Berachain: What is Proof of Liquidity | TKX Weekly

3 min readJan 22, 2024

With its significant emphasis on decentralized finance, Berachain has become one of the most eagerly awaited projects in the blockchain space. Marking a crucial milestone, Berachain recently unveiled its comprehensive documentation and introduced its public testnet, Artio. In this exploration, we delve into what Berachain truly is and its potential impact on the world of blockchain.

Intro

Berachain, an EVM-compatible Layer 1 blockchain, integrates the innovative Proof-of-Liquidity (PoL) concept to incentivize liquidity provision. It’s powered by the Polaris blockchain framework and the CometBFT consensus engine, enhancing its Ethereum Virtual Machine compatibility. This infrastructure enables Berachain to offer robust functionalities, especially for DeFi applications like DEX and oracles. Berachain aims to resolve issues of unaligned incentives, fragmented liquidity, and bridging infrastructure in the blockchain space.

In April 2023, Berachain raised $42 million in a Series A round, reaching a valuation of $420.69 million. The round was led by Polychain Capital, with participation from various investors and crypto exchanges.

How it works?

Proof of Liquidity

A common challenge in DeFi, liquidity fragmentation and stake centralization, is addressed by Proof of Liquidity (PoL) at the core of Berachain’s design. This has been developed from the ground up to align incentives and enhance capital productivity. This approach ensures that liquidity within the network is not only efficient but also ‘sticky’, meaning it’s more likely to remain within the ecosystem. This strategic design choice makes Berachain distinctive in fostering a sustainable and stable DeFi environment.

Tri-token Model

$BERA: The gas token for transactions on the Berachain blockchain.
$HONEY: Over-collateralized stablecoin, designed to approximate the value of 1 USDC.
$BGT: Non-transferable governance token, acquired by providing liquidity in the BEX (Berachain native DEX). Used for governance voting and can be converted to $BERA.

Mechanism

Users providing liquidity to BEX to receive $BGT, which can either be converted to the native gas token $BERA or staked with a validator.
$BGT holders have the option to stake their tokens with validators.
Those who stake $BGT with validators gain voting rights to influence the distribution of emissions across different pools.
Liquidity pools can incentivize validators with rewards (bribes) to secure more emission allocations, aiding in their growth and development.

From a user’s perspective, LPing and staking $BGT in Berachain can yield rewards in various forms:

Earnings of $BGT directly from Berachain.
Incentives (bribes) offered by different liquidity pools or projects.
A share of transaction fees from these pools, paid in $HONEY.

From project’s perspective, similar to the current ve model, utilizes the entire chain for its operations:

Projects attract nodes to direct their BGT towards the projects’ pool, aiming to secure BGT rewards distributed each cycle.
Projects use bribe to attract users as an incentive.
As more users engage with a project, it gains initial traction and begins to benefit from network effects.

Thoughts

Berachain, inspired by the OHM L1 public chain, is seen as an upgraded version of the tri-token model, similar to Luna. The team behind Berachain is solid, and it has a strong community presence, complete with meme culture. Unlike many similar Layer 2 projects, Berachain’s unique position as a new Layer 1 chain with an attractive “ponzi” design makes it stand out in 2024.

Reference

https://www.coindesk.com/business/2023/04/20/defi-focused-layer-1-berachain-raises-42m-series-a-at-42069m-valuation/?utm_medium=social&utm_term=organic&utm_content=editorial&utm_source=twitter&utm_campaign=coindesk_main
https://twitter.com/Axel_bitblaze69/status/1745515787425865940