The Rise of Bear Market: A Multi-Perspective Analysis of Berachain's Success Factors

Author: Yond, Little Bear Home

Introduction

Bera morning!

Although Berachain has been in development for over two years, there is still a lack of comprehensive interpretation of Berachain in the Chinese community. Apart from a slight presence in the Degen and yield farming circles, most users still associate Berachain with inaccurate or completely erroneous concepts such as "memechain," "NFTs are expensive," "Ponzi," and "the next LUNA."

Why do I believe that Berachain is the most anticipated public chain in the second half of 2024, and could even become an independent narrative in the crypto market? I will help Chinese users reshape their understanding of Berachain from aspects such as its history, market demand, economic model design, and community culture.

The Dilemma of Emerging Public Chains: Liquidity and Token Distribution

Since the first half of 2023, emerging public chains and Layer 2 solutions have sprung up like mushrooms after rain. Due to a sluggish external economic environment and a lack of liquidity injection in the crypto market, competition among public chains has gradually evolved into a battle for existing market liquidity. To cold start and attract liquidity, various new public chains and Layer 2 solutions have begun to launch centralized point operation plans, attracting user deposits through overdrawn airdrop/token issuance expectations, providing short-term and disloyal TVL figures for ecological projects.

As 2024 has passed its midpoint, let’s review some new public chains and Layer 2 solutions that have completed their point programs and issued tokens 👇🏻

Merlin Chain - Peak TVL of 534.4m, current 214.07m, a drop of 60%;

Blast - Peak TVL of 2.3b, current 1.33b, a drop of 44.2%;

Mode - Peak TVL of 587.12m, current 456.22m, a drop of 22.3%;

Data source: https://defillama.com/

When various point systems have completed their missions, can new public chains and Layer 2 solutions continue to retain the TVL brought by these points, reversing their fate of ultimately becoming "ghost towns"? Since points have been proven by the market to be an unsustainable and even harmful way to engage market participants, can the builders of public chains explore a healthier method of token distribution that allows liquidity to be retained in a more organic way?

Originating from DeFi, Not Just DeFi

The story of Berachain began with the DeFi 2.0 craze at the end of 2021. DeFi 2.0 protocols, represented by Olympus DAO, created extraordinarily high APYs through complex Ponzi game models, reigniting crypto users' enthusiasm for researching and participating in on-chain DeFi projects in a market that had just experienced a significant downturn. Discussions about (3,3) frequently appeared on crypto social media. (The term (3,3) comes from Nash equilibrium in game theory, representing the optimal solution possible in a two-player game. In contrast, (-3,-3) represents the worst solution.)

Initially, Berachain was not a public chain but a series of NFT projects featuring the humorous image of "Smoking Bear." Its gameplay referenced the Rebase mechanism in OHM, where holding the original Bong Bears project could earn airdrops from subsequent series, encouraging long-term holding. There are five subsequent series: Bond Bears, Boo Bears, Baby Bears, Band Bears, Bit Bears.

After Berachain announced the launch of its public chain, the value of previously issued NFTs soared, with the current floor price of the Bit Bears series reaching as high as 3.8 ETH.

Proof of Liquidity: Coexistence in the Game

Blockchain is the industry closest to asset issuance, with prominent financial attributes. Innovations in blockchain mostly serve to create more efficient asset issuance methods, colloquially known as "creating plates." So, can the game theory and Ponzi models that are flexibly used in DeFi to enhance capital efficiency also serve other ecosystems or exist as the underlying design of public chains?

Berachain's Proof of Liquidity provides a positive answer.

The external perception of Berachain as a "Ponzi" largely stems from its unique Proof of Liquidity mechanism.

In the blockchain world, there are various consensus mechanisms, such as Proof of Work (PoW) represented by the Bitcoin network and Proof of Stake (PoS) represented by the Ethereum network. Nodes adhere to these consensus mechanisms to provide block validation for the entire network, maintain network security, and earn node rewards.

The three basic currency units of Berachain are:

$BGT: Berachain Governance Token, non-transferable or tradable, can be converted 1:1 into BERA

$BERA: Public chain token, used for gas consumption and secondary market trading

$HONEY: Over-collateralized stablecoin minted with blue-chip assets as collateral

For a basic introduction to Proof of Liquidity, refer to the previous article 🐻📝Little Bear Classroom 01: What is Proof of Liquidity?

