Introduction
context
Berachain is a high-performance EVM-identical Layer 1 blockchain using Proof of Liquidity (PoL) as a consensus mechanism, which establishes a framework to reward ecosystem liquidity.
Berachain features a soulbound governance token, $BGT, which primarily governs economic incentives at the chain level, alongside and distinct from a native gas token $BERA used for transaction fees and network security.
For more detailed information about Proof of Liquidity and $BGT please refer to Berachain's core documentation. In particular, here are three qualities about $BGT that one should know, which will explain why this marketplace exists:
Soulbound nature: $BGT is non-transferable and non-tradable; it cannot be acquired from any external sources or cryptocurrency exchanges.
Accumulation over time: $BGT is the reward to participants who provided liquidity in PoL-eligible assets, and can only be accrued over time.
One-way burn: $BGT can be burned 1:1 for $BERA but this is a one-way function: $BERA cannot be converted back to $BGT.
introduction
BGT Market is a decentralized auction marketplace for spot $BGT, Bera Governance Token.
On this marketplace, users can sell $BGT in auction lots using a Dutch auction format, where the offering price starts high and gradually decreases over time until a buyer makes a purchase.
Buyers can then delegate their $BGT to validators on BGT Market to earn incentives. Alternatively, they can resell their $BGT on the marketplace, or redeem it for $BERA.
product hypothesis
Although $BGT is intentionally designed to be non-transferable, and liquid derivatives of $BGT (e.g. iBGT from Infrared) are available in the market, we believe that a dedicated marketplace offers valuable options and opportunities for market participants to arbitrage and determine a (relatively) market-driven value for $BGT.
The key hypothesis is that individuals, protocols, and validators will be inclined to acquire $BGT at a price premium to attain greater voting power and/or earn higher yields. There exists a value gap between $BGT and what it can be redeemed for via the native infrastructure.
While 1 $BGT = 1 $BERA, the value of 1 $BGT might likely exceed the market value of 1 $BERA due to (1) the time value of $BGT, (2) the dynamic yield and governance powers enjoyed associated with holding $BGT, and/or (3) speculative interest in $BGT and the future growth of Berachain.
intended outcomes
one: mitigate dilution on $BERA – The only way for market participants to exit and realize profits on their $BGT positions is to burn it for $BERA and sell that on the open market. A $BGT marketplace provides a viable alternative exit strategy for market participants without adding dilution & selling pressure on $BERA.
two: stimulate ecosystem activity – By discovering and establishing a market-determined value for $BGT, more specifically, the price premium at which market participants are actually willing and able to pay for $BGT, it can encourage and stimulate higher levels of ecosystem activity and liquidity provision to earn $BGT.
Fundamentally, we believe the establishment of this marketplace will be a net positive for the Berachain ecosystem. The issuance of $BGT represents a retrospective reward for liquidity already provided, and the positive externalities of such liquidity provided have been realized and enjoyed by the ecosystem. Therefore, allowing $BGT to be acquired by another (assumed benevolent) party should be encouraged rather than restricted or prohibited.
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