GuShiio.com From a long-term perspective, Berachain faces the challenge of continuing to expand the ecosystem while also developing strategies to increase network costs to cope with the possibility of a reverse flywheel caused by inflation.
Author:Tranks，Research Analyst at DeSpread
This article does not cover basic information about Berachain. If you are new to Berachain, it is recommended to read the following articles before reading this article.
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Discussing Berachain: Grasping the key to liquidity and security with one palm🐻
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Berachain -Bear Village Tour
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Growth 0 to 1: Berachain
1. introduction
As the memin market recedes, market interest in DeFi has begun to increase. In this trend, the Berachain ecosystem, which has low token volatility and provides high returns, has also begun to attract new users.
From the release of Berachain’s main website on February 6, 2025, to the writing of this article on March 4, Berachain’s TVL has steadily increased to US$3.2 billion, surpassing Base in the overall TVL ranking and reaching sixth overall.
Berachain TVL Trend; Source: Defi Llama
Ecological core projects such as Kodiak, Yeet and Ramen Finance have been prepared since the Berachain test network stage, and have also been launched one after another after the launch of the Berachain main network. However, these eco-agreements have not yet been registered in the reward vault that issued $BGT, and currently $BGT can only be earned by providing liquidity to the five liquidity pools within BeraSwap.
Reward Vaults List; Source: Berahub
Users can provide liquidity to the BeraSwap liquidity pool, receive LP tokens, deposit them into protocols such as Infrared and Stride that support mobile $BGT, and then use the received mobile $BGT tokens for other DeFi protocols. In addition, users can also deposit the same LP tokens into the liquidity aggregator Beradrome to obtain Beradrome’s native token,$BERO, and pledge $BERA to obtain rewards accumulated in Beradrome, thereby realizing various ecological participation strategies.
In addition, the first phase of Berachain’s governance (Governance Phase 1) began requesting reward vault registration for the Eco-Agreement on February 26. As these requests are integrated into protocols and agreement rewards are paid to verifiers, Berachain’s ecological gameplay is expected to become more diverse. In this process, the role of $BGT, which has the right to receive rewards and allocate online rewards, will become more important, and the flywheel based on the PoL (Proof of Liquidity) structure will also be activated, resulting in more users and liquidity flooding into Berachain.
In this article, we will examine Berachain’s flywheel structure in detail to assist new users in managing risks, and discuss the shallow risks of Berachain’s flywheel and preventive measures.
2. Learn about Berachain flywheel
Berachain uses a PoL structure where network participants such as verifiers, eco-protocols and mobility providers must propose and provide value to each other.
Each participant in the network forms a state of consistent motivation, and the growth and decline of each role are directly related to each other. When each participant has a positive impact on other participants, the following benign flywheel works:
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As the ecosystem grows and expands, the incentives the protocol pays to verifiers will increase.
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As the rewards distributed to $BGT holders increase, the need to obtain $BGT by providing liquidity increases, and the need to burn $BGT decreases, so will the issuance of $BERA.
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As the supply of liquidity increases, the overall ecology grows and expands accordingly.
When this benign flywheel is in operation, the price of $BERA, the TVL of the Eco-Agreement, and the profits of the overall ecosystem will increase, allowing all ecosystem participants to benefit from it. However, for the flywheel to operate smoothly, the following three conditions must be met:
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Loss of agreement incentive expenses Profit earned by agreement from expense incentives and guaranteed liquidity
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Volatility risk exposed by purchasing/holding eco-tokens $BGT profit gained by providing liquidity
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Volatility risk exposed by holding $BERA Reward profit earned by entrusting $BGT
When all the above conditions are met, the flywheel will begin to operate. Once started, each condition has a positive impact on other conditions, giving the flywheel effect a way to continue rotating, and the robustness and strength of the flywheel depend on how well the conditions are met.
Berachain’s flywheel structure may seem to have unique features and advantages that are not found in other PoS structures, but when one of the conditions cannot be met for a specific reason (and cannot be restored to its original shape in the short term), those conditions begin to affect the other conditions. Negative impact, the flywheel will reverse as follows:
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As the ecosystem shrinks, the rewards paid by the protocol to verifiers decrease.
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As rewards distributed to $BGT holders decrease, the need to obtain $BGT by providing liquidity decreases, and the need to burn $BGT increases,$BERA’s circulation increases.
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As the supply of liquidity decreases, the ecology contracts.
In this reverse flywheel state, the price of $BERA, the TVL of the Eco-Agreement, and the overall profit of the Eco-Agreement will decrease until the conditions for flywheel operation are met again.
If we only consider the demand within the ecosystem in the near future, 1) it is expected that there will be many agreements seeking to issue their own tokens as rewards;2) Since $BGT emissions have only just begun, each $BGT is cultivated efficiently, so the demand for liquidity and accumulation of $BGT will be relatively high.
