Recently, Berachain founder Smokey the Bear appeared on Bid Club for an interview, where he discussed many key aspects of Berachain governance with host Maple. This included tokenomics, factors behind the decline in BERA token prices, and the recently concluded Boyco event. In this recording, he shifted Berachain's narrative from DeFi Farming Chain to a chain-level incubator, explaining why PoL makes it easier for developers to succeed in building on Bera compared to other chains. This article also summarizes the latest updates on token economics governance proposals as of the 10th.
Berachain is defined as an application layer accelerator.
The Boyco plan is Berachain's pre-deposit activity, with approximately $2.5 billion to $3 billion in TVL. Smonkey mentioned that he sees some chains operating for several months without tokens, trying to sprint for on-chain application TVL. However, he does not believe this is the correct approach.
In the program, Smokey defines Berachain as an application layer accelerator or a leveraged investment for the application layer. The thinking of the public chain side is: how can we ensure that applications on the chain have the greatest chance of success from day one? One key point is to assist them in initiating initial capital. Rather than claiming how much dead TVL (Total Locked Value) there is, it is more important to allow third-party applications to succeed in starting up. This is also the background for the birth of the Boyco plan.
The Boyco plan has little impact on the token price pressure.
Smokey stated that part of the liquidity and BERA tokens would be unlocked after the event (at the time of recording, Boyce's plan had not yet unlocked). The official preemptively considered that some independent vault holdings might shift from generating BERA tokens to on-chain BGT yield strategies. Additionally, some dead TVL or very speculative capital might leave this chain. The ratio of the chain's revenue to TVL may fluctuate.
He foresees seeing people on Twitter saying things like Berachain's TVL has halved, but he believes the actual changes at the application layer and among builders are not significant. These TVL figures were never important. They will not directly exit the BGT position, and they may have already hedged their BERA positions, so the true impact on market supply and demand is not as huge as imagined. The team is trying to encourage people to use rewards or existing deposits for productive purposes, and they also expect that participants still remaining after the activities will not be so speculative.
According to DeFiLlama's data, Berachain's TVL has dropped from $2.7 billion before unlocking to $1.6 billion before publication, a decrease of nearly 40%.
PoL is akin to issuing tokens while renting liquidity and network activity.
Regarding whether there will be another similar event like Boyco, after all, Bera is a chain that encourages liquidity. Smonkey stated that it is unlikely there will be another one, and they learned some lessons this time. On the one hand, the event successfully attracted a lot of attention to good applications, giving them some firepower. But at the same time, it also subsidized some capital that was not effectively used. He said he does not like this part. If they do it again in the future, they will focus more on promoting the main projects, but the focus will not be on TVL but on productive capital that generates fees natively.
Host Maple pointed out: 'Some might say that most of BERA has been hedged, or that the hedge may have expired. In the next 8 to 9 months, there will be no more issuance of BERA, and iBGT or LBGT are unlikely to become BERA. Do you think my thoughts on the issuance are correct? Are there any factors I might have overlooked that could change the supply-demand structure?'
Smokey responded that as L1, the behavior of issuing tokens is fundamentally renting liquidity and network activity, rather than being used for security like PoS mechanisms. However, Maple's thoughts are correct. Besides normal block rewards, there are no other unlocks. There are no other factors flowing into the market. He wanted to clarify first that all issuances are in the form of BGT. There is no issuance of BERA. Unless exchanged one-to-one for BERA, it cannot be sold. And BGT currently exists at a premium, so rational people won't swap for BERA and dump it.
(New opportunity for Berachain point mining: A comprehensive understanding of Infrared Points and TGE airdrop positioning strategies)
Long-termists typically choose to hold BGT directly and delegate it to validators to achieve high yields of 200% to 1000%, and then exchange BGT for BERA to participate in liquidity or other operations. Since BGT can be converted into IBGT or LBGT through protocols like Infrared, the market premium is about 30% to 50%, mainly coming from future bribes and incentive values, as well as the option to convert BGT into BERA.
(Berachain's PoL mechanism combines liquidity staking to liberate BGT liquidity, Infrared Finance raises $14 million in Series A financing)
Compared to iBGT and LBGT, which are limited to the delegation subjects determined by the protocol, holding pure BGT retains more control, especially in situations where some validators have annualized yields of up to 500% or even 1000%. As on-chain governance develops, the decision-making influence of BGT holders will gradually increase, and this design, centered around BGT and supported by bribery and revenue mechanisms, differs from the dilemma faced by most chains where once a token is issued, it is massively dumped, theoretically reducing the direct selling pressure on BERA tokens due to inflation.
