Author: Weilin, PANews

In the first half of this year, Berachain, a high-performance L1 public chain with a bear theme and EVM compatibility, attracted widespread market attention. On April 12, Berachain completed a Series B financing round led by Brevan Howard Digital and Framework Ventures, raising $100 million, about 45% higher than previously reported.

Addressing the security and liquidity trade-off of Proof of Stake blockchains, Berachain's Proof of Liquidity consensus incentivizes on-chain liquidity through BGT token emissions and bribery mechanisms, avoiding the liquidity ghost town dilemma faced by existing public chains and promoting the prosperity of on-chain DeFi ecosystems and trading activities.

Currently, Berachain's ecosystem has over 200 projects. Berachain plans to use the new capital from the financing to expand its business in Hong Kong, Singapore, Southeast Asia, Latin America, and Africa. On June 13, Berachain released the V2 version of its testnet, introducing BeaconKit to address limitations brought by the CometBFT consensus.

Recently, PANews conducted an exclusive interview with Smokey The Bera, co-founder of Berachain, to delve into the establishment background of this anonymous project, Berachain's PoL mechanism, the latest developments, and to address widely discussed topics such as airdrop expectations and new opportunities in the DeFi field.

The following is an edited transcript of the interview:

PANews: The establishment of Berachain can be traced back to a meme chain originating from the 2021 smoking bear NFT. Can you introduce the background of Berachain's establishment?

Smokey The Bera: The term "meme chain" may not be entirely accurate. My co-founder Papa and I have been active in the crypto space for almost a decade. In the summer of 2021, more interesting NFT projects emerged, such as Parallel TCG and its ecosystem, which actually empowered NFTs. For fun, we decided to create a small NFT project, consisting of 100 smoking bear NFTs. As we focused on community growth, we quickly launched these NFTs in some very DeFi-oriented communities at a price of about 0.069 ETH. They are similar to ecosystems like Frax, Olympus, Curve, Rari, and Yearn.

In this way, we built a very DeFi-native NFT holder community. Next, we allowed these NFTs to undergo rebase or supply increases. If a user owns one of the first collection series NFTs, they will receive airdrops of one NFT from the second collection series for free. The quantity of the second batch of NFTs will be slightly higher, such as an additional 10 or 15 for people to purchase. If you own the first batch of NFTs or the second batch of NFTs, you can receive an airdrop of one NFT from the third batch for free. We grew this community and eventually gained thousands of users.

When we discussed the problems they faced in the on-chain world with them, we realized that one of the biggest problems was the fundamental inconsistency in the construction of Proof of Stake. If you have funds, such as 32 ETH, you can choose to stake it with validators to contribute to network security, or provide liquidity in decentralized exchanges (DEXs) or lending markets to contribute to on-chain liquidity. The problem in the market at that time was that liquidity and security were very opposed in building blockchains, which we found unreasonable because to truly thrive an ecosystem and make a blockchain useful, it needs both liquidity and security.

Our idea was whether we could build a chain that allows users and the protocol itself to correspond to incentives between its security and inherent network liquidity, and use this to help on-chain applications. This is the overall background of Berachain. We have always tried to keep it fun and light. So some people may choose to see it as a meme chain. In fact, we see it as a very interesting economic experiment.

PANews: Why did Berachain choose to operate as an anonymous underlying public chain? Why choose a bear as the main image (after all, no one likes a "bear market")?

Smokey The Bera: My co-founder Papa and I have previously built and helped companies grow. We used to be VCs and were very fortunate, having done relatively well in the past. We are Canadians living in the United States, where securities laws are much stricter. On one hand, it's a matter of legal safety. For large investors, we have already disclosed our identities, and the same goes for exchanges. Even though we have done everything extremely compliantly, this is still a place where the law changes rapidly.

On the other hand, when thinking about Berachain itself, we are a very crypto-native project. Most founding team members, as well as most contributors, have years of experience in this field and have helped build some of the earliest protocols. I think the culture of anonymity is very common among crypto-native users because in crypto, anonymity is fundamental. For example, when you create a wallet, no one knows who that wallet belongs to. In fact, people judge you more based on your abilities rather than your past achievements or shortcomings. It might be more advantageous for us if we were not anonymous. We hope to build it from a cultural standpoint.

In addition, during the 2021 cycle, we also saw that some of the most outstanding developers we knew were actually people in their thirties or forties, with wives and children, who might have day jobs at big companies like Facebook, Apple, Netflix, or Google, but would spend time developing after work. By choosing to be anonymous, we actually make it easier to provide a platform for these people to continue developing excellent applications without having to take on huge professional risks, which they may not be ready to face (joining Web3 full-time).

