation.

From the above liquidity solutions, we can summarize the “Impossible Triangle” of liquidity competition: security, high liquidity, and market transparency.

Security refers to whether the solution provides a safety net for projects. For example, in the VE(3,3) model, the collapse of the bribery yield bubble is what ultimately leads to the downfall of VE projects.

High liquidity refers to whether the solution can attract a significant amount of liquidity. For instance, if a project is willing to give up a large portion of its governance tokens, the resulting yield will attract a wave of short-term liquidity.

Market transparency refers to whether the solution makes liquidity demand transparent. For example, in POB, the total liquidity a project can support is determined by the total assets staked by nodes.

Returning to the core question: Has Berachain fundamentally broken through the technical bottleneck of the liquidity market? The answer is clearly no—it has only introduced certain improvements. However, Berachain has chosen the right application scenario: a public chain. If we focus only on its mechanism, we might misjudge its potential as being limited to the protocol level. But in reality, BGT’s bribery rewards can revitalize other projects in its ecosystem and even serve as a major narrative on the same level as Restaking.

Imagine you are a project team without sufficient financial reserves for liquidity mining as an early-stage incentive, but you have still formed a trading pair on BEX (Berachain’s native DEX) with a certain amount of liquidity. In this case, the project team can earn BGT rewards from this staked liquidity, and BGT determines the future emissions of the pool. Since the pool is small, even a modest BGT release provides a higher yield compared to blue-chip token LPs, indirectly attracting more liquidity. From this perspective, Berachain’s POL mechanism is somewhat similar to the Restaking sector. Restaking integrates part of ETH’s security through AVS, while Berachain’s smaller projects integrate part of BGT’s “security,” providing projects with greater liquidity for future development.

#5 What’s happening with Berachain?

What is the best way for users to participate?

As of May 3, 2024, based on data compiled by Beraland and the author, there are approximately 103 projects in the Berachain ecosystem, with DeFi and NFT projects making up the majority. Since projects may span multiple business areas, they have been categorized based on their primary focus. The ecosystem breakdown is as follows:

• DeFi: 36
• GameFi: 15
• Meme: 4
• Infra: 18
• Community: 13
• NFT: 24

Currently, most projects fall under DeFi and NFT categories. The Berachain ecosystem is quite diverse, so the author has selected a few key projects to introduce (with some subjective judgment).

1. The Honey Jar （THJ）

“The Honey Jar is an unofficial community NFT project, situated at the heart of the Berachain ecosystem, which hosts a number of games.” The above is the official positioning, which can basically be understood as an NFT+GameFi+Community+Gateway+Incubator mixed project. Its NFT is called Honeycomb, which can be used for governance within the project. Currently, all Honeycombs have been minted, with a floor price of 0.446ETH and an initial minting price of 0.099ETH. NFT holders can participate in the platform’s games and obtain some mysterious rewards from other projects in the Berachain ecosystem (as of February 22, 2024, HJ has accumulated cooperation with 33 projects, with about 10 projects providing airdrop rewards), while Berachain’s ecosystem parties can “locate” valuable high-net-worth users through these NFT holders and potentially increase the future participation of the project (high-net-worth users may be willing to invest more). In short, this is an NFT that requires “the project team to take action.”

Additionally, every quarter, The Honey Jar will release a new mini-game and allow users to conduct a new round of NFT minting, with a total of six rounds. These NFTs are different from Honeycomb and are called Honey Jar (Gen 1-6), with the Gen sequence number determined by the round. Users who purchase these NFTs can participate in games, which can be understood as NFT lottery games, and after all the current NFTs are minted, a lottery is conducted, and winners can claim rewards from the prize pool (NFT+cash rewards). Currently, two rounds of games have been conducted, and the remaining four rounds will be announced in Q2 2024 and deployed on four different EVM chains.

THJ has incubated six organizations:

First, Standard and Paws. This project is a rating system aimed at preventing low-quality projects in the ecosystem.

Second, Berainfinity, which can be understood as Berachain’s Gitcoin, helping developers/project teams achieve sustainable development.

Third, ApiologyDAO. Positioned as an investment DAO in the Berachain ecosystem.

Fourth, Mibera Maker. Positioned as the Milady of the Berachain ecosystem.

Fifth, The Apiculture Jar. Positioned as THJ’s Meme/Artist department.

Sixth, Bera Baddies. Positioned as the women’s community on Berachain.