Through Proof of Liquidity, Berachain injects liquidity at the base layer of the public chain and encourages more users and ecological protocols to participate in governance in the form of a BGT flywheel, unlocking more long-term benefits. This avoids the single-point failure risk where a single dApp holds most of the liquidity (a common occurrence in some "ghost chains") while stimulating the enthusiasm for governance participation and TVL retention across the entire chain ecosystem.

The one-way conversion mechanism between BGT and BERA (Note: BGT can be converted 1:1 into BERA, but BERA cannot be converted back into BGT) separates the governance value of the public chain token from its market price, encouraging BGT to remain in the ecosystem to exert its governance utility and provide more long-term benefits for holders (such as capturing block value, governance rewards, and earning bribes for delegated governance rights), while also alleviating the selling pressure on BERA.

Under the Proof of Liquidity model, the three parties in the public chain game (nodes, ecological projects, users) mutually assist and benefit from each other, forming a positive flywheel effect:

➡️Nodes: Have the authority to participate in governance and guide the distribution of BGT emissions. Nodes have sufficient motivation to attract BGT delegation from retail investors and ecological projects, keeping BGT on-chain and participating in governance to earn additional income, rather than simply mining and selling BERA.

➡️Ecological Projects: Convert cash income into public chain liquidity without affecting their business model and revenue, gaining additional BGT income.

➡️Users: Enjoy deeper liquidity, lower transaction friction, more liquidity rewards, and maximize the economic benefits of their held BGT through delegation to nodes.

Compared to the simple and crude point model that overdraws the long-term lifespan of public chains through short-term airdrop expectations, the (3,3,3) flywheel is more organic, encouraging long-termism and TVL retention, with the distribution of public chain token chips occurring in a governance war mode, achieving maximum fairness among the various players in the public chain under the rules of the game.

Community Culture and Cohesion

The popularity of Berachain on crypto social media is largely due to its quirky community culture \The power of bears/

If you have previously encountered Berachain or its ecosystem, apart from the 🐻⛓️ emoji suffix in Twitter usernames, you have likely heard of Berachain's "slang": Henlo, BM, Ooga Booga.

Henlo: A cuter way to say hello, similar to the Chinese "泥嚎."

BM: Bera Morning - corresponding to GM Good Morning.

Ooga Booga: Imitating a bear's roar, it's a "secret code" for greeting each other in the Berachain ecosystem.

The term "community," or "community" in English, frequently appears in the crypto context, but most users do not have a comprehensive understanding of the term, narrowly interpreting it as various chat groups, Telegram, and Discord channels.

Due to language and cultural differences, many users are not familiar with Berachain's "slang culture," finding it obscure and even associating Berachain with memecoin projects that convey similar spirits, mistakenly believing that Berachain is a "memechain."

"Community" is formed based on shared beliefs among different individuals. Different individuals may resonate with the same cultural symbols, forming small united tribes with sufficient cohesion to wield actual power. "Community" is a collectivism built on individualism.

We need not demonize the abstract culture of Berachain. The "42069" Western meme culture, represented by cannabis, politics, and hell jokes, is essentially no different from the abstract culture appearing in Chinese social media (for example: esports memes, anime memes, Sun Ba memes), all belonging to the sub-branches of contemporary popular culture's internet subculture.

The abstract culture popular in the Berachain ecosystem aligns with the values of young people in Europe and America (who are also the main force in crypto) who seek entertainment online, better stimulating their sense of identity. In many customer acquisition paths overlooked by new public chains and Layer 2 solutions, Berachain has established its own advantages with its hyper-symbolic image.

Conclusion: Gimmick or Real Skill?

We do not yet know the launch date of Berachain's mainnet, and there has been a running joke within the Berachain community: "Berachain will never launch its mainnet." Based on current social data, Berachain, still in its testnet phase, has already amassed a large audience and potential user base, with discussions about Berachain's memes and mechanisms widely circulating on crypto Twitter, indicating that its market and brand effect have garnered sufficient market attention.

As Binance Labs has announced support for Berachain ecosystem protocols such as Shogun and Infrared, the launch date of Berachain's mainnet seems to be just around the corner.

It should be noted that there has been ongoing controversy in the Chinese community regarding testnet interactions and airdrops. Some crypto KOLs have criticized Berachain for indefinitely delaying the mainnet launch, accusing it of pua-ing users, and occasional network congestion has also led to less user-friendly interaction experiences.

While analyzing the advantages of Berachain, we also need to rationally consider the opposing voices present in the market.