Written by: Ericonomic, Three Sigma author
Compiled by: Ashley, BlockBeats
Editor's note: Berachain is one of the most popular Layer 1s in recent times, and its PoL mechanism has attracted a large number of developers and investors. However, with the launch of the Berachain mainnet, its inflation, private placement allocation, pledge rule changes and other issues have also caused controversy. Based on my own research, the author deeply analyzes the current situation of Berachain and explores its potential risks and development prospects.
The following is the original content (for easier reading and understanding, the original content has been reorganized):
Some thoughts on the current status of Berachain
As many of you know, I have been active in the Berachain ecosystem and have invested a lot of time and energy in it. After all this, I feel it is necessary to share with you my honest views on the launch of Berachain, its current status, and future development.
I will first talk about some of the things I am not satisfied with:
$BERA inflation problem
This is my biggest concern as it will directly impact price performance.
BGT’s annual inflation rate is 10% of total supply (total supply = 500 million; first year inflation = 50 million).
The first year circulating supply is approximately 21.5% (110 million tokens) + 2% released by Boyco in 30–90 days. In this case, the inflation of 50 million means that if all BGT are destroyed (although in reality it will not), the inflation rate in the first year is close to 50%. By the end of the first year, there will be about 170 million tokens in circulation on the market.
Inflation in the second year: BGT still maintains an inflation rate of 10% (55 million), plus 196 million tokens released in different distribution methods (the largest part of which comes from private investors). This means that the circulating supply will reach 418 million at the end of the second year, with an inflation rate of about 150%.
While most L1s have high inflation in their early days, Berachain’s inflation rate is much higher than other projects. Moreover, this comparison is not favorable to Berachain because the price performance (PA) of many projects has been severely affected precisely because of high inflation. Therefore, this cannot be a reasonable excuse for Berachain’s high inflation.
$BERA Private Investors
Berachain sold over 35% of its token supply to private placement investors (I had thought it was only 20%).
- Seed round: 50M FDV
- Second round: 420M FDV
- Final round: 1.5B FDV
This means that a large number of tokens on the market come from private financing.
Most projects have a private placement allocation of around 20%, which I already consider to be too high and detrimental to project development. Berachain’s private placement allocation is even higher, and the long vesting period leads to a constant selling pressure in the market, which usually keeps the token price in a long-term downward trend, especially when the FDV is high and the circulation is low (high FDV, low circulation).
$BERA Staking (for private placement investors)
While this isn't an extreme negative (although I don't like it to be honest), it should be explained better.
Private sale investors can stake $BERA to earn liquidity rewards and then sell it (in other words, they can stake $BERA to get more $BERA).
15% of BGT's annual inflation (7.5 million BGT) will be distributed to validators, most of which will go to stakers. If all 500 million supply is staked, the annualized yield (APY) is about 1.6%, but it is impossible to stake all of it in reality.
The actual pledge ratio may be around 60%, so the APY is approximately between 2.8% - 3.2%.
Many people compare Berachain to Celestia, but Celestia's early APY was about 20%, so this comparison is not very reasonable. At the same time, although anyone can stake $BERA to earn income, thereby diluting the APY of private investors, this staking mechanism will still increase selling pressure.
Last minute changes + bad whitepaper
The thing that annoys me the most is that the $BERA staking mechanism was not made public until a few weeks ago, and even if you want to find relevant information now, it will take a lot of time to find meaningful information.
This mechanism is crucial to market sentiment, especially in the current market environment and the context of rising anti-VC sentiment. It should have been announced earlier and more transparently, and written into official documents in detail on the first day.
It was not until Jack posted a post explaining the problem that the community learned about it, which led to FUD and made OGs disappointed in Berachain and even unwilling to hear any news about Berachain.
To be honest, this made me angry because it felt like they deliberately announced this staking mechanism at the last minute (otherwise why not include it in the official documentation?). However, after understanding the situation, I found that the APY was only 3%, which seemed more like a communication error than a malicious concealment.
There is no PoL yet
Berachain’s core product is PoL. If PoL is not launched, then Berachain is just another PoS fork, which is indeed the case now.
I believe this won’t last long (hopefully), but since BGT has no real use right now, many people are disappointed and may not even try to understand Berachain’s design in the future.
As far as I know, this is a necessary step to ensure Berachain can run stably before fully deploying PoL, and I don’t know if there is a better solution. But the problem is that they must complete the PoL deployment as soon as possible and cannot delay it for too long.
DevBear is selling coins
DevBear, the co-founder of Berachain, sold tokens on a real-name address. He received about $200,000 BERA from the airdrop (which itself is not very reasonable because the airdrop rules were set by them), and then he exchanged some of the tokens into assets such as WBTC, ETH, BYUSD, etc.
Even if he didn't sell, it's not a good idea to let core team members get so many airdrops.
He may be testing the product or providing liquidity, but in any case, the issue should be clarified immediately.
Berachain still has bright spots
Berachain has a strong community
The Berachain community is one of the strongest in the entire industry. I have been in this industry for many years and can confirm this. Even if there are problems with the project, the community and developers will still do their best to support the development of Berachain.
Dapp ecosystem is huge
Berachain has a very active developer ecosystem, with a large number of Dapps already built, tested, and deployed, and set to be launched in the coming weeks.
Every public chain needs a strong application ecosystem to succeed, and Berachain already has these Dapps in its early stages, which is the main reason why I remain bullish on its mid-term development.
Attach great importance to safety
Security is often a major concern when developing new mechanisms and public chains. And for a brand new project like Berachain, the importance of security is magnified. What I appreciate is that the Berachain Foundation attaches great importance to security issues. They pay attention to every detail and choose a robust and secure way to promote the launch and decentralization of the network.
While most people don't like slow progress, I think it's an expectation-positive approach.
PoL Mechanism
I still think PoL is a very interesting mechanism, and once it is fully deployed and the flywheel effect starts, we will see extremely attractive APYs, which will attract a large number of liquidity miners into the Berachain ecosystem.
in conclusion
I am pretty sure that just holding $BERA is not a good idea for the reasons I mentioned above, but at the same time, I am also sure that participating in the PoL liquidity proof mechanism would be a very worthwhile option.
I prefer to think of Berachain as a yield chain rather than a chain where people just hold unproductive tokens. You need to provide liquidity, recycle, lend, research the best BGT earning strategy, and do due diligence on each validator to see who to delegate your BGT to or if it is more worthwhile to burn BGT for automatic compounding. On Berachain, you must actively participate rather than just hold tokens.
In my opinion, the most critical thing is to introduce liquidity and start the flywheel effect. If this step is successful, Berachain will succeed.
Before I end this reflection, I want to say that I have always believed that Berachain is a clear stream with unique cultural and moral values in an industry full of scams. Therefore, it is indeed a bit disappointing to see it go through this "less than ideal" launch and some "ambiguous" adjustments (such as the change of BERA staking rules). But having said that, if the foundation and developers can continue to work hard as they have in the past few years, Berachain still has the opportunity to become the chain with the highest yield, far exceeding other similar projects.
