Author: @lasertheend
Blockchain is constantly iterating, but in the past few years, most emerging Layer1 projects have focused on performance and throughput, and there have not been many disruptive solutions to the difficult problem of how to guide ecological prosperity and make applications and underlying tokens "mutually achieve each other". Until the emergence of Berachain, the industry once again focused on the economic incentive model: it attempts to deeply integrate DApp applications with the underlying incentives of blockchain through a new system called Proof of Liquidity (PoL).
For veteran players who are familiar with DeFi's "incentive and liquidity game", you can think of Berachain as "Curve" upgraded to a complete Layer1. It embeds Curve-like "Gauge Wars" or "bribery mechanism" into the consensus and rewards of L1, forming a new game model between applications, validators, and users. How does this design work? What opportunities and risks does it mean for retail investors? Let's analyze it systematically.
The core of PoL: BGT + BERA + Reward Treasury
Berachain’s economic model relies on the following three elements:
1. BERA: Layer1 mainnet token, used to pay gas fees and maintain PoS security.
Similar to most PoS chains, BERA is used to stake to validators to ensure network security.
2. BGT: Berachain’s “governance + rewards” core token, which can be used to boost the validator’s block rewards and can also be distributed to DApp users in various reward vaults.
It can be burned and exchanged for BERA at a 1:1 ratio, but cannot be exchanged in reverse, which means that once you exchange BGT for BERA, you will exit the "promotion and governance" cycle of PoL.
3. Reward Vault: Equivalent to the concept of “Gauge”, each application attracts users or liquidity by setting up a reward pool here.
Most of the BGT in the block rewards will flow to these Vaults, and will be used in the Vaults to "bribe" validators or users in exchange for more attention and a higher ecological status.
This design allows block rewards to be deeply linked to application demand, forming a potential flywheel effect:
If an application wants more liquidity, it needs more BGT to attract users;
· Validators want more benefits and need more BGT to boost their rewards;
Users want to obtain more mining or incentives, and they also have a demand for BGT.
Think of Berachain as L1 Curve
If you are an old DeFi player and are familiar with Curve’s liquidity mining and “Gauge Wars” model, you will find that Berachain’s PoL is very similar to it:
1. Curve distributes CRV issued through inflation to various liquidity pools, and the project attracts more mining weight by "bribing" CRV holders;
2. Berachain introduces this kind of mechanism at the L1 layer, transferring most of the block rewards "BGT" to the Reward Vault, and the DApp independently designs the distribution and incentive strategies.
3. If an application needs to attract liquidity, it must "bribe" validators or directly incentivize users, who will then use BGT to boost validators, thereby obtaining more block reward allocation weight.
Key difference: Curve is an application layer protocol, while Berachain embeds the incentive logic into the consensus layer itself, and the entire blockchain operates around liquidity and application needs.
PoL scalability: not only DeFi, but also can be extended to more scenarios <br>In addition to the basic DeFi use cases, the Berachain white paper also lists several representative "PoL expansion" scenarios, which show the possibility of this mechanism in a wider range of fields:
1. Real World Assets (RWA): For example, putting assets such as T-Bills or real estate on the chain and issuing ERC20 receipt tokens.
These “RWA receipts” can be connected to Berachain’s Reward Vault to encourage asset holders or original stakeholders to provide more high-quality assets on the chain;
Or use PoL rewards to diversify holders’ risks, improve secondary market liquidity, and build a true “decentralized financing platform” for RWA.
L2 or sidechain scenario: Projects can build new L2 on Berachain, inheriting Berachain’s PoS security and accessing the PoL incentive ecosystem;
2. L2 can include its own "cross-chain bridge" deposit tokens into the Reward Vault, and incentivize users to lock positions or use resources on L2 by issuing BGT;
At the same time, if L2 needs more funds or users, it can also "bribe" validators in exchange for more block reward support, achieving a multi-pool competition landscape similar to Curve.
3. Any behavior that can be mapped to an ERC20 receipt: The Whitepaper emphasizes that any "use scenario" that can generate an ERC20 receipt can create a corresponding Reward Vault in Berachain;
For example: KYC/privacy scenarios, data storage proofs, etc., as long as they can be mapped into "receipts" for users to stake, they can be integrated into the PoL reward cycle to provide native economic incentives for such applications.
This means that PoL is not limited to the traditional DeFi scenario of "letting DEX issue coins to attract liquidity", but has the potential to become a cross-domain incentive tool. Whether it is traditional financial assets, innovative games, or privacy applications, PoL's built-in "block incentive allocation mechanism" can be used to cold start, expand the user base, and improve application stickiness.
Opportunities and risks: When "ecological prosperity" is strongly tied to the price of currency
The core feature of PoL is that it directly ties "whether the project ecosystem can truly prosper" to the price performance of the underlying token BERA. In other words, if the project on Berachain can continue to accumulate users, transaction volume, and other measurable growth indicators, then the demand for BGT will rise. Otherwise, it is very easy to fall into a vicious cycle of "falling price - loss of confidence - intensified selling".