As for the bear, it's just because this chain originated from an NFT project. The bear is for fun, and now I think it's an interesting meme.

PANews: One of Berachain's core mechanisms is Proof of Liquidity. How does it help dApps better utilize on-chain resources?

Smokey The Bera: In traditional Proof of Stake chains, validators receive most of the block rewards, which is good. They play a crucial role in ensuring network security. But in most cases, aside from possible educational content or blog posts, validators are not necessarily the ones building applications or working to attract the next hundred thousand, million, or more users. In most cases, this depends on power users and applications that can actually help expand the ecosystem. They can attract more people to join the chain.

Another issue, as I mentioned earlier, is the trade-off between liquidity and security. On Berachain, the way liquidity mining works, and the only way to obtain governance/issuance tokens on the network, is actually by providing liquidity first. Validators on Berachain actually have a set of gauges. If you are familiar with the Curve ecosystem, this situation is quite similar. After winning a block, each validator can choose to direct or allocate rewards to a different set of protocols on the chain.

The process starts with a set of basic DeFi building modules, including DEX, Perp Treasury, and stablecoin lending platforms. They are embedded on-chain from the start. When a validator wins a block and proposes a block, the majority of the block rewards are actually pushed to that application. In fact, these rewards flow from the validator to the application, and then to the users of these applications. Users can provide liquidity as LPs in DEX or lending markets, or do anything they want, and receive rewards in the form of tokens issued by the network.

Another very interesting and important part is that users providing liquidity can actually influence the reward rate in the system. This is because each validator has these gauges. Depending on the user's choice and the validator they stake with, users can actually direct more rewards to pools that are already participating in liquidity mining. This means that users providing liquidity (thus contributing value to the ecosystem) actually have the most say in their economic incentives in the long run. It's not just about who buys the most tokens, saying "I bought a lot of tokens, so I have the most voting power." In fact, it is those providing liquidity who gain this right, and the entire ecosystem benefits from it.

Finally, validators actually have more economic opportunities than any other network. Validators can collaborate with protocols to establish incentive markets. Validators can say, "Hey, I will help bootstrap your protocol and provide X amount of issuance tokens. In exchange, you can give me and my representatives Y amount of your project tokens." So, by helping the protocol get started, validators actually gain a call option or an opportunity to invest in the protocol. This provides an opportunity for the protocol to acquire new users at a lower cost.

PANews: On June 13, Berachain launched the v2 version of the testnet. This upgrade introduced the BeaconKit framework, increasing the number of validators from 100 to 256. What are the latest developments related to this?

Smokey The Bera: We recently released the V2 version, which fixed some of the issues we initially saw due to limitations from Cosmos/CometBFT. The final form of V2 is actually more similar to the EVM structure. This makes Berachain the first project to have a fully EVM-identical structure on a Layer 1 blockchain. You may have heard of "EVM compatible" projects like Avalanche or Polygon. But "EVM identical" is slightly different. It actually means that you can have full client diversity just like running on the mainnet. Therefore, you can choose to run clients like Erigon, Nethermind, Reth, and benefit from performance upgrades, as well as benefit from all the research done on the mainnet and full EIP compatibility, essentially enjoying all the benefits of the mainnet. In our case, adopting the Comet BFT consensus, which supports single slot finality at the base layer, is also part of the Ethereum roadmap.

So, compared to other L1s, Berachain provides an environment most similar to Ethereum itself, meaning that anything that can be done on Ethereum, such as any application, any integration, and so on, can also be done on Berachain, while maintaining the liquidity proof logic and Comet BFT consensus we mentioned. Additionally, over time, we have made some changes to reduce reliance on Cosmos-style staking, actually adopting a staking method more in line with Ethereum's Layer 2 technical standards or current mainnet technical standards. This also means that we can increase the value or scale of validators, becoming the chain with the most validators in the CometBFT chain.

PANews: Berachain recently completed a $100 million Series B financing led by Brevan Howard Digital and Framework Ventures. What is the current valuation of Berachain? And what is the planned valuation for listing?

Smokey The Bera: We are currently not disclosing the valuation, and I haven't heard about a listing, because in fact, I don't think we can fully control it, but the goal is to benefit the community participating in the public market.

PANews: How do you view recent controversial airdrops in the market, including LayerZero and Zksync? Can you reveal the airdrop standards for Berachain?

