Roots: Connecting CDP with Berachain | TKX Weekly
by @uuwagyuu
sponsor TKX CAPITAL
As Berachain gets closer to its mainnet launch, people are starting to focus on the new protocols being built within its ecosystem. Berachain’s Proof-of-Liquidity (PoL) model is making it a strong foundation for decentralized finance (DeFi) projects, especially those aimed at improving how efficiently users can use their assets. One project gaining attention is Roots, a native CDP platform that allows users to unlock liquidity by minting its stablecoin, $MEAD.
Let’s take a closer look at how Roots uses Berachain’s setup and what makes it different from other DeFi projects.
Introduction to Roots
Roots is a DeFi protocol built on Berachain that operates as a Collateralized Debt Position (CDP) platform. It lets users mint its stablecoin, $MEAD, by using their yield-generating assets as collateral. Unlike typical lending platforms, Roots doesn’t charge interest on loans. Instead, it allows users to access liquidity by minting $MEAD while keeping their staked assets earning yield.
This setup gives users the ability to borrow against their assets without sacrificing the rewards from staking. By taking advantage of Berachain’s infrastructure, Roots makes it easy for users to unlock liquidity from their locked assets without losing out on the yield they’re already earning.
What Roots is Solving and How It Solves It
In the current DeFi landscape on Berachain, protocols often make it difficult for users to unlock liquidity while still earning staking rewards. Typically, users have to choose between accessing liquidity or maintaining their staked assets, which limits how efficiently they can use their capital. Most existing liquid staking and DeFi solutions also don’t offer a straightforward way to unlock liquidity without giving up yield.
Roots solves this by allowing users to use their yield-generating assets, like Berachain’s Liquidity Pool Tokens (LPTs), as collateral to mint the $MEAD stablecoin. By minting $MEAD, users can unlock liquidity without having to sell their assets or lose the staking rewards they’re earning. This way, users can tap into liquidity, continue receiving governance tokens like $BGT, and maintain their overall position in the Berachain ecosystem.
Roots also strengthens the protocol’s stability through its unified stability pool, where users can stake $MEAD to buy liquidated collateral at a discount during liquidation events. This process not only offers users opportunities for arbitrage but also helps keep the protocol solvent by efficiently managing liquidations. Additionally, Roots integrates Real World Assets (RWAs) into its reward system, giving users access to diversified yield streams that provide more stable returns beyond the crypto space.
How Roots Works
- Users Provide Liquidity:
Users in the Roots protocol contribute liquidity by staking their LP tokens (Liquidity Pool tokens) into the Roots platform. These tokens, which are yield-generating assets, are locked into the system. - Collateralization and Minting MEAD:
The user’s staked LP tokens are used as collateral in the Roots protocol. Once collateralized, the user mints MEAD, the stablecoin of the protocol. In the diagram, this is shown as the user providing liquidity and collateralizing LP tokens to mint and stake MEAD. - Validator Interaction:
The $BGT (Berachain Governance Token) rewards generated from the user’s staked LP tokens are delegated to validators. This delegation is essential for securing the network and ensuring that Berachain’s PoL mechanism runs smoothly. - Native dApps and Additional Yield:
The validators distribute rewards earned from the delegated BGT to native decentralized applications (dApps) within Berachain’s ecosystem. These dApps then offer additional rewards, or they might incentivize validators by “bribing” the pools, as indicated in the diagram.
This “bribing” helps validators accumulate rewards, which are ultimately passed back to the users as additional yield. - Reward Distribution:
Validators distribute the rewards generated through the delegation of $BGT back to the users, further increasing the yield they receive. The additional yield is distributed back to the user as shown in the diagram, representing a continuous flow of value from the validators to the users. - Additional Yield for Users:
The yield generated by the process — through dApps and validators — is distributed back to users. This ensures that users not only earn from their collateralized LP tokens but also from the broader ecosystem of Berachain through these additional yield streams.
Thoughts
Roots is smartly positioned as a protocol that lets users unlock liquidity without giving up yield. By allowing users to mint MEAD while still earning staking rewards, it solves the classic DeFi problem of having to choose between liquidity and earning potential. Its integration with Berachain’s Proof-of-Liquidity system adds depth — users contribute to network security while benefiting personally.
What really sets Roots apart is its focus on capital efficiency and the use of Real World Assets (RWAs) to diversify yield streams, making it more resilient to market volatility. It’s a forward-thinking approach that not only optimizes user returns but strengthens the entire Berachain ecosystem. If it continues on this path, Roots could become a critical part of DeFi infrastructure.
