Henlo, and furthermore, ooga booga. Berachain’s highly anticipated Q5 is finally here. In this report, we provide an extensive analysis of the Berachain ecosystem, exploring its technological architecture, economic incentives, and actionable opportunities for investors and users.

TL;DR

Royco’s $2.6B Pre-Deposits: Royco has attracted over $2.6 billion in pre-launch deposits, guaranteeing robust day-one liquidity. With Proof-of-Liquidity (PoL) and the bribing market on the cusp of activation, the ecosystem’s innovative flywheel is about to be put to the real test, creating exciting potential for new forms of gameplay.

Current Gameplay: As PoL remains inactive and only a few projects have held their TGE, secondary market trading is currently somewhat limited. That said, many projects are expected to hold their TGEs soon to tap into PoL incentives. In the meantime, users keen on yield generation can explore both Bera Hub and Infrared, where top vaults are offering APYs exceeding 100%.

Key PoL Flywheel Risk: The PoL mechanism hinges on BGT staking yields staying higher than the BGT-to-BERA conversion rate. If stakers prefer to swap (and possibly sell) BGT instead of keeping it staked, it indicates that liquidity incentives may not be sustainable.

Introduction

Berachain was founded by a group of DeFi enthusiasts who initially connected through the Olympus DAO community and the Bong Bears NFT project which garnered significant attention. The project has raised over $142 million in two funding rounds, backed by prominent investors such as Polychain Capital, OKX Ventures, and Hack VC.

At its core, Berachain is an Ethereum-compatible Layer 1 (L1) blockchain built on the Cosmos SDK. This design combines Ethereum’s developer-friendly environment with Cosmos’ scalability and interoperability, positioning Berachain as a competitive new entrant in the blockchain space.

Technical Architecture

Berachain is designed to be a high-performance, EVM-compatible blockchain that leverages a novel consensus model to enhance decentralization, security, and liquidity incentives. The network architecture is structured into two primary layers:

Consensus Layer (BeaconKit and CometBFT)

The foundation of Berachain lies in the BeaconKit, a modular framework developed by Berachain for building EVM consensus clients. The core consensus mechanism is CometBFT, a Byzantine Fault Tolerant (BFT) consensus protocol derived from Tendermint. The benefits include fast transaction finality, high fault tolerance and enhanced decentralization. BeaconKit module extends CometBFT’s functionality to integrate seamlessly with the Ethereum Virtual Machine (EVM).

Execution Layer (EVM Compatibility)

Berachain utilizes the Ethereum Virtual Machine (EVM) as its execution layer, allowing developers to deploy and interact with smart contracts using familiar Ethereum-based tooling.

What is Proof-of-Liquidity (PoL)?

Berachain’s PoL consensus model integrates liquidity provisioning with network validation, differentiating itself from Proof-of-Work (PoW) and Proof-of-Stake (PoS) mechanisms. In this model, users stake the native token, $BERA, to participate in network validation and earn governance tokens, $BGT, based on their liquidity contributions and ecosystem engagement.

How PoL Works

Liquidity providers (LPs) deposit assets into designated reward vaults.

Vaults receive governance tokens ($BGT) in proportion to the liquidity contributed.

$BGT holders can delegate their tokens to validators to increase their reward weight.

Validators secure the network by staking the native token ($BERA) and receive block rewards based on their delegated liquidity.

Block rewards (in $BERA) are distributed to both validators and liquidity providers, ensuring a sustainable economic model.

Image Source: Berachain

Traditional PoS networks lock up staked assets, reducing their liquidity. PoL mitigates this issue by integrating liquidity provisioning into the staking process, ensuring that capital remains active in DeFi applications while still securing the network.

Tri-Token Model

Berachain’s tokenomics is built on a tri-token model, consisting of $BERA (gas and staking token), $BGT (governance token), and $HONEY (stablecoin). Each token serves a distinct function within the ecosystem, ensuring balanced incentives and sustainable network growth.

$BERA - Gas and Staking Token

$BERA is Berachain’s native utility token, primarily used for transaction fees and staking by validators.

Stakers participate in PoL to secure the network and earn rewards.

$BGT - Governance Token

$BGT governs Berachain’s ecosystem, facilitating on-chain decision-making, reward distribution, and validator delegation.

As a soulbound token, $BGT is non-transferable, ensuring governance power remains with active contributors.

Users earn $BGT exclusively by engaging in ecosystem activities, such as providing liquidity and participating in lending protocols.

$HONEY - Stablecoin

$HONEY is a fully collateralized stablecoin pegged to the US dollar.

Users mint $HONEY by depositing whitelisted assets into vaults.

$HONEY facilitates on-chain transactions, cross-chain swaps, and liquidity provisioning within Berachain’s DeFi ecosystem.

