When new DeFi protocols launch, they often face a cold start problem i.e. to kick off trading and lending, they need a substantial amount of liquidity. However, attracting that liquidity can be both costly and unpredictable. Berachain’s Pre-Deposit vaults offer an innovative solution by curating automated vaults that gather user deposits before Berachain’s main applications go live on Berachain’s Boyco initiative. Impressively, over $1 billion has already been deposited into these vaults, underscoring the excitement and confidence around Berachain. Below is a simplified breakdown of how this system works, why it matters, and how you, as a potential depositor, can benefit.
The Cold Start Problem in DeFi
Imagine launching a new decentralized trading or lending platform. These platforms run on liquidity tokens that users lock in pools or lend out for others to borrow. When there isn’t enough liquidity, trades become expensive and borrowing becomes difficult. To solve this, projects often reward early liquidity providers with large token emissions (commonly known as “liquidity mining”). But this brings its own problems:
- Dilution of token value: Too many tokens are released too quickly.
- Uncertainty for users: Liquidity providers never know exactly how many tokens they’ll earn.
- Inefficiency: Large token incentives don’t always go to the right places or the right users.
Berachain wants to address these issues at launch by structuring a more transparent and strategic approach to pre-launch liquidity.
What Are Berachain Pre-Deposit Vaults?
Pre-deposit vaults are market-built (yet Berachain-curated) investment strategies that pool user assets before Berachain’s mainnet applications officially launch. These vaults such as StakeStone and Lombard specialize in automatically managing deposits to generate rewards and help ensure the Berachain ecosystem is well-capitalized from day one.
How It Works
- You deposit your assets (e.g., wBTC, ETH, stablecoins) into one of these third-party vaults.
- Vaults invest on your behalf by splitting deposits into different strategies or soon-to-launch Berachain dApps in the Boyco initiative.
- You earn early incentives in the form of points or tokens from several sources:
- Points (e.g., Stone points, Lombard points, Babylon points, Concrete points)
- Berachain tokens ($BERA) allocations
- Receipt tokens (like BERAstone or LBTC) that represent your share of the vault, potentially tradable or usable for other DeFi strategies.
Essentially, you don’t have to manually hunt for the best yield strategies across new Berachian protocols as these vaults aim to do it for you.
Royco & Boyco
Royco: The Incentivized Action Market (IAM)
Royco is a platform that connects incentive providers (projects that need liquidity or other on-chain actions) with action providers (users willing to perform those actions). Instead of old-school liquidity mining where users guess how many tokens they’ll earn, Royco clarifies exactly how many points or tokens users receive for specific on-chain actions, such as:
- Depositing ‘X’ amount of USDC into a liquidity pool
- Providing tokens to a lending market
- Staking a specific asset
Benefits of Royco
- Transparency: You know exactly how many tokens or points you’ll earn for your action.
- Efficiency: Projects can focus incentives on actions that truly need capital (e.g., stablecoin liquidity, volatile pairs, or lending markets).
Boyco: Berachain’s Exclusive Version of Royco
Boyco is Royco adapted specifically for Berachain-based applications. It’s a pre-launch liquidity bootstrapping platform that helps Berachain dApps secure liquidity and user engagement before they go live. By depositing assets into Boyco markets, users lock in early rewards and ensure that once these dApps launch, they have deep liquidity for smooth operations.
Also Read: NFT Bears to DeFi Bulls Unpacking Berachain’s POL Mechanism and Potential Pitfalls
Why Would You Use Pre-Deposit Vaults?
- Early Rewards Accumulation: You start earning points or tokens even before these dApps officially go live or in other words before Boyco goes live so it’s more of a pre pre deposit campaign.
- Hands-Off Strategy: Let expert vault managers handle complex yield strategies, saving you time and effort.
- Asset Diversification: Vaults typically accept multiple asset types (e.g., stablecoins, wBTC, ETH), allowing you to choose what suits your risk profile.
- Liquidity Provider Perks: You receive receipt tokens representing your deposit. These might be tradable or usable as collateral in the future.
- Potential for Higher APYs: Because the system is new and liquidity is highly valued, early participants often receive higher reward rates compared to standard liquidity pools.
How the System Addresses “Dilutive and Inefficient” Concerns
You might wonder, “If we lock up a huge amount of assets in these pre-deposit vaults, won’t it become inefficient?” Berachain’s approach tries to solve this by:
- Segmenting Assets into different categories (e.g., majors like wBTC/ETH versus stablecoins) and deploying them in relevant applications (DEXes, money markets, yield aggregators).
- Shorter Lock Durations for less in-demand assets (e.g., 1-month lock for certain money market deposits) and longer durations for critical liquidity on DEXes (3-month lock).
- BERA Multiplier: A weighting system rewards riskier or more volatile liquidity pools more generously than stablepools or single-asset deposits, incentivizing capital to go where it’s needed.
Moreover, once the initial lock period ends, those deposits can transition smoothly into new yield strategies on Berachain. The liquidity is not just parked, it’s funnelled into potentially productive avenues like lending, swaps, or leveraged strategies.
Looking Ahead: A Burst of Liquidity and Utility
Because pre-deposit vaults require locking assets for a certain period:
- A significant amount of capital (potentially billions of dollars) is guaranteed to be on Berachain when it launches.
- These assets can be borrowed, traded, or looped within the ecosystem, driving further liquidity migration from other chains that want to interact with Berachain’s fresh supply of tokens.
- Importantly, stablecoins are expected to be in high demand for borrowing, making them an extremely useful pre-deposit choice.
By thoughtfully curating these deposits, Berachain aims to kick-start its DeFi landscape with strong liquidity and well-targeted incentives, avoiding the usual pitfalls of overspending or misallocating token rewards.
References
https://boyco.berachain.com/external-vaults
https://dune.com/zero_labs/berachain-pree-deposit-overview
https://blog.berachain.com/blog/rfb-boyco
