Berachain's innovative approach to blockchain infrastructure addresses key challenges in scalability, capital efficiency, liquidity fragmentation, and token economics.

Author: Peter Hans and Rodney Yesep

Translation: Deep Tide TechFlow

At Hack VC, we focus on investing in early-stage Web3 infrastructure, artificial intelligence, and decentralized finance projects, supporting founders who push the boundaries of possibility. Berachain is an outstanding representative in the Web3 infrastructure space and a perfect fit for our portfolio. Berachain is one of the most innovative products in today's Web3 landscape.

By addressing some of the biggest pain points in the blockchain ecosystem, Berachain's architecture and unique mechanisms provide a viable path for scalability, capital efficiency, cross-chain liquidity, and long-term value creation.

Our investment logic in Berachain stems from how its protocol addresses alignment challenges in the existing ecosystem. Below, we elaborate on several factors defined at the time of our initial investment, based on market issues and the solutions we believe Berachain can provide.

Ethereum's Scalability Limits Innovation

Problem:

Ethereum's EVM (Ethereum Virtual Machine) remains the gold standard for smart contracts. However, its single architecture limits throughput to 15-30 transactions per second (TPS), with final confirmation times of about 13 minutes. As a result, developers are forced to choose between EVM compatibility and performance. Other chains competing with Ethereum have sacrificed EVM support in pursuit of speed, leading to liquidity and tool fragmentation. Even Ethereum's Layer 2 solutions inherit slow final confirmation times and rely on centralized sequencers, resulting in high fees, slow transactions, and isolated liquidity.

Berachain's Solution:

• Modular EVM Architecture: Berachain separates consensus (CometBFT) from execution (unmodified Ethereum execution clients like Geth, Reth, etc.), enabling parallel transaction processing while maintaining EVM bytecode compatibility.

• Single-Slot Finality: Berachain achieves single-slot finality and block times of under 2 seconds through CometBFT.

• Testnet Performance: Berachain's testnet has achieved over 1,000 TPS and has connected to more than 20 chains via LayerZero, enabling seamless cross-chain asset transfers.

Staked Capital Trapped in Non-productive Roles

The Problem:

On proof-of-stake (PoS) chains like Ethereum and Avalanche, over $114 billion of assets are locked in validators, yielding only meager returns (typically 3-5% annualized) while being unavailable for DeFi. Liquid staking tokens (like Lido's stETH) attempt to address this issue but introduce counterparty risk and governance centralization. Additionally, validators are incentivized to prioritize staking rewards over ecosystem growth, leading to a misalignment between network security and user utility.

Berachain's Solution:

• Proof of Liquidity (PoL): Validators earn governance rights (BGT) by directing liquidity to BEX (Berachain's decentralized exchange), Bend (Berachain's lending protocol), or other third-party applications built on-chain, aligning incentives with ecosystem growth.

• BGT Soulbound Tokens: Liquidity providers are the sole recipients of these non-transferable governance tokens, ensuring that influence remains in the hands of ecosystem participants (e.g., staking BERA/wETH LP tokens in BEX).

Liquidity Fragmentation Across Chains

The Problem:

Cross-chain interoperability remains one of the weakest links in Web3. Cross-chain bridges are often unreliable, with billions of dollars stolen due to cross-chain bridge activities. Cosmos's IBC protocol lacks native EVM support, isolating Ethereum's over $45 billion DeFi ecosystem. This fragmentation forces developers to rebuild tools for each chain and imposes high slippage and fees on users.

Berachain's Solution:

• Native Incentives for Liquidity Integration at the Protocol Level.

• BEX DEX: The "environmental liquidity" pool aggregates cross-chain liquidity. While most liquidity pools are limited to specific trading pairs (like USDC/ETH), the environmental liquidity pool provides a dynamic mechanism for liquidity to be utilized across various assets and trading pairs within the Berachain ecosystem. With liquidity no longer confined to specific trading pairs, price discovery and market-making can become more efficient.

• EVM Tool Compatibility: Comprehensive support for Ethereum RPC, Foundry, and Hardhat, providing developers with rapid cross-chain dApp deployment.

Inflationary Token Economics Erodes Long-term Value

The Problem:

Most chains rely on the issuance of inflationary tokens to guide liquidity. Beyond dilution effects, the distribution dynamics incentivize short-term capital that may be exacerbated by internal selling pressure. Even "deflationary" models like Ethereum's EIP-1559 cannot offset staking issuance, while veToken systems (like Curve) overly centralize governance power.

Berachain's Solution - Three Token Model:

• BERA: A gas token with a fixed supply and a deflationary mechanism—BERA is burned in the same manner as EIP-1559.

• BGT: A non-transferable governance token earned through providing liquidity. BGT can be exchanged 1:1 for BERA, creating the potential for a deflationary loop.

• HONEY: A native stablecoin asset used to de-fragment centralized stablecoin liquidity and serve as a universal stable unit within the ecosystem.

Having clearly understood the key challenges facing Web3 and how Berachain's innovative approach addresses these challenges, the next step is to evaluate how this vision translates into tangible outcomes. Berachain has already demonstrated impressive momentum, indicating that its ecosystem is not only viable but also poised for long-term impact. Below, we briefly showcase the practical aspects of this logic.

Progress to Date

1. Developer Activity: 180 teams are actively building on Berachain's mainnet, covering areas such as DeFi, RWAs, NFTs, GameFi, and more.

2. Community Growth: Berachain's community has grown exponentially, with over 100,000 members on Discord and Telegram, and more than 1 million followers on the X platform. Its pre-launch market attention is also among the highest in the industry.

3. Boyco: Berachain's liquidity guiding platform has become a cornerstone of its ecosystem, attracting a total locked value (TVL) of $2.1 billion as of January 2025. Projects create liquidity markets where users deposit assets (like ETH, BTC, stablecoins) in exchange for future rewards (like tokens, points, or NFTs). Boyco ensures that Berachain has deep liquidity at launch, reducing first-day slippage.

     Key Vaults

   1. Stakestone ETH Vault: Allows users to deposit wrapped Bitcoin (like WBTC, cbBTC) and earn BERA rewards.

   2. EtherFi BTC Vault: Allows users to deposit wrapped Bitcoin (like WBTC, cbBTC) and earn BERA rewards.

4. Bong Bear NFTs: The Bong Bears NFT series has become a cultural phenomenon within the Berachain ecosystem. These NFTs serve as an entry point for participating in the ecosystem, providing holders with access to exclusive governance proposals, airdrops, and community events.

Berachain's innovative approach to blockchain infrastructure addresses key challenges in scalability, capital efficiency, liquidity fragmentation, and token economics. Its Proof of Liquidity consensus mechanism and three-token model align the incentives of validators, developers, and users, fostering a cohesive and thriving ecosystem. Hack VC is excited to support this project and looks forward to its significant role in the inevitable growth of Web3.

Disclaimer

The following content is for informational purposes only and does not constitute any form of investment advice, nor should it be used as a basis for any investment decision. Such information should not be relied upon as accounting, legal, tax, business, investment, or other related advice. You should consult your own advisors, including your attorney, for accounting, legal, tax, business, investment, or other related advice, including advice related to the content discussed in this article.

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