Smokey The Bera: I won't comment too much on upcoming airdrop plans. When considering our priorities, on one hand, I think it's important to recognize users who have long been helping support ecosystem growth, as Berachain has been growing for about 2.5 to 3 years. We also want to support those who have been testing and developing on our testnet, and helping deploy and build interesting applications. In terms of distribution, we are considering how to attract new users to the ecosystem, but with the premise of not capturing value. We have seen many teams airdrop to random people unrelated to a specific ecosystem, and these people choose not to participate, preferring to sell the tokens, which is not very helpful.

We are also considering how airdrops can bring more liquidity, making liquidity a useful resource in the ecosystem. As for my thoughts on recent airdrops, there are pros and cons. I haven't delved into the zkSync airdrop. From my overall understanding, the distribution seems quite generous. But I have also heard some comments or rumors, and I'm not sure how many tokens were distributed to internal personnel or to those trying to build projects on ZKsync. This information may not be entirely accurate, so please remain skeptical.

As for LayerZero, they have done some particularly controversial things, but they have also done a lot of things right. It is very difficult to make such an airdrop work well without completely disrupting the token supply or posing a significant threat to the long-term security of the token.

I think mandatory claiming has its pros and cons. Interestingly, this may act as a barrier, preventing many from engaging in witch farming operations. Essentially, this means that the profit margins for these people will decrease.

On the other hand, I can also understand why this has made many people somewhat unhappy. In short, LayerZero has done well in the establishment process, allowing the team to go through a series of steps, showing that we care enough about this, and actually putting in the work to prepare this request for proposal (RFP), rather than just saying "we will show up and expect free tokens to rain down." So they did well in that aspect, but in setting expectations and finding a way to effectively meet market demand or market expectations, it may not have been ideal.

But I really think that in both cases, achieving a complete win-win is almost impossible, as they have been around for a long time and have invested a lot of capital before the actual token launch.

PANews: What are the expectations for the mainnet launch and token airdrop for Berachain?

Smokey The Bera: We hope to complete the mainnet launch before the end of the year, possibly by the end of the third quarter or the beginning of the fourth quarter. We are not too far from this goal now. For any form of token airdrop, if it happens, it will be concurrent with the project's launch.

PANews: Berachain's ecosystem has over 200 projects. Can you provide an update on the current development? Which projects have performed most prominently? Such as The Honey Jar and Beradrome?

Smokey The Bera: It's a bit difficult to specifically list these projects. But we are very excited about the growth of the ecosystem. If I have to think about it, there are several projects that are indeed very meaningful.

Teams like Infrared, a liquidity staking protocol, have played a very important role in the future development of the ecosystem, effectively allowing you to obtain native staking tokens/issuance tokens BGT, enabling people to delegate them to an effective validator.

For example, Kodiak is actually a centralized liquidity DEX, with a token issuer similar to Pump Dot Fun. There are organizations like Gummi, which is actually a novel currency market that allows people to effectively trade anything with leverage. And projects like Shogun, which will be built around Bearchain, enabling easy trading of assets from any chain. Among the teams I mentioned, Infrared and Shogun have received support from Binance Labs, and Shogun has received support from Polychain.

For example, the Beratone team is building a very exciting game, similar to Animal Crossing and Stardew Valley farming-type games, and we are very excited about it. And there's Puffpaw, which is building a smoking cessation/earnings product on Bearchain. The team is very capable, having previously sold tens of millions of smart e-cigarettes to multinational companies, and has a very elegant witch defense system.

There are also organizations like Overunder, which is building a prediction market on Twitch streams, which I think will be very exciting. And organizations like Concrete Finance, which have effectively built a credit default swap on-chain. There are probably many more projects I could list.

PANews: What is the current competitive landscape for Berachain in the public chain space, and what capabilities does Berachain have to gain an advantage?

Smokey The Bera: Actually, we haven't seen too much competition in the current Layer 1 space. Most of the competition actually exists in Layer 2. When I consider this question, I feel that there are not many Layer 1 projects currently building new interesting things, at least not on the scale of native crypto innovation. I don't think it's polite to criticize certain aspects directly, but I really have to say that, apart from the mainnet, there are few L1 projects building new things.

I see more on Base, such as some projects on Arbitrum, and occasionally some on Blast, and so on. But it's a bit dull right now.

For Berachain, our advantages are several. First, I think there is a huge, genuine, and actively engaged native community, whose users are really willing to participate in the various applications being built, which is more evident than in many existing ecosystems. Second, the structure of Berachain actually means that any application built on-chain for the first time can benefit from deploying on Berachain, unlike deploying anywhere else. They can deploy their contracts, then can submit governance votes to make them a qualified gauge. In this process, they can become destinations for validators to allocate BGT.

