Berachain generated a lot of buzz in DeFi with memes and a novel consensus mechanism called proof-of-liquidity. But now, it’s spiralling as user activity dwindles on the once-promising layer 1 blockchain.
The numbers are brutal. Berachain’s total value locked, a metric that measures user funds in a blockchain, has plummeted to $646 million, from a peak of $3.5 billion two months ago, DefiLlama data shows.
Its native token, Bera, is down almost 90% from its February all-time high.
High FDV-low float
High FDV-low float tokens launch with a limited supply and a high valuation. A large portion of the token supply is initially locked up in reserve for team members and venture capital backers.
It’s a controversial practice in crypto, and critics say the mechanism favours insiders and VC-backers who tend to dump these tokens when they are unlocked, tanking the price.
But in Berachain’s case, token unlocks will start next year, and it appears retail investors are heading for the exits ahead of time.
“As there haven’t been any unlocks from VCs so far, it is about users leaving the chain rather than big inflation,” Sinyakin said concerning the blockchain’s value decline.
Berachain’s business model was supposed to align liquidity provision with token incentives. Investors would earn yield in Bera tokens in exchange for providing liquidity for the blockchain.
Lair Finance is a restaking protocol deployed on multiple blockchains, including Berachain.
Declining yield
When Berachain’s economy flourished, the Bera token’s liquidity vaults offered annualised yields that averaged 150%. Investors earned between 20% to 60% on stablecoins.
Some savvy investors even deployed capital on protocols like Infrared, Kodiak, and Honey for exposure to turbo-charged yields offered by dual-incentive vaults.
These attractive yields were backed by Bera token emissions and delivered significant value when the token traded close to its peak of $14.83
But as Bera’s price collapsed, emissions had less value and yields imploded. They are now below 10% even on vaults with riskier strategies that promised high yield returns.
Berachain liquidity vaults began leaking liquidity to more attractive blockchains like Ethereum and Solana as investors rotated their capital.
To stem the tide, Berachain developers need to find a way to reprice incentives and get the yield-generating machine going to attract liquidity.
“We need emerging teams that can issue tokens aligned with the blockchain and its users, tokens that can grow in value and attract market attention,” Evan said.
Bera traded at $1.71 on Thursday..
The Berachain Foundation did not immediately respond to requests for comments.
