Introduction
Following the conclusion of Taptalk 17 featuring Smokey the bear, I thought an updated piece collating all the alpha past & present was meritted. Getting up to speed could be especially pertinent as it seems we are on the precipice of a major announcement:
What is Berachain?
Berachain is an ambitious new blockchain that attempts to resolve the issue of liquidity fractionalization and depth that has been observed across alt-L1s. This is done by ensuring that liquidity itself is a core primitive of the chain.
Employing a novel new consensus mechanism known as 'Proof of Liquidity', the Berachain network is secured utilizing a basket of blue-chip, alt-L1 and stable assets.
The Cosmos SDK has been utilized to bring this blockchain to life, however, unlike most Cosmos chains Berachain will be EVM compatible.
Berachain’s EVM compatibility facilitates the familiar names in DeFi to migrate over and offer their services to Berachain users. Moreover, a host of native applications are under development also. On launch users of the chain should expect a variety of DeFi, GameFi and betting applications.
Berachain Founding Fathers
The founders of Berachain come from a mix of healthcare and venture capitalist backgrounds. Having been based in Silicon Valley they kept their finger on the pulse regarding the blockchain space, as many major VCs cut large deals. However, it was the Ohm DeFi 2.0 ‘renaissance’ that got them back on-chain. The ethos of protocols owning their own liquidity and being resistant to mercenary capital resonated heavily with the team and this is evident in the design of Berachain.
Obviously, this journey began with the NFT collection known as Bong Bears, which Smokey wanted to call Baked Bears, but thankfully he was overruled. The bear universe continued to evolve with new collections with different themes, such as bond bears and bit bears. When discussing the end game for these JPEGs of bears smoking weed there was only one logical conclusion… Berachain.
Enter the Cosmos
The Berachain team chose the Cosmos SDK for its modularity, flexibility and interoperability. Berachain will be EVM compatible whilst also possessing the ability to make IBC calls and communicate with other app chains. This opens the possibility for developers to utilise the best of both the Ethereum and Cosmos ecosystems. Perhaps these will be combined in a way we have not previously seen and provide some new use cases, however, this remains to be seen.
Smokey was very impressed with the Cosmos SDK as it provided a good developer experience for traditional developers.
Furthermore, Smokey hinted at the Bera team having pushed the EVM in Cosmos to new heights, potentially achieving things that weren’t thought possible on Cosmos. We’ll have to wait and see what devbear and the team have cooked up. Potentially we could see a new suite of EVM Cosmos modules with additional capabilities to that of EVMOS.
Tokenomics
A new chain means new tokens, which will always drum up interest. Berachain identified three functions that a blockchain must performed or facilitate and ascribed a token to each of them. These actions are:
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Paying gas fees
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Securing the network via staking
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Transacting using a stable unit of account (stablecoin)
As such, Berachain has a three-token model comprised of the following tickers:
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$BERA
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$BGT
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$HONEY
$BERA is the network gas token and can be locked to obtain $BGT. $BGT is a non-transferrable governance NFT that accrues value from the use of the network and staking. Finally, $HONEY is an overcollateralized stablecoin.
The triangle is the strongest shape, will the tri-token model also be the strongest? We’ll only know in hindsight, but the logic for having each of these tokens is certainly compelling and novel. It will be fascinating to see how this model plays out and whether it will be adopted by other chains in the future.
$HONEY Mechanics
Berachain's stablecoin, $HONEY, is the router for anything coming in and out of the ecosystem. It will have a 150% minimum collateral ratio, with that collateral being exogenous.
The collateral options to mint $HONEY will expand over time and can be voted on with $BGT. You can expect $ETH, $BTC, stables and alt-L1 tokens to be options to mint $HONEY at launch. $HONEY will be the de facto pair against all staked assets for the native AMM to facilitate deep liquidity and route trades efficiently. Furthermore, it will also be used to pay the funding rates on perps.
Bera NFTs
As aforementioned the entire Berachain project stems from the Bera NFT collections. As such, it is widely believed that holders of these NFTs will receive some form of benefit upon launch.