Then, they can actually lower their capital costs and make it easier to bootstrap liquidity for their token pairs or the protocol itself, which they cannot achieve on any other chain. I think this is a huge advantage for protocols.

PANews: In early May, you responded to the former Messari product manager, stating that Berachain is using the Cosmos SDK, but it does not have to be called a Cosmos chain. Berachain is closer to Ethereum than Cosmos. Can you explain the reasons in detail?

Smokey The Bera: I think it's like looking at a website, you wouldn't look at a website and say, "This looks like a website built with Webflow," or "This is built with JavaScript," right? It's very harmful to classify a blockchain based on the building framework. Being seen as a Cosmos chain now has far more negative impact than positive. That's why I tried to give two perspectives on that.

I think the Cosmos tech stack has many advantages, but especially in Berachain V2, we have removed almost all dependencies on the Cosmos SDK. What remains now is mainly from the consensus perspective, Common BFT, which is why I mentioned things like staking logic, communication layer, bank module, and so on, all of which have been removed. The system now adopts more of the EVM native approach. The only part of the system related to Cosmos is the core validator logic, and the way it uses Cosmic BFT, through which we do see ourselves as a system more like Ethereum than Cosmos.

PANews: How do you view the current market trends in the DeFi space? What are the opportunities in this bull market cycle?

Smokey The Bera: There is still a long way to go before we see truly interesting things, but we are gradually getting closer. There will be more progress in yield derivatives and interest rate derivatives. For example, projects like Pendle will be an example of how this will evolve. And Concrete, which I mentioned earlier, is very much in line with this direction, which makes me very excited.

Additionally, as the market becomes more complex, credit DeFi swaps become more meaningful. I think we will see some interesting things in volatility trading or more elegant options protocols. We will see new forms of derivatives or more efficient ways to build existing derivatives.

For example, a team I am very bullish on is called Exponents. On the surface, Exponents may look like a decentralized exchange or market for perpetual contracts, but it is actually much more than that. It is actually the first platform that allows incentivized directional trading. We have seen many teams allow you to say, "Hey, as an LP, you will effectively earn from the perpetual contract, you will be a provider for the perpetual contract, and earn when the trade loses." This is similar to the style of GMX or GNX. In Exponents, you can actually incentivize someone to long or short a market participant, which is very interesting, because you can make someone say, "Hey, this is my competitor's coin. I incentivize you to short this coin."

Or someone says, "Hey, I have a lot of this coin. I want more people to long it. I will give you X tokens to long this coin." So I think projects like this will be very exciting. Finally, I think we will see more interesting opportunities in spaces like under-collateralized loans and similar "Gearbox X" spaces, using elegant designs to operate credit accounts more efficiently.

Finally, I think a trend we are very much looking forward to is that DeFi interoperability solutions will become more and more common. I think the ability to trade any asset on any chain will become more prevalent in the future.

PANews: Berachain combines meme and DeFi, and has one of the most powerful communities in the crypto space. How do you view the role of the community in project development? Any secrets to success?

Smokey The Bera: First of all, we realized very early on that the way to win or gain an advantage, whether it's through the wisdom of the founding team or brand wisdom, is not by being very formal and very serious.

We actually win by tending towards cognitive dissonance or this kind of regressive, sage aesthetic. In this aesthetic, you can become very foolish, but at the same time very capable. Like the extreme left curve and the extreme right curve. Our community symbolizes this very well, because most of the time, you will see some people can play and have fun very playfully, posting all kinds of posts. At the same time, you will also see these people can be very focused in discussing a very interesting new lingua franca or market method. So, being able to cultivate this non-serious, but serious when necessary, feeling is very important to us.

In this process, time and effort also play a big role. We have spent a lot of time understanding our community, communicating with them, and doing everything we can to help them succeed. It is a daunting task to serve thousands of people who want to build their own projects, make new friends, and learn new things. But our goal has always been, how can we provide the most help to these people?

When we consider the role of the community, it is largely like our beacon or a guiding principle. That is, what things can we do that are meaningful, that the community will like and appreciate.

So, whether it's a large event like Berapalooza, where we got to meet a lot of people in Denver, or the various events we might hold in different cities, or even just the videos we make for fun, a lot of it is for the community.

Our goal has always been, in building all of this, what did we consider? What will we enjoy? What do we find people really resonate with in these aspects? How do we ensure that we don't lose this way over time? I think the most important thing is to build very serious things while maintaining humility and not being too serious.

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