Royco: Pre-Launch Liquidity Acquisition

Liquidity serves as the foundational pillar for the Berachain ecosystem, and Royco plays a critical role in its early liquidity acquisition strategy. Royco powers Boyco, a mechanism designed to enable dApps to establish pre-launch liquidity acquisition markets. Through these markets, projects are able to attract capital prior to launch, by allowing users to pre-deposit assets into designated liquidity pools associated with dApps set to debut on Berachain Mainnet.

Royco essentially functions as a protocol facilitating the creation of bespoke liquidity markets, where projects can negotiate directly with LPs (Liquidity Providers), offering early incentives such as points, pre-launch tokens, or other rewards in exchange for capital commitment.

This innovative approach has proven highly effective, with over $2.6 billion in pre-deposits secured through Royco ahead of Berachain’s mainnet launch, ensuring substantial day-one liquidity for the ecosystem. As of writing, Berachain’s Total Value Locked (TVL) exceeds $3.1 billion, surpassing established chains such as Base and Arbitrum, positioning Berachain as the 6th largest blockchain by TVL.

Image Source: Berachain Royco; Data as of 28 Feb 2025

However, it is important to contextualize this TVL figure. The liquidity acquired through Royco is subject to a lock-up period of approximately 3 months. This means a comprehensive review of the chain’s TVL composition and sustainability will be required once the initial lock-up period ends. Understanding how much of this liquidity remains sticky and continues to actively participate in the ecosystem will be crucial in evaluating Berachain’s long-term liquidity health.

The Role of BTCFi in Berachain’s Early Liquidity Landscape

A notable trend within Berachain’s early liquidity markets is the prominent role of BTCFi. Over 55% (or approximately $1.5 billion) of the TVL captured through Royco originates from wrapped Bitcoin or Bitcoin liquid staking projects, including platforms such as Solv, Lombard, SatLayer, and pumpBTC. These projects have actively partnered with Berachain-native protocols to create a wide range of liquidity markets, offering BTC holders additional opportunities to earn yield and participate in Berachain’s liquidity ecosystem.

This trend highlights Berachain’s potential to emerge as a key venue for BTCFi innovation, combining Bitcoin’s deep liquidity with Berachain’s incentive structures to unlock new sources of revenue for BTC holders. As Berachain’s PoL infrastructure matures and the bribing market comes online, BTCFi liquidity could become a structural pillar of the ecosystem, helping Berachain differentiate itself within the increasingly competitive L1 and L2 landscape.

Image Source: Berachain Royco; Data as of 28 Feb 2025

Proof-of-Liquidity is not Activated yet

Despite Berachain’s mainnet launch and the creation of over 100 liquidity pools, it is important to emphasize that the core Proof-of-Liquidity (PoL) mechanism has not yet fully launched.

Currently, only 5 pools are eligible to receive $BGT emissions, reflecting Berachain’s phased approach to deploying its PoL infrastructure. The broader bribing market, which is a key component of Berachain’s economic flywheel, has not yet been activated.

At present, $BGT mining and delegation functions are live, but validator incentives (through bribing and additional BGT rewards) are not yet operational.

Request for Reward Vault (RFRV) Process

Projects seeking to qualify their liquidity pools for $BGT emissions must submit a Request for Reward Vault (RFRV) application. Notably, only projects that have already completed their Token Generation Event (TGE) are eligible to apply. This ensures that BGT incentives are directed towards projects that have established tokens and are actively contributing to the ecosystem’s growth. All proposals during this initial phase are subject to review and approval by the BGT Foundation and Guardians Committee, ensuring a curated and selective onboarding process for reward recipients.

According to @capnjackbearow, Berachain’s Head of DeFi, the first cohort of projects approved for BGT emissions is expected to go live very soon. This initial rollout will mark the first real test of Berachain’s PoL flywheel, where governance incentives, liquidity incentives, and validator incentives will begin to interact.

Image Source: Berachain

Ecosystem Overview

Berachain distinguishes itself in a crowded L1 and L2 market by fostering a vibrant ecosystem. While most new ecosystems struggle to attract projects to build, over 110 projects were listed on Berasearch at Bera’s mainnet launch — with more than 70% being Berachain-native—demonstrating strong developer and community engagement. DeFi obviously plays the most important role in the ecosystem, reflected by the number of relevant projects.

Image Source: Berasearch

Berachain’s Official DApps

In support of its Proof-of-Liquidity mechanism, Berachain has introduced three official native decentralized applications, each targeting a core DeFi function:

DEX – BEX: A decentralized exchange enabling seamless peer-to-peer trading without intermediaries. Users can provide liquidity to earn LP tokens and subsequently stake these tokens in PoL reward vaults to earn $BGT.

Lending & Borrowing – BEND: A non-custodial lending protocol providing fundamental borrowing services within the ecosystem.