It is worth noting that recently, some new L1s (such as Move and Sui) have appeared with outstanding performance. With the support of capital and market speculation, the token prices have once ushered in good performance; but if we compare their data at the level of "project ecological prosperity" (user activity, TVL, etc.), we will find that there is still a big gap between them and Ethereum or Solana. It can be said that there are still very few L1s that can truly be called "ecologically prosperous".
Opportunity · Positive cycle: When projects on Berachain continue to accumulate "real users" and "real transaction volume" and continue to launch sticky functions or business scenarios, a strong positive feedback of "users-project ecology-BGT value" can be formed;
Early dividends: Whether it is PoL mining or new issuance, once it attracts enough liquidity and attention, there is a chance of short-term FOMO and speculation, driving the price of the coin up;
More sustainable incentives: PoL no longer relies on simply “subsidizing coin issuance” to stimulate prosperity, but instead focuses on sustainable transaction demand and liquidity value within the ecosystem, which ideally can support longer-term growth.
Risks : Ecological hollowing out: If Berachain's "project ecological prosperity" only remains on paper or conceptual hype, and lacks real user retention and transaction income, then the demand for BGT will be unsustainable, and investors may eventually choose to burn BGT in exchange for BERA and then sell it, which will lead to a more serious price drop and loss of confidence;
Excessive speculation: New models are prone to attracting a crazy influx of hot money. Once the ecosystem fails to meet investors’ expectations for the project’s prosperity, funds will quickly flee, causing the bubble to burst;
Security and governance risks: When PoL is embedded in the L1 layer, if incentive allocation or governance is manipulated by large users or interest groups, the security and economy of the entire network may be threatened, especially in a negative cycle.
How do retail investors participate? Timeline and key points
1. Mining
- Phase 1: Only the official whitelist asset pool has BGT rewards.
- Phase 2 (about one month later): More project pools are “unblocked”, the demand for BGT increases greatly, and FOMO is prone to occur.
- The third stage: entering a stable period, with many ecological projects but rewards tending to be balanced.
Note: Pay attention to the lock-up mechanism, currency price fluctuations and Impermanent Loss; retail investors with small amounts of capital should try to keep their strategies flexible.
2. New listings
Most of the projects in the Berachain ecosystem are native, and there are opportunities for airdrops, whitelisting, public offerings, etc. in the early stages. Do a good job of due diligence on the project and the token economy to avoid blindly following the trend.
3. Governance and other methods Holding BGT and participating in governance proposals and delegated voting may win more voice or continuous benefits.
If you are optimistic about the long-term value of PoL, you can also obtain a higher share of block rewards through Boost validators.
Can PoL become the next generation L1 incentive paradigm?
Berachain shows us an imaginative fusion of "basic public chain + DeFi incentive":
It brings the liquidity game model of Curve’s “Gauge Wars” to the L1 level;
Through PoL, block rewards are no longer just rewarded to validators, but are injected into the Reward Vault of various applications;
More importantly, the white paper depicts the broad prospects of PoL that are not limited to DeFi, covering multiple fields such as RWA, L2, and arbitrary ERC20 receipts.
However, whether all these beautiful blueprints can be truly implemented ultimately depends on whether the ecosystem can have enough innovative and sticky application support. If the flywheel effect can continue, the BTC may really be able to be realized; if it is weak in the middle, PoL may also face the embarrassment of a rapid bubble burst.
For ordinary investors, if you are optimistic about this new model, the most direct way is to mine and buy new shares, which may bring super high returns in the early stage; but don’t forget that there are also risks of high volatility, hot money influx and rapid withdrawal. Be sure to do a good job of risk assessment and position management.
In short, Berachain has brought new possibilities to Layer1 incentive design through the PoL mechanism, and has also opened the door to cross-domain applications such as RWA and L2. It still has a long way to go, but for the industry, this attempt to deeply integrate application prosperity with token value from the "first principle" is undoubtedly worthy of our close attention and exploration. Perhaps, in the near future, we will witness the true rise of a DeFi/L1 ecosystem that is compatible with multi-dimensional assets and has greater scalability. Please wait and see.
Blockchain is constantly iterating, but in the past few years, most emerging Layer1 projects have focused on performance and throughput, and there have not been many disruptive solutions to the difficult problem of how to guide ecological prosperity and make applications and underlying tokens "mutually achieve each other". Until the emergence of Berachain, the industry once again focused on the economic incentive model: it attempts to deeply integrate DApp applications with the underlying incentives of blockchain through a new system called Proof of Liquidity (PoL).
For veteran players who are familiar with DeFi's "incentive and liquidity game", you can think of Berachain as "Curve" upgraded to a complete Layer1. It embeds Curve-like "Gauge Wars" or "bribery mechanism" into the consensus and rewards of L1, forming a new game model between applications, validators, and users. How does this design work? What opportunities and risks does it mean for retail investors? Let's analyze it systematically.
