Berachain Tokenomics

Prompt

Berachain, a Cosmos-based Layer-1 with a custom EVM and token model, recently announced a $100 million Series B round led by Framework and Brevan Howard. This comes on the heels of Berachain’s $42 million Series A in April of 2023 (a $420.69 million valuation at the time).

With already over 220 rollup and smart contract tokens, and assuming users, liquidity, and general market demand for ecosystem tokens are finite resources, there exists some saturation point where the market can no longer sustain successive ecosystem and infrastructure launches. This creates a growing impetus for new chains, like Berachain, to attract a critical mass of attention, liquidity, and applications before the market is overly competitive across all dimensions.

Berachain aims to capture attention and traction via a good meme game on the marketing side (their website scrolls up only) and a novel Proof-of-Liquidity incentive system on the technical side. The question is now, what are the merits and drawbacks of their product and how might their go-to-market translate into success?

Primer

Built with the Cosmos SDK, Berachain is a Layer-1 focused on DeFi with a unique configuration and go-to-market. The chain is built with their custom Polaris EVM, which maintains EVM compatibility while enabling Cosmos interoperability (such as IBC) and general performance efficiencies. Building upon the delegated Proof-of-Stake security model, Berachain introduces a Proof-of-Liquidity model where liquidity providers (LPs) to core DeFi protocols and pools are rewarded with the chain’s token emissions instead of pure stakers which increases the overall capital efficiency of the system. To build this new incentive system, a dual token system is introduced, which has a non-transferable governance token (BGT) used to secure the chain and direct rewards and a separate gas token (BERA). Staked BGT dictates the portion of BGT emissions that are routed to LP’s on Berachain’ native DeFi protocols such as their DEX, perps, and money market.

Polaris EVM