Evaluation: The author believes that this project has relatively high early participation value, as no one dislikes “shovels.” However, this kind of narrative generally has the opportunity to be priced in early, so we need to be clear about the core collapse/risk points aside from systematic risk (such as the poor subsequent performance of Berachain mainnet):

First, the project team must have sufficient bargaining power and BD capability and be able to “use OGs to influence project teams.” If this narrative is proven to be false and Honeycomb cannot truly capture high-net-worth users, then subsequent project teams will not be willing to provide high-value benefits to NFT holders.

Second, the total potential rewards provided by other project teams to NFT holders need to be greater than or equal to the floor price of the NFT. Let’s make a conservative estimate of Honeycomb’s price:

1. Honeycomb cost price: 0.099ETH, approximately 300U

2. Expected earnings: On-chain risk-free earnings are roughly 5% (POS); currently, 10 projects are willing to pay airdrops, and each project’s airdrop is distributed over six months, with an initial value of 30U (10% expected rate), with a theoretical total value of 300U (30U*10), meaning a monthly distribution of 50U; assuming that three new projects per month are willing to airdrop to NFT holders.

3. Growth rate of earnings: Assuming that in the first three months, the project team is wash trading, waiting to buy low before pumping, and in the latter three months, they increase the price by 1x, 1.25x, and 1.25x, respectively; assuming institutional prices at TGE are 5-10 times the price point to break even, with a release period of 12 months, meaning that the project team needs to increase the price by 2.5-5 times within six months (equivalent to increasing the price by 1x, 1.25x, and 1.25x in the last three months).

The final estimated net value of the NFT is 367U. If calculated based on the current floor price (0.446ETH), the market’s predicted return value per project needs to be maintained at 20%. The above estimate is just for fun and has little actual reference value.

2. Build a Bera

“Build-a-Bera is a results-driven partner with the Berachain Foundation designed to provide Bera-oriented founders with the tools, mentorship, and resources needed to thrive in a competitive market.”

According to the official definition, Build-a-Bera is a partner of the foundation and helps projects in the ecosystem develop. In simple terms, it is an incubator. Each batch recruits five project teams for a period of 12 months. The five projects currently listed on the official website are: Infrared, Gummi, Kodiak, Shogun, and Beratone.

Evaluation: The author believes that these selected project teams have a high probability of receiving more support from Berachain, and the projects within the incubator are more likely to form collaborations (which is also the case in practice). Therefore, the author will introduce the selected projects mentioned above in the following section.

3. Infrared Finance

DeFi-savvy users can think of it as a combination of Frax (frxETH + sfrxETH) and Convex. Simply put, Infrared Finance is an LSD project aimed at solving the liquidity problem of BGT.

General process: Users stake tokens in Infrared Finance, which then stakes these tokens in BEX liquidity pools. At the same time, the BGT rewards received are delegated to Infrared’s validator. Infrared’s validator will then return the released BGT rewards plus other earnings (block rewards, bribes, MEV, etc.) to the Infrared Vault. Infrared allocates part of these additional earnings as treasury revenue, while the accumulated BGT rewards in the pool are minted into iBGT + iRED and returned to users.

Token model: iBGT is staked 1:1 with BGT; users can use iBGT in other Berachain-based products. Users can stake iBGT to receive siBGT, which earns BGT rewards from the Infrared validator, such as bribes and block rewards. iRED is used for platform governance, such as directing the Infrared validator to increase BGT emissions to certain LPs.

Evaluation: Another project that “leverages the emperor to command the vassals.” On the surface, it solves BGT’s liquidity problem, but in reality, it shifts the bribery competition from BGT to iRED. For example, if Infrared Finance controls 51% of the LP, it holds absolute authority over BGT emissions distribution, making iRED the “imperial seal” that dictates the ecosystem. Based on this, if liquidity demands from projects remain unchanged, Infrared’s bribery earnings should theoretically be higher than other validators, further strengthening Infrared’s control over Berachain. In practice, this is likely the case. Looking at how Convex once held nearly 50% influence over Curve, and given that Berachain currently lacks any other LSD projects supported by Build-a-Bera while also maintaining extensive ecosystem collaborations, if users seek stable BGT yields with some extra rewards, Infrared is expected to be the primary staking gateway upon launch. Additionally, the project’s dual-token “seesaw” mechanism further amplifies the earnings of siBGT holders, as not all users are willing to sacrifice liquidity. This means staking rewards should be higher than regular BGT LSD products, and all returns are “real yield.”