For these reasons, flywheel is likely to operate in the early stages of the launch of the main network, but factors such as macro market and investment trends in other industries will also affect the operation of flywheel, so it is difficult to say whether flywheel will operate successfully.
Next, we will discuss several risk factors and scenarios that may trigger the reverse flywheel during the flywheel operation.
3. Reverse flywheel plot
$BERA plays the following key roles in the Berachain ecosystem:
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Pledge for running nodes
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Guaranteed minimum value of $BGT
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Used as deposit assets in various liquidity pools
Therefore, the downward trend in the value of $BERA can also be seen as a weakening of cybersecurity, a decline in the minimum value of $BGT, and a decrease in ecological mobility. For participants in the Berachain network, the price of $BERA plays a more important role than the price of main-network tokens played by participants in other networks.
When the flywheel is running smoothly, even if the price of $BERA falls to a certain extent, if the incentive yield can be maintained, demand for $BERA can continue to be created. But on the contrary, a decline in the value of $BERA may have a negative impact on the eco-agreement, reducing incentive yields, causing users to burn $BGT to exchange for $BERA, or remove $BERA supplied to the liquidity pool and sell it on the market. This could be the starting point for the reverse flywheel, causing the value of $BERA to decline again.
Therefore, we should pay special attention to the following situations:
3.1.1. Massive $BERA Unlock
In addition to the $BERA released through $BGT, there is also an already scheduled $BERA unlocking plan, with a total release quantity of 500M. The unlocking schedule is as follows:
$BERA Unlock Schedule; Source: Berachain Docs
The linear unlocking plan for investors, early core contributors, and independent community distribution will begin in February 2026, one year after the launch of the main network. Prior to this, factors that may trigger market selling pressure due to increased liquidity of $BERA in the short term include:
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Allocation received by protocols and communities through the RFB program (approximately 2.04% of total circulation)
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Quotas to be allocated through the Boyco program (approximately 2% of total circulation)
Among them, the amount allocated by the agreement and the community to users through the RFB plan must have an allocation period of at least 6 months, and since the allocation time for each agreement will vary, it is expected that it will not cause significant selling pressure on the market in the short term.
However, Boyco’s allocation is expected to be distributed in about two months, in a manner similar to current airdrops. In this case,$BERA equivalent to about 2% of the total issuance will be supplied to the market, which may cause selling pressure. In addition, assets deposited in the Boyco program will also be unlocked when allocating $BERA airdrops, potentially resulting in reduced liquidity within the ecosystem. This will create an enabling environment to trigger the reverse flywheel, causing both $BERA prices and ecological mobility to decline.
Therefore, it will become important to see whether the ecosystem can create an attractive flywheel before the end of the Boyco project to effectively absorb the $BERA released to the market and the ecosystem’s liquidity.
To earn $BGT, users must deposit liquidity into a liquidity pool that can issue BGT rewards and invest enough time. However, through BeraHub’s Redeem feature, users can burn the $BGT entrusted to the verifier at any time and obtain $BERA to sell, with only about 5 hours of unlocking time in the process.
Berachain requires an Unboost www.gushiio.com of about 5 hours; Source: BeraHub
If users holding a large number of $BGT withdraw from the ecosystem at the same time, the liquidity of $BERA may increase rapidly. If the price of $BERA falls sharply in a short period of time, it may induce other $BGT holders and users who provide $BERA liquidity. Panic selling led to a larger decline. Therefore, it is necessary to monitor the burning trend of $BGT to understand the current ecological dynamics.
$BGT Emission & Burn Trend; Source: @thj
In addition, trends in reward rates and $BGT yields by providing liquidity are the most critical factors in determining $BGT burning and commissioning needs. By continuously observing each trend, we can to some extent predict the potential risk situations that trigger the above-mentioned risks, as well as the likelihood of the flywheel recovering if a large-scale $BGT burn occurs.
At the same time, the demand for liquid $BGT tokens will increase as the incentive rate increases, causing the price to rise; and as the incentive rate decreases, the demand will also decrease and the price will fall. Therefore, if it is difficult to grasp data on past reward rates and $BGT yields, an approximation can be estimated by reflecting the premium trend of the liquid $BGT relative to $BERA that reflects the intrinsic value of $BGT.
iBGT/BERA Price Chart; Source: Dex Screener
However, the price of liquid $BGT tokens is not only affected by the intrinsic value of $BGT, but also by the incentive allocation method of the liquidity agreement and agree-related factors, so these factors should also be considered together.
3.2. Inflation and slowing growth
In addition to the 500M $BERA distributed to network participants within three years of its launch from the main network, Berachain’s annual inflation rate for $BGT is approximately 10%. Although some of the Internet fees submitted by users will be burned up, it is difficult to expect a significant amount of burned up because Berachain’s main activity is to deposit assets in a working capital pool and receive interest.
