High inflation, private sale selling pressure, can Berachain still stabilize market expectations?

Original Author: Ericonomic, Three Sigma Author
Original Translation: Ashley, BlockBeats

Editor's Note: Berachain, as one of the most talked-about Layer 1 projects recently, has attracted a large number of developers and investors with its PoL mechanism. However, controversies have arisen regarding Berachain's mainnet launch, including issues such as inflation, private sale allocation, and changes to staking rules. The author, based on their own research, conducts an in-depth analysis of the current state of Berachain, discussing its potential risks and development prospects.

The following is the original content (slightly rearranged for better readability):

Reflections on the Current State of Berachain

Many friends know that I have been active within the Berachain ecosystem and have dedicated a significant amount of time and effort. After going through all of this, I feel it is necessary to share my honest views on Berachain's launch, current situation, and future development with everyone.

I will first discuss some aspects that I am not entirely satisfied with:

$BERA Inflation Issue

This is the issue that concerns me the most because it will directly impact price performance.

The annual inflation rate of BGT is 10% of the total supply (total supply = 5 billion; first-year inflation = 50 million).

The first-year circulating supply is approximately 21.5% (110 million tokens) + 2% released by Boyco within 30-90 days. In this scenario, the 50 million inflation implies that if all BGT were to be burned (although this is not realistic), the first-year inflation rate would be close to 50%. By the end of the first year, the circulating tokens in the market will reach around 170 million.

Situation in the second year: BGT still maintains a 10% inflation rate (55 million), plus 196 million tokens released through various allocation methods (with the majority coming from private sale investors). This means that by the end of the second year, the circulating supply will reach 418 million, with an inflation rate of about 150%.

While most L1 projects have relatively high inflation rates in the early stages, Berachain's inflation rate is much higher than other projects. Furthermore, this comparison is not favorable for Berachain, as the price performance of many projects has been significantly affected by high inflation. Therefore, this cannot be considered a reasonable excuse for Berachain's high inflation.

$BERA Private Sale Investors

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

· Seed Round: 50M FDV

· Second Round: 420M FDV

· Final Round: 1.5B FDV

This means there is a significant amount of tokens on the market from private funding.

Most projects allocate around 20% for private sales, which I already consider high and detrimental to the project's development. Berachain's private sale allocation is even higher, coupled with a long vesting period, resulting in continued selling pressure in the market. This usually keeps the token price on a downward trend in the long term, especially in scenarios with high FDV and low circulation (high FDV, low float).

$BERA Staking (for Private Sale Investors)

Although not an extremely negative factor (but to be honest, I don't like it), it should be better explained.

Private sale investors can stake $BERA to earn liquidity rewards and then sell it (in other words, they can stake $BERA to receive more $BERA).

15% annual inflation of BGT (7.5 million BGT) will be allocated to validators, with most flowing to stakers. If all 500 million supply is staked, the annual percentage yield (APY) is about 1.6%, but in reality, not all can be staked.

The actual staking ratio may be around 60%, so the APY is approximately between 2.8% - 3.2%.

Many compare Berachain with Celestia, but Celestia's early APY was around 20%, so this comparison is not quite fair. Also, although anyone can stake $BERA to earn rewards, thus diluting the private sale investors' APY, this staking mechanism still adds to downward pressure.

Ad Hoc Changes + Poor Whitepaper

What annoys me the most is that the $BERA staking mechanism was only made public a few weeks ago, and even now, if you seek relevant information, you'd need to invest a significant amount of time to find meaningful details.

This mechanism is crucial for market sentiment, especially in the current market environment and amid the anti-VC sentiment. It should have been disclosed earlier and more transparently, clearly detailed in official documents from day one.

It wasn't until Jack posted an explanation that the community understood this issue, leading to FUD, causing OGs to be disappointed in Berachain, and even unwilling to hear any more news about Berachain.

Frankly, this made me very angry because it felt like they intentionally revealed this staking mechanism at the last minute (otherwise, why not write it into the official documentation?). However, upon understanding the situation, it was found that the APY was only 3%, which seems more like a communication oversight rather than intentional concealment.

There is Currently No PoL

Berachain's core product is PoL, and if PoL is not live, then Berachain is just another PoS fork, which is indeed the current situation.

I believe this won't last long (hopefully), but because BGT doesn't have a real use case yet, many are disappointed and may not even attempt to understand Berachain's design in the future.

From what I understand, this is a necessary step to ensure Berachain can operate stably before full PoL deployment. I also don't know if there's a better solution. However, the issue is that they must complete the PoL deployment as soon as possible and not delay it too long.

DevBear is Selling Coins

Berachain's co-founder DevBear is selling tokens in an identifiable address. He received about 200,000 $BERA from the airdrop (which itself is not quite reasonable because the airdrop rules were set by them), and then he converted some of the tokens into WBTC, ETH, BYUSD, and other assets.

Even if he is not selling, it is not good for a core team member to receive so many tokens from an airdrop.

He may be testing the product or providing liquidity, but in any case, this issue should be clarified immediately.

Berachain Still Has Bright Spots

Berachain Community is Strong

The Berachain community is one of the strongest communities in the entire industry. I have been in this industry for many years, and I can attest to this. Even if the project has issues, the community and developers will still do their best to support Berachain's development.

Large Dapp Ecosystem

The developer ecosystem of Berachain is very active, with a large number of Dapps already built, tested, and deployed, with more scheduled to go live in the coming weeks.

Every public chain needs a strong application ecosystem to succeed, and Berachain has had these Dapps early on, which is a key reason why I remain bullish on its mid-term development.

High Focus on Security

In the development process of a new mechanism and a new public chain, security is often a major concern. For a project like Berachain, the importance of security is even more amplified. One thing I appreciate is that the Berachain Foundation places a high emphasis on security issues, paying attention to every detail and choosing a robust and secure way to drive the network's launch and decentralization.

While most people do not like slow progress, I believe it is a positively oriented approach to expectations.

PoL Mechanism

I still find the PoL mechanism very interesting. Once it is fully deployed and the flywheel effect kicks in, we will see an attractive APY, which will attract a large number of liquidity miners to enter the Berachain ecosystem.

Conclusion

I am certain that simply holding $BERA is not a good idea, for the reasons I mentioned earlier. However, at the same time, I am also confident that participating in the PoL Proof of Liquidity mechanism will be a very worthwhile choice.

I am more inclined to view Berachain as a revenue chain rather than a chain where people simply hold unproductive tokens. You need to provide liquidity, engage in yield farming, lending, research the best BGT earning strategies, and conduct due diligence on each validator to see who to delegate your BGT to, or whether it is more worthwhile to burn BGT for automatic compounding. On Berachain, you need to actively participate, not just hold the token.

In my view, the most critical thing is to introduce liquidity and trigger the flywheel effect. If this step is successful, Berachain will thrive.

Before concluding this reflection, I want to say that I have always believed that Berachain is a unique cultural and ethical value in an industry full of scams. Therefore, seeing it go through this "less than ideal" launch and some "ambiguous" adjustments (such as the change in BERA staking rules) has indeed left me somewhat disappointed. But then again, if the foundation and developers can continue to work hard as they have in the past few years, Berachain still has the opportunity to become the highest-yield chain, far surpassing other similar projects.

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