While it appears to be a win-win product for multiple parties, we also need to recognize its potential points of collapse and core risks:

First, iRED’s depreciation risk. Each iRED emission increases the total circulating supply, indirectly reducing iRED’s value. The implicit value of iRED represents bribery earnings. If potential projects, for some reason (such as pursuing decentralization), prefer to offer high bribe incentives directly through Berachain’s BGT Station, then iRED’s implicit value declines, accelerating its depreciation. If Infrared controls most of the liquidity, it essentially reverts back to Berachain’s POL mechanism, which is a systemic risk in a strict sense.

Second, Infrared’s centralization risk. Although Infrared currently has broad support, including from the foundation-backed incubator, we cannot ignore its potential risks of malicious actions. At present, Infrared has not disclosed the entry requirements for its validators. If they are entirely operated in-house, the risk of a single point of failure would be even greater than Lido’s.

4. Kodiak

“An innovative DEX that brings concentrated liquidity and automated liquidity management to Berachain.”

Kodiak is positioned as a DEX that provides automated liquidity management services (refer to the dynamic AMM overview in the previous liquidity solution section). Additionally, it offers a one-click token issuance feature. According to the official statement, Kodiak is not a direct competitor to BEX but rather a complementary part of the ecosystem, as BEX does not provide concentrated liquidity functionality. Notably, Kodiak collaborates with Infrared and has introduced two economic flywheels:

First, the treasury flywheel. Kodiak will first bribe Infrared to increase BGT emissions for Kodiak LPs. Then, Kodiak stakes the treasury’s liquidity in Kodiak LP pools and uses the LP tokens as collateral with Infrared. Infrared thus gains control over these LPs and subsequently stakes them in the Kodiak LP pool to earn iBGT + iRED rewards from Infrared.

Second, the community flywheel. Users can stake their Kodiak LP tokens to receive iRED + iBGT rewards from Kodiak.

Evaluation: This model is suitable for yield-bearing assets and native asset trading pairs but may not be ideal for the siBGT & iBGT scenario. Moreover, this flywheel requires strong control over token emissions in the mid-to-late stages of the project. As mentioned earlier, dynamically distributed AMMs are suitable for highly correlated token pairs. For example, LST/ETH pairs, where LST (a non-rebasing token) accumulates validator rewards, should be priced higher than iBGT. However, since these rewards provide stable yields without high volatility, a dynamic AMM can create a price buffer zone, preventing extreme fluctuations. In contrast, siBGT’s native yield differs from PoS, with a more diverse source of income and higher volatility. This means that a price buffer zone may reduce price discovery efficiency, potentially underestimating the real market value of siBGT’s yield.

The project’s core collapse point lies in: when bribery returns (iBGT + iRED + liquidity stability) fall below bribery costs (most likely Kodiak’s native token), which is a common issue in bribery-based projects. This implies that Kodiak’s token should have an implicit value less than or equal to the bribery yield; otherwise, the project operates at a deficit (similar to Lido’s situation). On the other hand, if Kodiak’s native token value is too low, it fails to attract sufficient liquidity, meaning there won’t be enough BGT emissions.

In the early stages, most LPs likely operate with a coin-denominated mindset, which is a bullish signal, meaning bribery costs equal or exceed bribery returns. However, in the mid-to-late stages, as ecosystem momentum weakens, LPs will naturally shift to a USD-denominated perspective. At that point, Kodiak faces only two options: maintaining bribery payouts in USD terms, which accelerates market selling pressure, or continuing bribery in a coin-denominated manner, reducing the platform’s liquidity appeal. Both scenarios lead to a breaking point, and without additional narratives, the project reaches the end of its lifecycle.

5. Gummi

“A sweet treat for those sers interested in something a little stronger than honey.”

According to the official description, Gummi is primarily positioned as a money market. There is limited information available, but it is highly likely to be a lending protocol that supports leveraged lending.

Their collaboration with Infrared is similar to Kodiak’s. Although Gummi has not explicitly stated whether it will bribe Infrared’s validators or all validators, it is highly likely to be the former.

Evaluation: There is not much room for discussion about this project at the moment, as the product details remain unclear. However, since it is a Build-a-Bera incubated project and an Infrared ecosystem partner, it is mentioned here.

6. BeraBorrow

For those familiar with DeFi, this can be understood as a fork of Liquity. According to the official description, BeraBorrow is a collateralized debt protocol (CDP) that allows users to borrow NECT stablecoin with iBGT at a 0% interest rate and a 110% collateral ratio. The stablecoin is theoretically pegged to 1 USD.

