The Berachain blockchain generated a lot of buzz in DeFi due to a new consensus mechanism called proof of liquidity. It is now losing momentum as user activity in the once-promising level 1 blockchain is catastrophically declining.
Thus, the total value locked in Berachain, which measures user funds in the blockchain, fell to $646 million, although two months ago it was $3.5 billion (DefiLlama data).
The native Bera token has fallen nearly 90% from its all-time high set in February.
The problem with Berachain lies in its high fully diluted valuation and low turnover model, which has faced sharp criticism in recent months, noted Artem Sinyakin, CEO of the crypto analytics platform Oak Research.
The business model of Berachain was supposed to combine liquidity provision with token incentives. Investors could earn income in the form of Bera tokens in exchange for providing liquidity for the blockchain.
When the Berachain economy was thriving, the liquidity pools of Bera tokens offered an annual yield that averaged 150%. This allowed investors to earn between 20% and 60% on stablecoins.
Some experienced investors even invested capital in protocols like Infrared, Kodiak, and Honey to access the turbocharged yields offered by dual-incentive pools.
These attractive yields were backed by the issuance of Bera tokens and provided significant value when the token was trading around its peak of $14.83.
However, when the price of Bera collapsed, so did the yields. Liquidity from Berachain began to flow to more attractive blockchains like Ethereum and Solana.
For these reasons, Berachain risks sliding into the status of a ghost blockchain.
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