Berachain opened high and closed low, is it still worth investing?

Written by: Ericonomic, Three Sigma Author

Compiled: Ashley, BlockBeats

Editor's note: Berachain, one of the most popular Layer 1 recently, its PoL mechanism has attracted a large number of developers and investors. However, with the launch of Berachain's main network, issues such as inflation, private equity allocation, and changes in pledge rules have also caused controversy. Based on his own research, the author deeply analyzes the current situation of Berachain and discusses its potential risks and development prospects.

The following is the original content (to facilitate reading comprehension, the original content has been compiled):

Some thoughts on the current situation of Berachain

Many friends know that I have been active in the Berachain ecosystem and have invested a lot of time and energy. After all this, I feel it is necessary to share with you my true views on the Berachain launch, current situation and future development.

I will first talk about some things that I am not very satisfied with:

$BERA Inflation Issues

This is my most concerned issue, as this will directly affect price performance.

The annual inflation rate of BGT is 10% of the total supply (total supply = 500 million; first year inflation = 50 million).

The first year of circulation supply is approximately 21.5% (110 million tokens) + 2% released by Boyco in 30–90 days. In this case, 50 million inflation means that if all BGTs are destroyed (though in reality it won’t), the inflation rate in the first year is close to 50%. By the end of the first year, the tokens in circulation in the market will reach about 170 million.

Inflation in the second year: BGT still maintains a 10% inflation rate (55 million), plus 196 million tokens released by different distribution methods (the largest part of which comes from private equity investors). This means that the circulating supply will reach 418 million by the end of the second year, with an inflation rate of about 150%.

While most L1s had higher inflation in the early stages, Berachain's inflation rate was much higher than other projects. Furthermore, this comparison is not good for Berachain, as the price performance (PA) of many projects is severely affected by high inflation. Therefore, this does not serve as a reasonable excuse for high inflation in Berachain.

$BERA Private Equity Investor

Berachain sold over 35% of the token supply to private equity investors (I thought it was only 20%).

• Seed wheel: 50M FDV
• Round 2: 420M FDV
• Last Round: 1.5B FDV

This means there are a large number of tokens in the market from private equity financing.

The private placement of most projects is about 20%, and I already think that this proportion is too high and is not conducive to the development of the project. Berachain's private equity financing ratio is even higher, and combined with the long-term vesting period, it leads to continued selling pressure in the market, which usually puts the token price on a long-term downward trend, especially when FDV is high and low circulation (high FDV, low circulation).

$BERA staking (for private equity investors)

While this is not an extreme negative factor (but I honestly don't like it), it should be explained better.

Private equity investors can pledge $BERA to earn liquidity rewards and then sell it (in other words, they can pledge $BERA to get more $BERA).

15% of BGT annual inflation (7.5 million BGT) will be allocated to validators, most of which will go to stakers. If all 500 million supply is pledged, the annualized rate of return (APY) is about 1.6%, but in reality, it is impossible to pledge all.

The actual pledge ratio may be around 60%, so the APY is about 2.8% - 3.2%.

Many people compare Berachain and Celestia, but the early APY of Celestia was about 20%, so this comparison is not very reasonable. At the same time, although anyone can pledge $BERA to earn income, thus diluting the APY of private equity investors, this pledge mechanism will still increase selling pressure.

Temporary Change + Bad White Paper

What makes me most dissatisfied with is that the $BERA staking mechanism was not released until a few weeks ago. 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 high anti-VC sentiment. It should have been released earlier and more transparently and written into the official document in detail on the first day.

The community didn't learn about this issue until Jack posted a post explaining it, causing FUD, which made OGs disappointed with Berachain and were even reluctant to hear anything about Berachain again.

To be honest, this makes me angry because it feels like they deliberately announced this pledge mechanism at the last minute (otherwise why not write it into the official documentation?). However, after understanding the situation, I found that the APY was only 3%, which was more like a communication mistake than a malicious concealment.

No PoL yet

Berachain’s core product is PoL. If PoL is not online, then Berachain is just another PoS fork, and this is indeed the case at the moment.

I believe this won't last long (hopefully), but since BGT doesn't really work yet, many people are disappointed and may not even try to understand Berachain's design in the future.

As far as I understand, 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 have to complete the PoL deployment as soon as possible and cannot delay too long.

DevBear is selling coins

Berachain co-founder DevBear sells tokens on a real-name address. He received about $200,000 from the airdrop (which is not very reasonable in itself, because the airdrop rules are set by them), and then he exchanged some of the tokens for assets such as WBTC, ETH, BYUSD, etc.

Even if he didn't sell it, it wouldn't be good to get core team members so much airdrops.

He may be testing the product or providing liquidity, but anyway, the issue should be clarified immediately.

Berachain still has highlights

Berachain Community Strong

The Berachain community is one of the most powerful communities in the entire industry. I've been in this industry for many years and can be sure of this. Even if the project is problematic, the community and developers will still do their best to support Berachain's development.

Dapp has a huge ecosystem

Berachain's developer ecosystem is very active, and has built, tested and deployed a large number of Dapps, and will be launched one after another in the next few weeks.

Every public chain needs a strong application ecosystem to succeed, and Berachain had these Dapps in the early stages, which is the main reason why I still have a bullish view on medium-term development.

Pay great attention to safety

Security is usually a major concern in the development of new mechanisms and new public chains. For brand-new projects like Berachain, the importance of security has been magnified. One thing 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 startup and decentralization of the network.

While most people don't like slow progress, I think this is a positive approach to expectations.

PoL mechanism

I still think PoL is a very interesting mechanism, once it is fully deployed and the flywheel effect is activated, we will see an attractive APY that will attract a large number of liquidity miners into the Berachain ecosystem.

in conclusion

I'm pretty sure that just holding $BERA is not a good idea, because of the factors I mentioned earlier. But at the same time, I am also sure that participating in the PoL liquidity proof mechanism will be a very worthwhile choice.

I prefer to view Berachain as a chain of returns rather than a chain that simply holds unproductive tokens. You need to provide liquidity, recycle, borrow, research the best BGT earning strategies, and do due diligence for each validator to see who you want to delegate your BGT to, or if it is more worth burning the BGT to for Automatic compound interest. On Berachain, you have to be actively involved, not simply holding tokens.

In my opinion, the most critical thing is introducing liquidity and starting the flywheel effect. If this step is done, Berachain will succeed.

Before ending this thought, I would like 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. So, seeing it undergone this "less ideal" startup and some "ambiguous" tweaks (such as changes to the BERA staking rules) really disappoint me a little. But then again, if foundations and developers can continue to work as hard as they did in the past few years, Berachain still has the opportunity to be the chain with the highest yield, far exceeding other similar projects.