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.

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