These are yet to be announced, however it has been speculated that holders may receive:
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Access to testnet
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New rebases
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Airdrop of $BERA and/or $BGT
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Automatic whitelisting to native Berachain NFT projects
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Airdrops and/or testnet access to native Bera dapps
It will be intriguing to see how the OG NFTs are integrated into the next wave of Bera.
Proof of Liquidity
Berachain's aforementioned sybil resistance mechanism is designed to ensure that there is always enough liquidity in the system to facilitate transactions as well as secure the network.
Users are able to deposit or bond a variety of assets such as ETH, stables or alt-L1 tokens into consensus vaults and receive an ERC4626-like receipt. Using this receipt, the underlying assets can be delegated to different validators providing these validators with more consensus voting power. Once delegated these assets don’t remain idle, they are moved into strategies and used in both the in-built DEX and perp exchange. Additionally, these assets can also be used to defend the peg of $HONEY via its stability module.
POV: You are a Depositor on Berachain
Once you have deposited and delegated your assets there is a chance that the initial capital you deployed may decrease as a result of the strategies and peg stability. This system is not without risk. However, the system is designed to offset the potential of any loss to your principal by paying depositors with trading/protocol fees from the in-built primitives, in addition to the block rewards for participating in consensus. A combination of the customary inflationary block rewards we are oh so familiar with and some #realyield, best of both worlds.
Furthermore, there is the possibility to unlock the liquidity of your deposited assets by borrowing $HONEY against it. The aim of this is to increase the stickiness of deposits by allowing them to be utilized meaningfully by the depositor in the form of stablecoin loans. This opens the door to a number of strategies as a depositor. The amount that can be borrowed against your deposited position will vary depending on the assets you have deposited.
POV: You are a validator on Berachain
Validators have access to some interesting mechanics as part of Proof of liquidity. Validators are able to specify which assets they would like to be delegated to them and cultivate a basket of deposited tokens to their liking.
It was also mentioned that there may be a possibility to specify the incentives on each of the assets you have selected to obtain a desired weighting also.
However, be aware that Smokey said these validator mechanics are still in testing and may be subject to change.
On-Chain Bribe Markets
Irrespective of the final design of the Validator mechanics above, Berachain's design facilitates the possibility of a bribe market a la curve and the ‘Curve Wars‘ at the consensus level. Protocols or Validators may pay bribes for the voting power of delegators to boost the rewards of a particular asset and therefore deepen its liquidity. Interestingly Redacted Cartel is a known partner of Berachain, could we see Hidden Hand markets for Berachain delegations?
Potential Flywheels?
Let’s explore $BGT further and a potential flywheel that may exist. $BGT can be used to vote new assets into consensus, therefore protocols may accumulate $BERA to lock as $BGT to vote their token into the consensus token whitelist. Therefore, ensuring their token enters the various strategies and can take advantage of the DEX and perp primitives intrinsic to Berachain. $BERA may also be accumulated to lock as $BGT to vote for emissions to be allocated to a specific token and deepen liquidity on-chain.
Could Tapioca Dao be one such protocol that looks to deploy some of its treasury to do so?
The above is speculative and Smokey did mention there are plans involving new mechanics and game theory coming for $BGT so the above may be subject to change. We’ll have to wait and see, but I’m sure it will be juicy.
Here is an alternate flywheel presented by the talented eli5_defi:
Additionally, here is another take on a potential Bera flywheel. I am not sure who the original creator is, however, I found it on both Curious_J’s thread and sooper’s article on mirror, go give them a follow and collect respectively.
Partnerships
CrocSwap
For those of you that are not familiar with CrocSwap, it is a novel DEX implementation that uses a single smart contract to provide both concentrated and ambient liquidity. (Ambient refers to Uni V2 style). Berachain has partnered with Crocodile Labs to utilize their tech for their native chain-level DEX. The DEX has been converted from a smart contract into Cosmos SDK module(s) to be incorporated at the chain level. Smokey said that the concentrated liquidity capabilities provide CLOB-like trading efficiency.