Perpetual Trading – BERPS: A decentralized platform for perpetual futures contracts, offering leveraged trading opportunities.

DeFi Protocols to Watch

Beyond these three core products, the ecosystem continues to expand with a suite of ancillary projects designed to augment DeFi functionality — ranging from liquid staking to advanced derivative trading. Here are a few highlighted projects users shall check out:

Infrared Finance: The Liquid Staking Protocol

Infrared Finance serves as Berachain’s liquid staking protocol, allowing users to stake $BERA and $BGT tokens in exchange for iBERA and iBGT. Functioning similarly to Ethereum’s Lido, Infrared enables further DeFi participation by converting staked tokens into liquid staking derivatives (LSDs). Users’ staked tokens are deployed into BEX liquidity pools by Infrared, with rewards (BGT and additional yields from block rewards, bribes, MEV, etc.) routed back to the Infrared Vault. A portion of these yields is directed to the treasury, while the remaining rewards are minted as iBGT and iRED tokens and distributed to users.

Image Source: Infrared Finance

Research indicates that numerous projects — such as Kodiak, Dolomite, Beraborrow and more — plan to leverage or “bribe” Infrared to enhance their own yield strategies. Success in this would not only centralize control over BGT distribution but also exert significant influence over Berachain’s broader economic model. In other words, the bribing competition of BGT might shift to iBGT instead. Having said that, we expect Infrared would come on top of the list in terms of staking if a stable yield is the priority from the users’ perspective.

Kodiak Finance - DEX

Kodiak Finance is Berachain’s native decentralized exchange (DEX) that supports a concentrated liquidity model similar to Uniswap V3, referred to as CLAMM. Its unique “Island” feature dynamically adjusts liquidity ranges to optimize yields while standardizing LP tokens for compatibility with other protocols, such as Infrared’s liquid staking solution. Its Panda Factory feature acts as a token deployment platform, embodying a strategic meme play within the ecosystem.

In addition, Kodiak implements a two-pronged flywheel mechanism to further enhance ecosystem dynamics:

Treasury Flywheel: Kodiak initially channels bribes to Infrared to boost BGT release for its LP tokens. These tokens are then staked back into the Kodiak LP pool and further deposited with Infrared to accrue additional iBGT and iRED rewards.

Community Flywheel: Users can also stake their Kodiak LP tokens to receive rewards directly from Kodiak in the form of iRED and iBGT.

Image Source: Kodiak Finance

Ooga Booga - DEX Aggregator

Ooga Booga is a decentralized exchange aggregator on Berachain that searches across multiple DEXs to secure the best trade prices for users. With nearly $400 million in total trade volume since launch, Ooga Booga is poised to become the gateway for meme trading on Berachain—analogous to Jupiter on Solana.

Image Source: Ooga Booga

Beraborrow - CDP

Beraborrow is an overcollateralized stablecoin issuance protocol that enables users to mint $NECT stablecoins. It supports a wide range of collateral types — from traditional assets like $BERA and $HONEY to LP tokens from BEX, BERPS, and Infrared’s iBGT. The protocol further enhances capital efficiency by auto-depositing LP tokens into Infrared, thereby generating compounded yields. Additionally, Beraborrow also plans to distribute $BGT to DEX liquidity pools to strengthen $NECT’s market demand and provide high returns to liquidity providers. Notably, Beraborrow is also emphasizing BTCFi by accepting various BTC liquid staking tokens (LSTs), such as pumpBTC, SolvBTC, and uniBTC.

Image Source: Beraborrow

IVX - Derivative Trading

IVX emerges as Berachain’s derivatives hub, offering two primary products:

Diem: A fully-fledged liquid options market for assets like $BERA, $ETH, and $BTC.

Levo: An intent-based perpetual market designed for $BERA and assets paired with $BERA. IVX’s offerings are intended to deepen the derivatives market on Berachain by providing robust trading tools and liquidity options.

Image Source: IVX

Beyond DeFi: GameFi and Meme Culture

Berachain also embraces non-DeFi segments, driven by its unique meme culture and strong community ethos:

The Honey Jar (THJ) & Henlo - Meme

The Honey Jar (THJ) began with a community NFT project (Honeycomb) but has evolved into a venture studio in the Berachain ecosystem. As the gateway to Berachain, THJ has been cooking ample educational information with initiatives like the Dune Dashboards. Plus, it solidified its position as one of the top 3 validators on Berachain. Henlo is a dumb memecoin built by THJ yet set to become the greatest cult on Berachain by deeply integrating with other Bera ecosystem projects.

Henlo is set to conduct its token generation event (TGE) on 03 March, and we think it could serve as the benchmark for the meme valuation on Berachain thanks to its OG positioning.