Why is it interest-free? There is no such thing as a truly “interest-free” protocol, so the focus should be on how the protocol extracts value. BeraBorrow charges fees when users borrow NECT and redeem iBGT. The redemption fee dynamically adjusts based on the redemption frequency within a 12-hour period—the more redemptions (indicating NECT is overvalued), the higher the fee.

Pegging mechanism: There are two types: hard peg and soft peg. The hard peg provides a 1:1 redemption mechanism between iBGT and NECT. When NECT is overvalued (above 1.1 USD), users can mint NECT at a 110% collateral ratio and then sell NECT to profit from the price difference. When NECT is undervalued (below 0.9 USD), users can buy NECT on the secondary market and redeem iBGT at a 1:1 ratio, earning the spread as profit. The soft peg refers to the theoretical value of NECT being equal to 1 USD, with the platform adjusting redemption fees dynamically to correct overvaluation.

Maximum leverage: 11x. Since the platform’s collateral ratio is 110%, the theoretical leverage can be calculated as (1 + 1/0.1 = 11).

Other risk controls: A stability pool will be introduced later to facilitate platform liquidations, with liquidation profits distributed to LPs in the stability pool.

Evaluation: Stablecoin projects are essentially bond markets—users care more about APY than about additional use cases (e.g., trading pairs). If users need a stablecoin, why not just use Honey? The current revenue sources for the project seem limited to the stability pool, though there is a possibility that the iBGT collateralized on the platform could later be further staked in the Infrared vault for additional potential yield.

For users who are short-term bearish on iBGT, they can leverage up and wait for their base position to be liquidated to earn potential liquidation arbitrage. The maximum liquidation profit in Liquity is calculated as:

Debt value – (Collateral asset quantity × Current price < 10% × User’s stability pool share).

A simple example:

Assume a position has 500 iBGT and 10,000 NECT debt, with the current collateral ratio at 109%, meaning iBGT’s price is 21.8 USD (109% × 10,000 / 500). If a user holds 50% of the stability pool, their potential liquidation profit is 450 USD (500 × 50% × 21.8 - 10,000 × 50%). Based on this, a user’s key profitability factors are their share in the stability pool and the liquidation frequency.

Additionally, if users are mid-to-long-term bullish on iBGT, they may leverage up to earn up to 11x siBGT returns. However, this mechanism is not explicitly mentioned in BeraBorrow’s official documentation. For these users, the key risk factor is the downside volatility of BGT.

7. Beratone

BeraTone belongs to the MMORPG genre, where players take on the role of a bear in a simulated world, farming alongside other bears. Those familiar with games can compare it to Stardew Valley. One of BeraTone’s creators is PixelBera, who also did the artwork for Bit Bears (the fifth-generation derivative NFT of Bong Bears NFT). Thanks to Bit Bears’ surge in popularity, PixelBera aimed to provide some “utility” for Bit Bears, leading to the creation of BeraTone. The game’s demo is expected to launch in Q2 2024, with a full release in Q1 2025. The NFT sale is scheduled for Q3 2024, and the Founder’s Sailcloth NFT has already been sold, offering various in-game buffs, such as expanded backpack space. Notably, the game will be open to everyone without any entry barriers, meaning the Q3 NFT sale is not an access pass but likely similar to the Founder’s Sailcloth NFT.

Evaluation: The art style closely resembles Web2 games, but TBH, Web3 users still primarily chase APY. At its core, the game remains a large DeFi system. However, as a GameFi project, one advantage is that the economic model can be designed as a blind model—users are unaware of their exact returns. By implementing a long-cycle economic system combined with in-game purchases, the game’s lifespan could extend far beyond expectations. Additionally, since GameFi rewards are calculated in NFT terms, a low turnover rate can create an inflated market cap, attracting more players to grind for rewards. However, controlling the market is more difficult compared to U- or token-based models. Simply put, if you are a Bera enthusiast, you may consider following along. The game has high variance in returns, requiring an evaluation of the secondary market’s turnover rate and, when necessary, risk hedging through pre-market trades or OTC deals.

The above project introductions provide a beginner-level overview and may not offer deep ecosystem insights. To address this, I have conducted varying levels of research on all projects in the ecosystem, ranging from 5-10 minutes to an hour. Here are some key takeaways:

Strong native projects, diverse GTM strategies: Most projects deployed on Bera are not multi-chain compatible but natively built on Berachain. The ratio of native to non-native projects is around 10:1 (note: some projects may be from the same team). Contrary to intuition, not all non-NFT native projects rely on NFT issuance for initial traction—most adopt a more traditional approach.