It was posited on the MarketCapping podcast that the native Berachain DEX could be integrated into DEX aggregators like 1inch or Paraswap to further increase volume and position it to become the liquidity layer for trading the most popular DeFi assets. This is definitely a potential bull case for the project, should sufficient liquidity bridge over.
Build-a-Bera
Berachain has partnerships with various protocols including the aforementioned Crocswap and Redacted Cartel. There are also partnerships with other familiar DeFi names such as:
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OlympusDAO
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Llamalend
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Synapse
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GumBall
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Bond Protocol
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FiatDAO
Of course there are a plethora of native Dapps deploying also, these include:
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Beradrome - AMM (solidly adaption)
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BeracreepFi – Money Market
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Honeypot Finance – AMM
There are also dapps focusing on GameFi and betting that are currently building on Bera.
There was talk of a Bera-themed Dance Dance Revolution type game, which I have no idea what to make of haha.
Here is a great visualization for the Dapp ecosystem, once again credit eli5_defi:
Omni-Bera
Smokey also mentioned that the Berachain team and the team at LayerZero Labs are very close and communicate regularly. It was heavily hinted that integration into LayerZero is more a question of when and not if.
This integration would allow Berachain users and devs to have additional cross-chain utility and access to a growing ecosystem of omni-dapps, like Tapioca Dao.
Conclusion
Berachain is one of the most highly anticipated blockchain projects of 2023, hopefully after reading this article you understand some of its nuances and points of intruige.
In summary, Berachain is a new Alt-L1 that is aiming to avoid the pitfalls and quagmires experienced by its predecessors by implementing novel mechanics at the chain level. ‘Proof of Liquidity’ consensus is an embodiment of the the core ethos of the chain, sticky and non-parasitic liquidity. Furthermore, the consensus method combined with the in-built dex and perp exchanges enable a suite of new usecases for the users of the chain, such as borrowing against delegated deposits and consensus vote bribing. This project is attempting to take some of the most successful concepts from DeFi and bake them in at the chain level.
Moreover, one of the most fascinating aspects of this chain is its humble origin as a series of NFT collections. The chain benefits from already having set of ardent and ferverent community members that will be eager users from day 1. This is the first instance of a NFT project becoming its own blockchain and it undoubtedly provides Berachain with a very grass-roots type feel. I wonder if this vibe will be deterrent to larger actors with deeper pockets or will be a galvanising narrative that attracts liquidity from all types of market participants.
It should be noted that I am not insinuating that no VC investment has gone into Berachain, this feat would not be possible without the additional capital and investment that VCs bring. I am unaware as to which VCs have backed the project at the time of writing.
Another captivating aspect to this project are its effects on the current most popular Cosmos app-chains. Will Berachain usurp Evmos as the defacto hub of EVM development in the Cosmos? Could Berachain replace Osmosis as the liquidity hub of the Cosmos? The economics and game theory employed by Berachain are superior to that of Osmosis, however liquidity can be such a fickle thing. I also wonder how the Cosmos community feels about Berachain, given that it has such strong roots within Ethereum as that is where they were launched. Will the current Cosmos user base fully embrace Berachain?
All fascinating questions to ponder, but only time will tell the magnitude of disruption Berachain brings to the blockchain space.
Stay careful out there,
0xNelli
Follow me on twitter: 0xNelli
Berachain links: Discord | Twitter | Website
Tapioca Dao links: Discord | Twitter
Sources & Additional Links
Threads
[2] Curious_J’s thread - Thread
[4] corleonescrypto - Thread
Articles
[5] devbear - Introducing Berachain
[6] sooper - Wait, it’s real? What is Berachain?
[7] miguelrare - Berachain
[8] Crocodile Labs - Indroducing CrocSwap
[9] Crocodile Labs - CrocSwap Whitepaper
[10] ABInsider - What is Berachain, what is the hype about?
Podcasts
[11] Marketcapping - podcast
Disclaimer: Of course this is not financial advice. I am merely presenting the notes I took of a podcast bolstered by some independent research and supplemental material. Don’t make major financial decisions based on the words of some random anon please.