Discussion on Berachain Ecological Features and Core Projects

Introduction

Berachain is a Layer 1 network characterized by its PoL( Proof of Liquidity) consensus mechanism, currently undergoing its second testnet "bArtio Testnet". As of January 2, 234 protocols have participated in the testing, with a total of over 2.38 million wallets. The founder of Berachain recently hinted that the mainnet will launch before April, attracting new and old users to join the ecosystem.

This article aims to explore various fields of the Berachain ecosystem, reduce the entry barriers for user participation, discuss outstanding projects in each field, and detail how each protocol utilizes the PoL mechanism.

DEX

The native DEX of Berachain is called BEX, which will be launched as BeraSwap upon the mainnet release. Other DEXs that are preparing to launch on Berachain are working on various convenient and efficient services and strategies to attract users and liquidity.

Kodiak

Kodiak is a DEX that has emerged from the Berachain incubated project "Build a Bera". In addition to supporting the Uniswap v2 features of BEX, it also offers CLAMM functionality similar to Uniswap v3, allowing liquidity providers to set and concentrate liquidity within a specific range.

Kodiak also provides the Island feature, helping users to automatically reset and balance the CLAMM range, reducing the hassle of managing liquidity supply positions. This feature utilizes BEX to rebalance liquidity and establish complementary relationships.

Kodiak standardizes CLAMM liquidity positions through the Island feature, enabling LP tokens to be used across other protocols, promoting more flexible and diverse ecological gameplay.

Kodiak has collaborated with multiple projects within the Berachain ecosystem to establish a core infrastructure position. They also operate their own Berachain validation nodes and, as of January 3, have received the second highest BGT authorization in the bArtio Testnet.

Honeypot Finance

Honeypot Finance is a protocol that supports all aspects of the token lifecycle, consisting of the following sub-protocols:

• Henlo DEX: A DEX specifically designed to protect users from MEV attacks, offering limit orders and Batch-A2MM features.

• Dreampad: A Launchpad protocol that provides incubation and financing opportunities for projects preparing to launch on Berachain.

• Pot2Pump: A platform that provides a safer environment for meme coin issuance and trading.

Honeypot Finance plans to operate as a validator after the mainnet launch, providing its governance token $HPOT as a delegation reward.

In addition, Honeypot Finance releases accumulated $BGT to the $HPOT liquidity pool to enhance $HPOT liquidity. The protocol also plans to increase the token value by using node operation income to buy and burn $HPOT.

Liquidity Staking

Although operating a Berachain node requires 69,420 $BERA, its structure allows liquidity providers to receive network rewards calculated in $BGT and interest on liquidity provision when they deposit liquidity tokens obtained from the ecological protocol into Berachain. Therefore, aside from the different methods and sequences, Berachain has essentially integrated liquidity staking into the network protocol.

In Berachain, existing protocols can only provide rewards and gain voting rights by collaborating with validators, or by operating their own nodes to establish a self-sustaining flywheel model to launch their liquidity pools, as demonstrated by Kodiak and Honeypot Finance.

In this context, Berachain's liquid staking protocol will provide the voting rights to determine the emission of $BGT( and the redemption functionality of ). This allows Berachain ecosystem projects to incorporate the liquidated $BGT into their protocol mechanisms without needing to negotiate with validators or nodes. In other words, this makes it easier for ecosystem protocols to adopt structures that closely integrate the PoL mechanism.

Infrared

Infrared is a liquidity staking protocol co-incubated with Kodiak through Berachain's "Build a Bera" program.

The Infrared-operated vaults can accept LP tokens from liquidity pools, generating $BGT interest rates while running network nodes. When users deposit LP tokens into these vaults, Infrared will use these tokens to generate $BGT, and users can claim $iBGT( that is proportionate to their deposited LP tokens of the liquidated $BGT).

Users can utilize the received $iBGT in the following ways:

• Staking in Infrared to receive rewards generated by the node
• Use in other DeFi protocols
• Selling profits

Infrared concentrates the rewards generated by the PoL mechanism by transforming $BGT into a liquid token and distributes them to fewer $iBGT stakers, while also assisting other protocols within the Berachain ecosystem to incorporate $iBGT into their protocols, enabling their platforms to offer users higher returns. Additionally, Infrared plans to launch new features that allow them to receive and liquidate the $BERA needed for node operation while running nodes and distributing profits.

BeraPaw

BeraPaw is also a liquidity staking protocol, but they do not run their own nodes; instead, they operate a treasury between various nodes and liquidity pools registered with BeraPaw, issuing $LBGT as the settlement token for $BGT.

The governance token of BeraPaw is $PAW. Users can use the $BGT held by BeraPaw to vote on which liquidity pools should receive $BGT. Node operators distribute the reward income generated by staking $BGT to holders of $LBGT through this method.

BeraPaw's structure divides the use of the $BGT token into two types of tokens: $LBGT and $PAW. 1) receives rewards and 2) votes for the $BGT emission pool. Through this structure, users and protocols using $PAW tokens for $BGT Emission voting can exercise more voting power with relatively less capital. Therefore, protocols seeking initial liquidity in the Berachain ecosystem are expected to actively utilize $PAW to generate $BGT rewards for their liquidity pools.

