Berachain: The Evolution from Meme to Mainstream that Could Revolutionize DeFi Liquidity

Very rarely does a cryptocurrency project succeed as both a meme project and as a legitimate protocol with innovative technology. Berachain, a new layer 1 with a Proof of Liquidity mechanism, is the latest project attempting to do so. Let’s dive into Berachain’s history, how it works, and if there is potential for an airdrop.

Believe it or not, Berachain started as an NFT project called BongBears, created by anonymous co-founders known as Dev Bear, Papa Bear, and Smokey the Bera. The founders later pivoted to building a Cosmos-based Layer 1 with a new consensus mechanism called Proof of Liquidity, which will bring capital efficiency and high levels of liquidity to the chain and associated decentralized applications.

Berachain will use a three-token model, which is very unique in the cryptocurrency space. The first token, BERA, is the gas token used to pay transaction fees on the network. Users can earn BERA by staking assets, entitling them to protocol fees and a portion of the annual emissions. The second token, BGT, is the Bera Governance Token and is earned by staking BERA. It will be used for voting on changes to the protocol, such as which assets are eligible for staking and how much BERA should be emitted. Interestingly enough, this token is non-transferable and can only be earned through staking, ensuring that it is only owned by users aligned with the long-term vision of the protocol. Staking BGT rewards the third token, HONEY, the chain’s built-in overcollateralized stablecoin. The staked assets will be paired with HONEY on the decentralized exchange. The chain’s native perpetual exchange will be utilized to hedge against any impermanent loss that the protocol may experience, and this will be the minting mechanism for HONEY. It is most similar to FRAX’s stablecoin model. See this model from Twitter user @0xMughal:

Berachain’s advanced tokenomics create a huge advantage for the protocol starting at its release. The protocol, by default, will have a massive amount of liquidity available to its DeFi primitives, making it an ideal choice for traders looking for the most efficient route. When traders use the protocol, BGT stakers will be rewarded, which will drive up the demand for BGT and therefore BERA. This will lead to even more liquidity for the platform since it rewards BERA, and the cycle will continue. Additionally, since HONEY is overcollateralized, meaning that each $1 of stablecoin is backed by greater than $1 of another asset, there is less risk of a Terra-style collapse.

The unique value proposition of the ecosystem has attracted a lot of developers and investors. Their recently-closed Series A investment round raised $42 million at a $420.69 million valuation. There are also over 50 new and existing dApps planning to be available at launch, providing actions for users to take that will cost BERA and provide greater incentivization for the native assets. Given that it will be Ethereum Virtual Machine-compatible, it can support any Ethereum-based application. Additionally, since it is a Cosmos-based chain, it will have native interoperability with the entire Cosmos ecosystem, providing an easy onramp for new money to flow into the protocol.

The possibility of an airdrop has been highly speculated yet there has been no confirmation from the team. On one hand, it would make sense for this community-centric project to reward their early contributors. Conversely, there is no testnet or other clear on-chain way for users to prove their dedication. The original BongBears NFT project does still exist, and the prices are quite high since some think that it could be the key to an airdrop, but it is not certain. It may not make sense for Berachain only to reward their community members who have the money to spend tens of thousands on an NFT that does not directly support their new mission.

Berachain is positioning itself to be the liquidity and DeFi hub of the Cosmos ecosystem. Thanks to its unique token model and value generation, Berachain is poised to induce high demand for its products upon release. Currently, the release date is unknown and is anyone’s guess. Whether or not it succeeds remains to be seen, but it certainly has a strong foundation based on technology, community, and tokenomics.

By Lincoln Murr