Introduction
Berachain stands out in the competitive Layer 1 market due to its unique Proof of Liquidity (PoL) consensus mechanism. Since the mainnet launch on February 6, the total value locked (TVL) in Berachain has soared to $3.2 billion, demonstrating the remarkable attractiveness of its ecosystem. This article will guide you through Berachain's staking ecosystem and inform you about which ecological platforms in the current market can amplify returns.
If you are not yet familiar with Berachain, you may refer to: Basic Introduction to Berachain
How Berachain POL Creates a Flywheel Effect
POL differs from traditional POS (Proof of Stake) in that it does not rely on a single token stake; instead, it encourages users to provide liquidity to drive ecosystem development. The core of this model that creates the flywheel effect lies in the tri-token system: $BERA, $BGT, and $HONEY continually increase in circulation.
First, users need to deposit Berachain assets into the liquidity pool to receive liquidity certificates, which can then be staked in vaults to earn $BGT rewards. Next, $BGT can be used to boost validators and receive ecosystem rewards and bribes. This is how the flywheel effect forms: the more liquidity there is, the stronger the ecosystem becomes, leading to richer rewards.
Image source: Berachain X
Preparatory work
Before entering the Berachain ecosystem, it is advisable to prepare the following items:
Prepare to support Web3 wallets compatible with Berachain blockchain (e.g., MetaMask, OKX Web3 Wallet).
Deposit a small amount of $Bera into your wallet as an on-chain Gas Fee.
Introduction to Berachain ecosystem platforms
The ecology of Berachain offers a variety of liquidity staking opportunities. Below is an introduction to mainstream platforms on Berachain, with the characteristics of each platform listed in the paragraphs. Readers can choose platforms according to their needs.
Berahub: The official liquidity center
Berahub is the official platform of Berachain. As the core of the ecosystem, it provides all services related to Berachain, including cross-chain and liquidity pools. Users can earn multi-layer rewards solely through Berahub and participate further in the ecosystem by distributing $BGT via the Validator Boost mechanism.
The features of Berahub include:
Official endorsement: The Berachain Foundation supports it, and the smart contracts have undergone multiple audits, aiming to minimize the common risks associated with emerging public chains.
Multi-functional integration: Any basic service related to Berachain can be completed through Berahub.
Validator rewards: Users can delegate $BGT to validators through Berahub and earn rewards.
Pool diversity: Over 200+ liquidity pools are available for users to choose from.
Infrared Finance: The largest liquidity staking platform
Infrared Finance is the largest liquidity staking platform on Berachain, with a TVL of $1.6 billion. It features a stable $iBGT annual APR of 200%, attracting many users seeking returns.
Unlike $BGT, $iBGT allows users to sell or transfer it on the market at any time without any conversions. Due to the high annual reward mechanism, sellers can enjoy the price difference from selling at a premium.
The features of Infrared Finance include:
$iBGT: Provides stable high returns and high liquidity, making it very convenient for staking or trading.
$iBera: As the liquidity staking token (LST) of $Bera, it can receive staking rewards.
Safety of funds: The platform has undergone third-party audits and collaborates with the core team of Berachain to reduce platform risks.
Kodiak Finance: High-yield decentralized exchange
Kodiak Finance is the automated market maker (AMM) on the Berachain ecosystem, with a TVL of $900 million. The most well-known pair on the Kodiak platform is undoubtedly the $OHM - $Honey pair. Classified as a Stable pool, it has managed to generate over $100 million in a single pool while maintaining an APR above 50%. However, such high-yield pools also come with substantial risks, which will be revealed in the risk warning section at the end of the article.
The features of Kodiak Finance include:
Special pools: Some pools on Kodiak are not available on Berahub, so staking through that platform is necessary.
Significant trading volume: As the main AMM of the ecosystem, trading volume revenue is considerable, and users will share more profits.
BeraPaw: $LBGT high premium option
$LBGT, launched by BeraPaw, is known for its high premium and high yield. $LBGT can be minted using $BGT, although the minting ratio is at a discount (1:0.9 $LBGT). However, at the time of writing, the price of $LBGT is 2.7 times that of $Bera. If viewed in terms of coin value, $LBGT might be one of the preferred tools.
The features of BeraPaw include:
$LBGT: High premium with high annual returns, making it a good choice for token conversion or staking.
Airdrop expectations: The platform provides $pPAW tokens, indicating that future platform tokens can be exchanged proportionally.
