Original author: 1912212.eth, Foresight News
Recently, the price of BERA has dropped to $2.66, a new low since the TGE in February this year. BERA has been falling since March. What happened to the once popular Berachain?
TVL dropped from 3.4 billion to 1.147 billion
As an emerging public chain, Berachain has attracted much attention from the market for its Meme culture, liquidity mechanism, and support from well-known VCs before its mainnet launch. Its core innovation lies in its Proof of Liquidity (PoL) mechanism, which incentivizes on-chain liquidity through BGT emissions and bribes. However, the complexity of this mechanism makes it difficult to attract new users and also exposes sustainability issues. PoL relies on the continuous injection of liquidity, but when the market environment deteriorates or incentives decrease, liquidity providers quickly withdraw, resulting in a significant drop in the total locked value.
According to defiLma data, its total TVL has fallen from its peak of US$3.493 billion on March 28 to US$1.147 billion today, a drop of more than 67%.
As early as the beginning of April this year, the well-known arbitrage KOL Benmo tweeted that Berachain may be facing problems. The TVL of its second pool has been greatly reduced in the proportion of token distribution, the token emission mechanism is large, etc., and its POL mechanism may not work.
Recently, the TVL of the liquidity pool in the above figure has fallen even more significantly.
These three liquidity pools are the core liquidity pools of Berachain. Due to the reduction in the proportion of token incentive allocation under the PoL mechanism (especially the secondary pool or non-main pool), liquidity has rapidly flowed out. This reflects three core key issues: liquidity providers lack long-term confidence and run away as soon as the incentive is reduced. The mechanism that relies on token incentives to maintain the ecosystem is unstable; there is insufficient real demand, and users are attracted only by airdrops.
A considerable amount of BGT released was issued to BERA and BGT liquidity tokens as deposited asset vaults, while other assets had few users and trading volume. More than half of the bribes also came from WBERA, BGT derivatives and HONEY, and the asset structure of the bribes was worrying.
In the long run, if this problem is not solved, the mining pool will eventually collapse.
10 million unlocked BERA tokens caused market selling pressure
Berachain officially unlocked 10 million BERAs on May 6, which were mainly airdropped. If calculated at a unit price of $3, the total value is about $30 million. As mentioned above, most of the users who participated in Berachain are arbitrage players. Once the incentives become smaller, they quickly choose to leave. Mining and selling have become routine operations.
In addition, BERA has long been criticized as a typical VC coin, with 34.31% of its total tokens allocated to private investors. In contrast, its VC share usually fluctuates around 20%, and its nearly 35% share has made its VC coin criticized.
Smokey the Bera, the anonymous co-founder of Berachain, said in an interview with Un Chained, “I don’t think the criticism is completely wrong. If I could do it again and the team could start from scratch, I might not sell so much supply to venture capital firms. In fact, most of the supply was sold in the seed round in early 2022. At the time, we thought it might be an interesting thing, but we didn’t expect it to grow to such a large scale. So I think the criticism is justified. In fact, over time, we have been working to buy back that part of the supply from the seed round and subsequent rounds such as Series A, so that we can minimize the dilution suffered by the community.”
After the markets enthusiasm and attention quickly dissipated, BERA token buying came under pressure and the price of the token was difficult to rise.
Lianchuang once again admitted that it made a mistake not setting a TVL cap for Boyco
In mid-May, Berachain’s anonymous co-founder Smokey the Bera admitted to making mistakes while interacting with the community in the comment section, including not setting a cap on Boyco’s TVL and not issuing BERA incentives to it.
Why do these two errors have a negative impact? The higher the TVL, the rewards should be nonlinearly decayed or capped to prevent excessive concentration of capital and plundering of incentives. Without an upper limit, the larger the TVL, the more tokens you get, resulting in large users like Boyco being able to loop indefinitely to extract BERA incentives. This mechanism is equivalent to assuming that whoever has more money dominates, which completely breaks fairness.
Incentives should also stimulate participation in multiple ecosystems through PoL, but the result is that important tokens such as BGT and HONEY are almost harvested by a few people, which directly leads to community dissatisfaction and trust crisis. Once other users find that the incentives are all eaten up by big players, they will choose to exit or wait and see, forming a liquidity avalanche effect.
No BERA airdrops to Boyco participants has become another point of dissatisfaction in the community. If the protocol sets an incentive model, and the project party skips the incentive distribution without an announcement, it is essentially a violation of the on-chain rules, which will make any large capital participant feel uneasy: Will my reward be cancelled at will in the future?
Well-known KOL IceFrog said in response to this incident, Several months have passed, and Berachain has admitted its mistakes time and time again, but they just cant learn how to change it? He further questioned, This only shows that they knew about these problems from the beginning. They heard the communitys feedback and didnt know where the problem lies. Its just that from the beginning to the end, they never thought about changing it.
So, has Berachain really “improved” in its actions recently? At least not in terms of airdrop incentives.
However, recently, the official announcement of a protocol-level upgrade introduced a configurable BGT distribution reward duration. Treasury managers can now set the reward cycle to 3 to 7 days and set a 1-day cool-down period between changes. All newly created vaults will use a 7-day cycle by default. This change provides the team with greater flexibility, allowing the emission rhythm to better align with the vault strategy and user experience.
In addition, upgrade proposals around PoL are also underway.
BERA value capture still needs to be strengthened
BERA is the gas token for all transactions and smart contract executions in the Berachain network. It is a pure consumable. The incentives in the protocol are essentially to extract value from Berachain with high bribe efficiency.
BERA tokens also have no governance rights, but instead deliver governance rights to BGT holders, which also weakens the value of BERA to a certain extent.
BERA urgently needs more value capture mechanisms.
Berachain announced its POL V1.1 proposal on May 11, hoping to strengthen BERA’s value capture mechanism while maintaining incentive efficiency. Its core content includes: the protocol will collect a small portion of the bribery incentives for ecological applications, deploy it to the Protocol owned liquidity, and use it to establish BERA core trading pairs LP (such as BERA-HONEY, BERA-wBTC on BEX), thereby achieving:
Improve the depth and stability of basic trading pairs on the chain,
Reduce BERA circulation
Increase long-term sources of fee income (initial income will be deployed to major trading pairs first; later it can be used to pledge to verification nodes operated by the foundation and distribute BGT to RVs of native applications, delegate to nodes run by innovative applications, form new LPs with other mainstream assets, and deploy to other native protocols such as Bend, Berp, etc.)
The proposal suggests charging a fixed 20% incentive redistribution fee in the initial stage, and gradually introducing a dynamic rate model:
Bribe efficiency → lower fee ratio
The efficiency of using bribery incentives is low → the fee ratio is increased
The control range is set at 10% -30%, and is adjusted in conjunction with market conditions. This mechanism encourages efficient use of resources and forms a feedback loop with the actual performance of the application.
Recently, Smokey revealed that it will soon release a new PoL proposal v1.2, which is expected to enhance the value capture of its tokens after integrating feedback from all parties.
summary
How noisy and lively it was in the past, how quiet it is now. After a long period of sluggish price, the Berachain community soon became silent. It is still unknown how Berachain will really solve the problem, but time waits for no one. If the official still acts slowly, it may soon be abandoned by the community.