(Berachain launches the mainnet, Q5 is here! Will the token flywheel of the PoL mechanism operate smoothly?)
The price fluctuations of BERA are influenced by many factors and have digested the selling pressure from the airdrop.
As for the price of the BERA token, considering various factors. Many people's method of operation is to go long on iBGT or BGT derivatives and short BERA, but considering the funding rate, this is a difficult trade unless willing to hold for 6 to 8 months. Moreover, iBGT currently cannot accommodate large-scale funds.
But they found that the balance of the Binance Launchpool airdrop had gradually decreased over the past few weeks. He dares to say that they are one of the few agreements this year without a 'scam' issuance. There is no 33% supply held by insiders, and the tokens are genuinely circulating in the market. He also pointed out that they have never sold tokens OTC; they want to operate in the long term and sleep soundly.
However, he also admitted that this is both a blessing and a curse. Another impact is that from the early stage (only BEP or native DEX) to the complete opening, they let go too quickly, opening many trading pairs that may not necessarily use BERA. On the one hand, this is great because bribe revenue flows to BGT, incentivizing holding BGT. On the other hand, there are not enough reasons for people to hold BERA tokens. They have been working hard to solve this balance issue.
He pointed out that the large distribution of the airdrop did indeed cause selling pressure in the initial months. They also made some mistakes, such as allowing the narrative of 'BERA as a DeFi Farming chain' to exist. However, he also mentioned that as time progresses, this impression will gradually fade. Currently, over 80% of BGT remains unexchanged and still exists in LST or other markets in the form of BGT.
Regarding the previous controversial incident, investors' ununlocked BERA can be staked. Smokey stated that in early 2022, which was the early stage of the team, this was the industry consensus. Moreover, they obtained BGT, the vast majority of block rewards do not flow solely to validators or BERA stakers, but to protocols and vaults participating in proof of liquidity.
Regarding whether there are plans to establish a burn mechanism for BERA and BGT, Smokey stated that there are currently none. Berachain's gas logic aligns with Ethereum, and before gas prices rise and EIP-1559 takes effect, more trading activity is needed for the burning of BERA. However, there will be efforts to promote mechanisms that reduce the circulation of BERA and increase its value.
The key to PoL is not only to encourage liquidity but also to encourage on-chain activity.
As for what attracts developers to Berachain? Is it the users? Or the token subsidies? Smokey stated that the chain itself does not directly provide token subsidies, but the PoL mechanism is actually the closest thing to a chain-level perpetual subsidy. Moreover, many of these protocols on this chain do not heavily rely on liquidity, which is a good thing. For example, Daylight from the RWA and DePin narratives collaborates with local PPAs (Power Purchase Agreements), allowing users to aggregate and contribute power to a broader grid, becoming part of the market.
Smokey pointed out that while Proof of Liquidity (PoL) encourages active liquidity, the most interesting part is that it not only encourages passive liquidity but also incentivizes specific actions. Such as completing a certain amount of transactions on perpetual exchanges, reaching a certain level in games, or spending a certain amount of time, etc. Many applications have a turning point in their user lifecycle, at which point the value of the application becomes infinite for users. If PoL can help users reach this point, it will become very interesting.
For example, if someone successfully brings 100 users to the platform, they are given a receipt token, and then use PoL to create value for them. If it is creative enough, it will be cool. From this perspective, the incentive possibilities of PoL are infinite. There have already been some examples, such as trading volume on perpetual contracts, incentivizing trading and participation in small-cap projects. Some might think Bera is just some TVL game, but in the future, a large part of BGT will flow to those who don't stake or provide TVL, but are contributing to activity.
For example, PuffPaw will incentivize users who use their app daily or use the e-cigarette for a period, just like some games reward you for logging in consecutively for seven days. There are also some gamification ideas. He even wonders if they can collaborate with Kaido to create some kind of yapper vault. He believes PoL is definitely a powerful tool for those looking to build an ecosystem.
Or promote POL's protocol-owned liquidity, improving the relationship between BGT and Bera.
BGT is issued to the protocol and stakers, but none of this flows to Berachain itself. The host asked if there are plans to slightly change the tokenomics to make these issuances more value-creative? For example, splitting the issuance of BGT?
