Berachain is launching with a 79 million BERA token airdrop, rewarding early users and enhancing competition among DeFi apps. Employing its unique Proof of Liquidity (PoL) mechanism, Berachain aligns incentives between validators and users, prompting fierce competition for governance tokens. Strategies may include establishing validator networks and using incentives like bribery to attract liquidity. However, challenges remain, as previous systems have faced operational failures.
Berachain is preparing to execute a significant airdrop of 79 million BERA tokens, accounting for nearly 16% of its total supply, following its long-awaited blockchain launch. The project has attracted considerable capital, raising $142 million from venture capitalists. This distribution aims to reward the community and early adopters, enhancing user engagement within the blockchain ecosystem. Wajahat Mughal, CEO of the DeFi options protocol IVX, emphasised the rewards for loyal users, stating that many who participated in the ecosystem for three years would benefit from the airdrop.
Berachain addresses coordination challenges between validators and user-facing applications through its innovative Proof of Liquidity (PoL) mechanism, contrasting with Ethereum’s Proof of Stake and Bitcoin’s Proof of Work models. PoL incentivises DeFi participants to earn governance tokens (BGT) by supplying liquidity or running validators. Users can convert their non-tradable BGT tokens into tradable BERA tokens at a one-to-one ratio, fostering incentive alignment between users and validators, which is fundamental to the blockchain’s operation.
The introduction of PoL escalates competition among DeFi protocols on Berachain as they vie for BGT token emissions. As only a finite amount of BGT can be distributed at any moment, the success of applications will depend on their ability to persuade users to lock their tokens with specific validators. This dynamic creates a flywheel effect, where controlling more BGT increases an app’s capacity to earn and distribute to its users. IVX intends to cultivate strong relationships with leading validators to optimise their chances of attracting more rewards.
In contrast, some projects, like Infrared, are establishing their validator infrastructure. This approach simplifies rewarding their app users directly, helping increase liquidity lockup and enhance initial BGT holdings. The competition in liquid staking on Berachain mirrors the dynamics seen on Ethereum, where established players like Lido dominate the market despite new entrants.
The PoL mechanism shares features with the Curve decentralised exchange, where DeFi applications may incentivise validators through additional tokens or ‘bribes’ to enhance user rewards. This practice becomes essential for apps striving to attract liquidity and bolster their appeal. IVX has indicated plans to leverage its early revenues to incentivise validators strategically, setting the stage for competitive positioning.
However, the effectiveness of such bribing systems is uncertain, as seen in the case of the Solidly decentralised exchange, which struggled due to technical issues and reward system failures that led to user disengagement. The success of Berachain’s DeFi protocols will depend on their ability to efficiently navigate this competitive landscape whilst ensuring sustainable engagement from users and validators alike.