Rapid TVL growth: High annual returns have attracted considerable user attention, leading to a significant rise in TVL in a short period.
Sharing operational modes of Berachain
There are various operational methods on Berachain. Whether you want to mine, accumulate $BGT, or hold various liquidity staking tokens (LST) to enjoy high annual returns provided by the platform, you can do so. This article will share three operational modes, which can be slightly adjusted for those who are not yet familiar with DeFi.
Mining and selling (accumulating principal)
Regardless of which pool you participate in, you can accumulate shares through the method of mining and selling. For example, in the $WBera - $Honey liquidity pool, when staking to earn $BGT, you can use Berapaw to switch to receiving $LBGT, which has a more severe premium, and sell it, converting it back to $WBera or $Honey in the original pool, allowing you to hold a larger share over time.
Hold $BGT
$BGT is the soul-bound token. It’s important to note that if you wish to continue increasing your holdings, you must not convert $BGT into other tokens; once converted, it cannot be exchanged back for $BGT.
Boosting within the ecosystem will earn token rewards, which may vary by validator, but they are mostly high-quality ecosystem tokens that can be used to provide liquidity, helping you to acquire $BGT in the long run.
Hold $iBGT, $LBGT
Whether you are optimistic about Infrared Finance and hold $iBGT, or support Berapaw and hold $LBGT, considering the current market premiums, it is recommended to choose to receive $LBGT. This way, you can maximize returns. For users who want to hold $iBGT, they can convert $LBGT into a larger number of $iBGT for staking after receiving it.
Comparison of Berahub with other on-chain liquidity pools
As the official platform on the emerging blockchain, Berahub will compare with large platforms like Uniswap V3 and PancakeSwap from different blockchains.
Unique advantages of Berachain:
High yields: As an emerging blockchain, the ecological platforms provide rich rewards to attract users.
Low Gas Fees: The on-chain transaction costs are extremely low; even with thousands of transactions, it still does not exceed one dollar.
EVM compatible: Compatible with the Ethereum Virtual Machine, allowing many projects to quickly join Berachain.
Risk warning
Participating in the Berachain ecosystem can yield considerable potential returns, but there are still many risks to be aware of.
Impermanent loss
Impermanent loss is one of the most common risks in staking. If the prices of the two tokens in the liquidity pool diverge, the total value of the assets for liquidity providers may be lower than holding the spot alone. However, impermanent loss does not necessarily result in permanent loss; if one side of the divergence returns to the original price at some future point, the impermanent loss will disappear.
$LBGT premium
Berapaw offers over 1000% APY for staking $LBGT, resulting in a severe premium, reaching 1 $LBGT: 2.7 $Bera at the time of writing. However, due to potential adjustments in platform interest rates and increased user participation, annual returns may decrease, leading to a reduction in premium, so continuous observation is necessary.
$OHM premium
$OHM is the governance token of OlympusDAO. Due to the high annual returns offered by $OHM - $Honey on Kodiak, $OHM saw significant price increases for a while. However, we found on OlympusDAO's official site that the liquidity reserve for each $OHM is only $11.79, indicating that even if high annual returns are currently enjoyed, a sudden drop in annual returns could lead to a price adjustment, potentially causing losses greater than income.
Differences between APR and APY
Many platforms in the Berachain ecosystem attract users by displaying higher APY (annual percentage yield), but high APY returns may not necessarily be better than APR (annual percentage rate). The reason is that APR does not consider compounding; therefore, it is recommended to perform conversion comparisons before choosing liquidity pools to avoid being misled by surface data.
Conclusion
Berachain redefines participation in DeFi with its unique PoL mechanism and gradually creates a positive flywheel effect through value conversion between ecological platforms. Given the current development, both $BGT and other LSTs can enjoy annual returns of up to hundreds of percent. However, it is important to remind that high returns come with risks. Whether it's due to the fading of ecosystem heat leading to liquidity exit or massive user participation causing annual returns to decrease, both can lead to asset shrinkage. Therefore, remember to dynamically adjust the liquidity pool and safeguard your assets during participation to avoid a futile experience after prolonged involvement.
This report is for informational sharing only and does not constitute any form of investment advice or decision-making basis. The data, analysis, and opinions cited are based on the author's research and public sources and may contain uncertainties or be subject to change at any time. Readers should make investment judgments prudently based on their own circumstances and risk tolerance. For further guidance, it is advisable to seek professional consulting opinions.