How to solve BGT's liquidity problem?
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How to solve BGT's liquidity problem?
What BGT Market is doing is "effectively pricing the implied value of BGT in the market."
Navigating Web3 tides with focused insightsBy: Sleeping Deeply in the Rain
Today I’d like to quickly introduce an interesting product on Berachain—@bgtmarket.
This is also the beginning of a series I plan to write: A Tour of the Berachain Ecosystem. Puffpaw was the first piece; this is the second.
It all starts with $BGT, one of the three tokens in Berachain’s (Bear Chain) triple-token model (BGT, BERA, HONEY).
$BGT is Berachain’s governance token, characterized by being non-transferable and non-tradable. Users can only acquire it through activities such as providing liquidity (LP). Users may convert BGT to BERA at a 1:1 ratio, but not vice versa.
The rate at which LPs of comparable size earn BGT depends on validators. The governance power of each validator is determined by the proportion of total circulating BGT that users have delegated to them.
In short, validators have the authority to decide which project’s LP pools newly minted BGT will flow into as blocks are generated, while users can delegate their BGT to validators that best align with their interests.
This is why we often say that collaboration and博弈 (strategic interaction) among projects, validators, and users is the norm on Berachain.
However, there's a challenge here: the value derived from users delegating BGT may not be equal to the value project teams are willing to pay per unit of liquidity. In other words, the original consensus mechanism cannot sufficiently, effectively, or in real-time provide accurate signals for supply and demand of BGT.
The core idea behind BGT Market is to solve this problem—by creating a dedicated BGT market that provides immediate, accurate market assessments of BGT supply and demand, and enables real-time pricing through trading.
Essentially, what BGT Market does is "efficiently price the implied value of BGT" (the face value of 1 BGT = 1 BERA).
P.S. On the surface, the implied value of BGT depends on how much projects are willing to bribe for unit liquidity. At a deeper level, the implied value of BGT reflects the overall health and vitality of the Berachain ecosystem.
BGT Market is a decentralized auction market for BGT. It uses a Dutch auction model: the initial price of BGT drops rapidly and then slows over time. Buyers can purchase when the price falls to their desired level and gain control over the BGT.
You might wonder: since BGT is non-transferable and non-tradable, how can BGT Market actually auction it?
Here’s how to think about it: all BGT involved in BGT Market is held in a single wallet. Buyers can see their purchased BGT on the BGT Market frontend (though the BGT isn’t actually in their personal wallets), and perform actions based on their needs—such as “delegating BGT to a validator,” “unbonding,” “claiming delegation rewards,” “selling BGT,” or “converting BGT to BERA.” Each operation is automatically executed by the BGT Market smart contract. In reality, no BGT is transferred or traded; instead, users gain control rights over it.
Beyond the above benefits, I personally believe BGT Market also helps new users on Berachain quickly understand the current implied value of BGT, allowing them to shape future strategies—if the implied value of BGT is high, they’ll be more inclined to delegate BGT to validators for long-term yield; if the implied value falls short of expectations, they’ll lean toward converting BGT into BERA and exiting (mine, sell, dump).
From another angle, buyers can directly sell BGT back through BGT Market, which indirectly reduces users’ incentive to convert BGT into BERA, thereby alleviating selling pressure on BERA.
That concludes my introduction to BGT Market and why I find it worth highlighting.
One final note: BGT Market’s approach to solving BGT liquidity has also inspired large BGT holders—showing them that building a frontend interface can be an effective way to manage the distribution and direction of BGT allocation.
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