Lending

Berachain also has a native lending protocol BEND, which offers the following features:

• Use $WBTC and $WETH as collateral to borrow $HONEY
• Deposit $HONEY

Unlike typical lending agreements, BEND has two notable features: 1) $HONEY cannot be used as collateral, and deposits of 2) $WBTC and $WETH do not accrue interest, but will earn $BGT rewards when borrowing $HONEY.

Through this structure, BEND strengthens Berachain's triple-token economic structure, generating basic interest for $HONEY while increasing borrowing demand through $BGT, enriching the liquidity of the ecosystem. Users can also perform $BGT leveraged Farming by repeatedly swapping borrowed $HONEY back to $WETH and $WBTC and depositing it into BEND.

BeraBorrow

BeraBorrow is a super-collateralized stablecoin issuance protocol, allowing users to mint $NECT stablecoins. It not only permits ordinary assets like $BERA and $HONEY, but also allows BEX and Berps LP tokens as well as Infrared's $iBGT as collateral assets. The $NECT minted with collateral assets can be deposited into BeraBorrow's liquidity stability pool, where depositors can collect borrowing fees and liquidation fees from $NECT borrowers, establishing a structure that supports the basic needs of $NECT.

In addition, BeraBorrow has a governance token $POLLEN besides $NECT, which can serve as an incentive token in the following aspects:

• Liquidity pool for rewarding $BGT Emission
• Encourage staking deposits into the high $NECT debt liquidity pool
• Allocated as rewards to depositors in the liquidity stability pool

In addition to this basic structure, the LP tokens deposited into BeraBorrow will automatically be deposited into Infrared to generate $iBGT rewards, and automatically reinvested into Infrared to generate compound interest. Users can borrow $NECT to provide liquidity in other protocols and redeposit the received LP tokens into BeraBorrow to establish leveraged positions.

In addition, BeraBorrow also plans to allocate $BGT to the DEX liquidity pool for use in $NECT and $iBGT trading, enhancing the demand for $NECT and market liquidity, while providing high deposit yields for liquidity providers.

With the support of various demand methods, $NECT is expected to become a core native stablecoin in the Berachain ecosystem alongside $HONEY.

Gummi

Gummi is a lending protocol incubated through "Build a Bera" that operates without the need for oracles, allowing anyone to create lending pools without restrictions. Utilizing this framework, Gummi plans to leverage any asset from Berachain to provide users with the ability to establish positions with up to 100x leverage.

Before the mainnet launch, Gummi has established partnerships with core infrastructures such as Infrared and Kodiak, and plans to support leverage farming position features for $iBGT and various LP tokens of Kodiak.

Derivative Protocol

There are also various derivative protocols on Berachain that are preparing to utilize the PoL mechanism in different ways. The infrastructure includes Berps, which is the native Perp DEX that the Berachain team will launch alongside BEX and BEND.

In Berps, users can use $HONEY to create 100x leveraged positions on various assets, or deposit $HONEY to provide the liquidity required for traders' positions, and earn trading fees, funding fees, and $BGT as returns.

Through this structure, Berps gives $HONEY a clear use case as the underlying asset of Berachain's native Perp DEX, while also providing a simple yet effective entry point for $BGT Farming, allowing new users who find the PoL mechanism daunting to mine $BGT rewards by depositing the single token $HONEY. Therefore, the protocol is expected to become the most critical protocol supporting Berachain's triple token economy.

SMILEE

SMILEE is an options protocol that allows for the creation of hedge positions for DEX liquidity. The options created in SMILEE have a unique structure that can generate more profit during periods of high price volatility, creating an effect that is completely opposite to impermanent loss ( IL, which is when liquidity providers incur greater losses during high volatility ).

Users must pay a certain premium to establish an options position in SMILEE, and there are three types of options positions to choose from:

• 牛(Bull): Bet on significant price fluctuations until expiration.
• 熊(Bear): The betting price has significantly decreased in volatility until expiration.
• 微笑(Smile): The betting price fluctuates significantly upwards or downwards until expiration.

In addition to such options trading, users can also provide liquidity for the options positions established by options traders and collect the option fees paid by the traders. Although liquidity providers will face a non-compensated loss equal to the trader's profits (IL), similar to providing liquidity to a DEX, SMILEE reduces the liquidity providers' non-compensated losses by real-time rebalancing of liquidity provision positions when options trading occurs.

The Berachain network protocol is expected to create liquidity pools on major DEX(, including the native dapp BEX), to enhance the liquidity of its tokens and generate $BGT rewards for these pools. In this environment, we can estimate that liquidity providers mining $BGT and the protocol will widely use SMILEE as a hedging tool for LP positions. Furthermore, if the SMILEE option positions begin to receive $BGT Emission in the future, the status of SMILEE within the Berachain ecosystem will become more solid.