Smokey mentioned that some believe BGT might be a bit too powerful, which is both a blessing and a curse. The benefit is that many BGT are excluded from the market and cannot be exchanged for BERA. However, merely reducing BERA's selling pressure is not enough; there also needs to be a reason for it to rise. A possible solution is to take a cut from the bribes flowing to BGT. Even at a low point, BGT's annual bribes can yield annualized income of 75 million to 100 million USD. This is referred to as Protocol-Owned Liquidity (POL).
Convert a portion of the bribe revenue (especially those that are not part of BERA) into Honey (a stablecoin on BERA), and then add it to the BERA/Honey liquidity pool. This is not just a simple buyback or market operation but is intended to build long-term, self-generating liquidity assets for the protocol. If the LP generates $50,000 in transaction fees daily, that equates to $18 million a year. This is more sustainable than simply buying BERA because LP can continuously generate income and reinvest.
Berachain will become a chain-level incubator, aiming to be more successful in this construction than elsewhere.
Smokey envisions that people will ultimately see Berachain as a chain-level Y-Combinator (a well-known startup incubator in the U.S.). The chain helps startups reduce customer acquisition costs and bridge gaps. Even if the chain itself faces losses initially, considering the offset of bribery and exponential expenses, the net inflation rate might be between 2% to 3%. However, if two of those companies eventually succeed and achieve massive adoption, it would bring tremendous returns to BERA itself, not in a financial sense, but in a verbal sense.
Therefore, building this vision and gaining the recognition of growth stage investors is very important for the team. He believes that the chain allows everything built around it (the ecosystem) to be more successful than in other places, much more attractive than saying this is a chain where you hold tokens to earn more tokens (DeFi Farming Chain).
Smokey stated that he believes the indicators for measuring Berachain's success include:
The total scale of bribery funds.
On-chain trading volume.
On-chain transaction fees and revenues.
DEX trading volume.
The current focus is on bribery; Berachain's bribe income has become an important indicator of the ecological economy, but there is hope that in the future, through transaction fees and protocol liquidity income, this part of the income can exceed the issuance cost of BGT. The lesson learned from Solana is that relying solely on trading volume may not yield immediate results, but if it can continuously accumulate burn pressure, it will find long-term value support.
Reverse-engineering the negative flywheel, driving the flywheel from consumer-grade products.
Smokey once again clarified that they have not yet sold BERA tokens; funding comes from earning yields by placing USDC on Coinbase and revenue sharing related to PayPal USD (PYUSD). The goal is to fully rely on stable income to support operations in the future and avoid token sell-offs.
He also proposed a reverse flywheel strategy; in the past, people expected PoL to create a positive flywheel through economic incentives, but now they plan to create substantial user effects and token demand through 'consumer-grade products' to absorb BERA and BGT, thereby increasing the premium of BGT. This would in turn attract more ecological participation, TVL, and activity, which would then strengthen the economic flywheel. He estimates that the next 8 to 9 months will be a key period for driving this flywheel.
A major feature of Bera is its unique 'meme culture' and community identity, which attracts two types of users:
Speculators: Attracted by high returns.
Cultural participants: Enjoy the community atmosphere here.
BearBaddies, representing the female empowerment community, enhances user engagement and brand penetration through live broadcasts, tutorials, content distribution, and more. There are already 1000 female users registered, and 500 have completed the PoL course.
Smokey officially proposed PoL v1.1 to realize protocol-owned liquidity.
On May 10, Smokey officially proposed PoL.v1.1, aiming to establish a long-term value-capturing mechanism for $BERA without disrupting the existing incentive flywheel. The key is to introduce a 'dynamic incentive redistribution rate' (initially fixed at 20%), converting part of the incentives issued by applications into protocol-owned liquidity (POL) to lock in BERA liquidity long-term, reduce supply, and create revenue.
In simple terms, the proposal is to start the fee at 5%, adjusting weekly until it reaches the target value of 20%. And focus on building mainstream LPs such as BERA/HONEY, with the generated transaction fees and revenues reinvested into the PoL cycle. It is expected to reduce BERA's circulating supply, strengthen on-chain liquidity, enhance protocol revenues, reduce dependence on BGT inflation, and promote the long-term growth of BERA and the overall ecosystem. Possible risks include short-term compression of BGT premiums and revenues, but there is an opportunity for growth in BERA to offset this. Additionally, it is necessary to deal with the liquidation of non-BERA assets.
This article interviews Berachain founder Smokey: PoL is the chain-level Y-Combinator, and the reason for Bera's price drop is surprisingly?