This means that even if Berachain establishes a positive flywheel three years after all $BERA are unlocked, to maintain it for a year, there will be a way to attract inflows of external funds greater than inflation during this period.
Smokey The Bera, founder of Berachain, mentioned in an interview with Bell Curve that they are developing a dynamic inflation model that will vary based on the reward rate at which $BGT is distributed to compensate for the above problems.
Although this feature may help control the acceleration of the flywheel and contribute to the sustainability of development, as long as “inflation” persists, the reverse flywheel that causes the price of $BERA to fall and ecological contraction is inevitable at a certain stage. Therefore, even from a long-term perspective, several ecological indicators mentioned above must be continuously monitored to diagnose the current ecological situation.
In addition, in Berachain, the strategy of simply holding $BERA spot for a long time without using it in the ecology is an inefficient investment method that will not be able to recover the value diluted by “inflation.” Therefore, for users who want to use $BERA to open positions, depositing it into an ecological agreement to actively generate interest is a very important strategy.
If users want to establish stable positions over the long term in the ecosystem, conservatively using assets that are less affected by flywheel prices (such as $BTC,$ETH, stablecoins, etc.) to accumulate $BGT or make double deposit operations may be an effective method.
3.3. Monopoly $BGT
In the PoS structure adopted by most recently launched mainnetworks, entities with larger interests can receive more network rewards. This will lead to the consolidation of the validator’s shareholding ratio and pose a risk of network centralization.
Validator Staking Market Share in the Ethereum Network; Source: @hildobby
Berachain, which was created by modifying the basic PoS structure, also experienced this phenomenon. In addition, in Berachain, verifiers holding a large number of $BGT can directly intervene in the ecosystem and unilaterally design structures that are beneficial to them. Therefore,$BGT monopoly will lead to ecological monopoly, which will be greater than other PoS-based networks. The risk of online token monopoly will be greater.
To prevent this problem, the team capped the $BERA bet limit that affects block creation permissions to 10M and introduced a method that would increase inefficiently as the number of $BGT representations that determine each block to generate $BGT increased. However, these limitations can be circumvented by manipulating multiple nodes distributed by one entity, or through collusion between multiple verifiers.
In particular, the Liquidated $BGT protocol has an advantage in attracting liquidity used in the Berachain Rewards Vault because the potential value of “liquidity” is high and can directly accumulate $BGT by depositing liquidity received from users into the Rewards Vault on behalf of users. In addition, by delegating the $BGT back to nodes where they operate or work with, such agreements can obtain a significant amount of $BGT emission voting rights without negotiating with other ecological entities.
If these agreements emit additional $BGT of these voting rights into a liquidity pool containing liquidized $BGT tokens, the liquidized $BGT agreement can create its own independent flywheel, increasing the need for the liquidity provided to the agreement, and even without having to pay independent rewards.
In this case, the flywheel of the liquidating $BGT agreement itself becomes as strong as the ratio of the $BGT held by the agreement to the total $BGT issued within the ecosystem. If multiple mobile $BGT agreements obtain a large amount of $BGT in the above way and continue to pursue the direction of only increasing the liquidity supply demand of their own mobile $BGT tokens, it may inhibit the liquidity improvement of other agreements and hinder the launch and development of new agreements, thereby limiting ecological diversification, and ultimately promoting the shrinking of ecological scale and triggering a reverse flywheel.
As mentioned earlier,$BGT monopoly can be structurally restricted through the protocol operation mechanism, but it is difficult to completely block it. Therefore, the most certain way to prevent specific entities from monopolizing the ecology is for participants to reach a consensus on ecological sustainability before the monopoly structure is consolidated, and continue to pay attention and work hard in the community for this consensus.
4. summary
So far, we have explored Berachain’s flywheel operation, its operating conditions, and the reverse flywheel scenario. In addition to the possibilities described in this article, the reverse flywheel will also operate if the three conditions for driving the flywheel cannot be met, so continuous attention to network and ecological indicators to assess the operating status of the flywheel is very important in Berachain.
In addition, unfamiliar PoL mechanisms and various forms of DeFi protocols that utilize it are combining to create complex derivatives and synthetic assets that are difficult to intuitively understand. Therefore, users need to proactively understand their position structure and realize in advance the overlapping risks of structure and security.
From a long-term perspective, Berachain faces the challenge of continuing to expand the ecosystem while also developing strategies to increase network costs to cope with the possibility of a reverse flywheel caused by inflation. It is necessary to pay close attention to whether consumer applications such as Perp DEX or on-chain games can settle in the ecosystem to generate real user traffic that goes beyond “simple deposits.”
I hope this article can clearly help users understand the Berachain ecosystem and effectively respond when the reverse flywheel comes.
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