Image Source: Henlo

Beratone - GameFi

Beratone is an online P2E farming and fishing simulation game inspired by titles like Stardew Valley and Animal Crossing. It is designed for both PC and mobile platforms and aims to attract casual gamers with limited crypto exposure. The game integrates blockchain mechanics to reward players with rare, tradable in-game items. Beratone is part of the Build-A-Bera incubation program by Berachain, and has already secured approximately $2 million in investments from notable backers such as Animoca Brands and SNZ Holding.

Image Source: Henlo

PuffPaw - GameFi

PuffPaw is an innovative platform aimed at assisting users in quitting smoking through a gamified vaping experience. By linking a Puff Pass to their hardware via the PuffPaw app, users can engage with the platform’s structured program designed to reduce nicotine intake. PuffPaw announced a $6 million fundraising round led by Lemniscap, with its Gen2 pass scheduled for imminent release.

Image Source: PuffPaw

Actionable Investment Opportunities

Secondary Market Opportunities

At this early stage, secondary market opportunities on Berachain remain relatively limited, as only a handful of projects have officially launched their tokens. Currently, the primary trading option is $BERA itself.

However, with the PoL mechanism and the associated bribing markets expected to fully launch soon, we anticipate a wave of BERA-native projects conducting their TGE and activating Reward Vaults to attract liquidity and incentivize participation.

At CoinEx, we are committed to supporting high-potential projects within emerging ecosystems like Berachain, providing users with early access to promising assets and liquidity opportunities as the ecosystem matures.

Liquidity Providers: Yield Options

For users interested in providing liquidity and earning yield on Berachain, Bera Hub and Infrared Finance are two most popular options with top vaults generating an estimated APY of over 100%.

Bera Hub

Approach: Strategy: Provide liquidity on Bera Hub, then stake the LP tokens into the corresponding Reward Vault.

Image Source: Berachain; Data as of 28 Feb 2025

Infrared Finance

Approach: Users may also choose to stake the LP tokens into Infrared’s vaults to potentially earn higher yields than that of Bera Hub’s reward vaults.

Image Source: Infrared Finance; Data as of 28 Feb 2025

Potential Risk Points of PoL Flywheel

The critical inflection point where the flywheel could break arises when BGT staking yield is smaller than BGT to BERA conversion. When stakers rationally choose to exit staking and convert BGT into BERA (and potentially sell BERA), rather than maintaining long-term staking positions, it signals that the ecosystem cannot sustain its liquidity incentives at the required rate.

At the core of this mechanism lies a comparative economic calculation that all participants — validators, liquidity providers (LPs), and projects — must assess. This can further be summarized as:

The expected economic return from bribing for votes and securing liquidity must be greater than the cost of acquiring BGT or the staking yield on BGT, which should ultimately be greater than the implied conversion value of BGT into BERA.

In formulaic terms, this relationship could be framed as:

Project Bribing Return > Cost of Acquiring Liquidity or BGT Staking Return > Implied Conversion Value of BGT to BERA

This framework represents the economic tension driving the flywheel — ensuring that:

Projects are incentivized to participate in bribing markets to secure liquidity.

Stakers are sufficiently compensated for locking up BGT, while maintaining long-term alignment with the health of the ecosystem.

The implied exchange rate between BGT and BERA reflects the intrinsic value derived from Berachain’s transactional and liquidity flows.

A Healthy Positive Premium for BGT - BERA

In an optimally functioning Berachain ecosystem, BGT should consistently trade at a positive implied premium relative to BERA. This premium reflects a healthy ecosystem where transactional volume, liquidity incentives, and project demand for liquidity (via the bribing market) all contribute to sustaining long-term value capture within the system.

A sustained positive premium for BGT implies that projects see value in paying bribes (BGT rewards) to attract liquidity, validators are incentivized to compete for these rewards, and stakers continue to see value in delegating BGT rather than selling it outright.

This positive feedback loop is what drives Berachain’s PoL flywheel, aligning the interests of:

Projects (who want liquidity and are willing to pay for it via bribes),

Validators (who want to maximize their delegation and bribe revenue),

Stakers (who want to maximize BGT yield),

LPs (who provide liquidity in exchange for bribes and rewards), and

The broader ecosystem (which benefits from deeper liquidity and more vibrant on-chain activity).

Conclusion

Berachain’s mainnet launch has been one of the strongest among recent Layer 1 blockchains, driven by robust ecosystem development and the success of the Royco pre-launch liquidity program. However, the true effectiveness of Berachain’s Proof-of-Liquidity (PoL) mechanism — the core engine linking governance, liquidity incentives, and validator rewards — has yet to be fully activated and tested. With the upcoming launch of the bribing market and Reward Vault emissions, investors can expect a wave of new token listings and competitive yield strategies, making the performance and sustainability of the PoL flywheel a key factor to monitor going forward.

Henlo Berachain, How to Sweeten Our Bag?