Complex economic flywheels, but the core remains unchanged: Most Berachain projects leverage Infrared for economic flywheel mechanics, while some, like Berodrome, further layer VE(3,3) on top of BEX’s existing foundation. However, the core idea remains unchanged—rewards are token-based. As long as users understand a token’s fundamentals and the project’s market-making capabilities, they can navigate the ecosystem. While projects’ flywheels are interconnected, a single project’s collapse does not necessarily lead to ecosystem-wide failure. As long as the sacrificed tokens yield excess returns, users will continue supporting the system, with other projects filling the gaps in the flywheel.

High-funded projects predominantly issue NFTs: Among the top 10 highest-funded projects, seven belong to Community/NFT/GameFi categories, all of which have issued NFTs.

Community engagement varies, but projects support each other: The average Twitter viewership for native Berachain ecosystem projects is around 1,000-2,000+, with some projects’ engagement appearing underestimated (followers/average views < ecosystem average). For instance, Infrared has over 7,000 followers, yet its posts average 10,000+ views. Many native projects collaborate in various ways, such as integrating into economic flywheels and sharing token allocations.

Projects are innovating, but not revolutionary: In the NFT sector, some projects focus on business development (BD) rather than overhyping utility, such as HoneyComb and Booga Beras. In DeFi, some continue researching liquidity solutions (e.g., Aori), while others refine previous VE(3,3) models (e.g., Berodrome). In Social, projects like Standard & Paws explore peer-to-peer vetting of ecosystem projects. In Launchpads, projects like Ramen and Honeypot experiment with token rights segmentation and LP distribution to achieve fair launches. In Ponzi/Meme, Goldilocks attempts to create a “sustainable economy” using a floor price pool.

#6 Where is Berachain’s Breakout Point, and Which Ecosystems Have Potential?

By this point, readers should have a fairly comprehensive understanding of Berachain, making it easier to envision two potential development paths: LSDFi and tokenized assets. First, LSDFi refers to the economic flywheel related to Infrared, which essentially serves as Berachain’s economic moat. As mentioned earlier, many projects have already integrated with the Infrared Finance ecosystem and delegated their LPs to Infrared for excess returns. Consequently, the ecosystem is likely to follow Ethereum’s trajectory, such as using siBGT as collateral for stablecoins or developing interest rate swap protocols. However, unlike Ethereum, where the staking threshold is the main barrier, Berachain’s limitation is liquidity depth. Therefore, LSD protocols that lower staking participation thresholds, like Puffer Finance, may also take shape on Berachain, amplifying liquidity through mechanisms like leveraged lending. Second, tokenized assets do not refer to a specific protocol like ERC-404 but encompass all potential NFT assets and NFT fractionalization solutions. Tokenized assets are particularly suitable because Berachain natively provides liquidity bribing, which is both the lifeline for any token-launching ecosystem project and Berachain’s own defensive mechanism. NFT projects can use tokenization to attract a new wave of buyers, leveraging a rebasing-like mechanism (akin to a split scheme) while simultaneously integrating into the broader economic flywheel of other ecosystem projects, such as Infrared Finance.

Readers can further explore these two directions independently. During my research, I have already identified specific cases, but since this article serves as an analysis rather than investment advice, I will not elaborate further.

#7 Postscript

In a conversation with friends, we discussed Berachain’s prospects and whether the project could succeed. One person said, “Berachain has strong community support, and its current metrics look decent. Many NFTs have already been sold, so it should be able to take off.” Another responded, “Berachain is just another massive DeFi play. Once this narrative cycle ends, it won’t be able to sustain itself. Without a fundamentally disruptive ecosystem narrative, it’s impossible for it to last.”

I’ve always believed that defining a “successful project” is complex. Unlike discussing the “endgame of DeFi or a project,” success is not a single-dimensional metric.

If the community thrives but VCs don’t profit, is it a good project?

If VCs profit while the community suffers, is it a good project?

If everyone seems to be winning, but some individuals end up as collateral damage, is it a good project?

If you are the landowner and everyone else becomes your crops, is it a good project?

If a project talks to you about the future, but you talk to it about the present, is it a good project?

If a project talks to you about technology, but you talk to it about narrative, is it a good project?

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