The core of PoL: BGT + BERA + Reward Treasury
Berachain’s economic model relies on the following three elements:
1. BERA: Layer1 mainnet token, used to pay gas fees and maintain PoS security.
Similar to most PoS chains, BERA is used to stake to validators to ensure network security.
2. BGT: Berachain’s “governance + rewards” core token, which can be used to boost the validator’s block rewards and can also be distributed to DApp users in various reward vaults.
It can be burned and exchanged for BERA at a 1:1 ratio, but cannot be exchanged in reverse, which means that once you exchange BGT for BERA, you will exit the "promotion and governance" cycle of PoL.
3. Reward Vault: Equivalent to the concept of “Gauge”, each application attracts users or liquidity by setting up a reward pool here.
Most of the BGT in the block rewards will flow to these Vaults, and will be used in the Vaults to "bribe" validators or users in exchange for more attention and a higher ecological status.
This design allows block rewards to be deeply linked to application demand, forming a potential flywheel effect:
If an application wants more liquidity, it needs more BGT to attract users;
· Validators want more benefits and need more BGT to boost their rewards;
Users want to obtain more mining or incentives, and they also have a demand for BGT.
Think of Berachain as L1 Curve
If you are an old DeFi player and are familiar with Curve’s liquidity mining and “Gauge Wars” model, you will find that Berachain’s PoL is very similar to it:
1. Curve distributes CRV issued through inflation to various liquidity pools, and the project attracts more mining weight by "bribing" CRV holders;
2. Berachain introduces this kind of mechanism at the L1 layer, transferring most of the block rewards "BGT" to the Reward Vault, and the DApp independently designs the distribution and incentive strategies.
3. If an application needs to attract liquidity, it must "bribe" validators or directly incentivize users, who will then use BGT to boost validators, thereby obtaining more block reward allocation weight.
Key difference: Curve is an application layer protocol, while Berachain embeds the incentive logic into the consensus layer itself, and the entire blockchain operates around liquidity and application needs.
PoL scalability: not only DeFi, but also can be extended to more scenarios <br>In addition to the basic DeFi use cases, the Berachain white paper also lists several representative "PoL expansion" scenarios, which show the possibility of this mechanism in a wider range of fields:
1. Real World Assets (RWA): For example, putting assets such as T-Bills or real estate on the chain and issuing ERC20 receipt tokens.
These “RWA receipts” can be connected to Berachain’s Reward Vault to encourage asset holders or original stakeholders to provide more high-quality assets on the chain;
Or use PoL rewards to diversify holders’ risks, improve secondary market liquidity, and build a true “decentralized financing platform” for RWA.
L2 or sidechain scenario: Projects can build new L2 on Berachain, inheriting Berachain’s PoS security and accessing the PoL incentive ecosystem;
2. L2 can include its own "cross-chain bridge" deposit tokens into the Reward Vault, and incentivize users to lock positions or use resources on L2 by issuing BGT;
At the same time, if L2 needs more funds or users, it can also "bribe" validators in exchange for more block reward support, achieving a multi-pool competition landscape similar to Curve.
3. Any behavior that can be mapped to an ERC20 receipt: The Whitepaper emphasizes that any "use scenario" that can generate an ERC20 receipt can create a corresponding Reward Vault in Berachain;
For example: KYC/privacy scenarios, data storage proofs, etc., as long as they can be mapped into "receipts" for users to stake, they can be integrated into the PoL reward cycle to provide native economic incentives for such applications.
This means that PoL is not limited to the traditional DeFi scenario of "letting DEX issue coins to attract liquidity", but has the potential to become a cross-domain incentive tool. Whether it is traditional financial assets, innovative games, or privacy applications, PoL's built-in "block incentive allocation mechanism" can be used to cold start, expand the user base, and improve application stickiness.
Opportunities and risks: When "ecological prosperity" is strongly tied to the price of currency
The core feature of PoL is that it directly ties "whether the project ecosystem can truly prosper" to the price performance of the underlying token BERA. In other words, if the project on Berachain can continue to accumulate users, transaction volume, and other measurable growth indicators, then the demand for BGT will rise. Otherwise, it is very easy to fall into a vicious cycle of "falling price - loss of confidence - intensified selling".
It is worth noting that recently, some new L1s (such as Move and Sui) have appeared with outstanding performance. With the support of capital and market speculation, the token prices have once ushered in good performance; but if we compare their data at the level of "project ecological prosperity" (user activity, TVL, etc.), we will find that there is still a big gap between them and Ethereum or Solana. It can be said that there are still very few L1s that can truly be called "ecologically prosperous".
Opportunity · Positive cycle: When projects on Berachain continue to accumulate "real users" and "real transaction volume" and continue to launch sticky functions or business scenarios, a strong positive feedback of "users-project ecology-BGT value" can be formed;
Early dividends: Whether it is PoL mining or new issuance, once it attracts enough liquidity and attention, there is a chance of short-term FOMO and speculation, driving the price of the coin up;
More sustainable incentives: PoL no longer relies on simply “subsidizing coin issuance” to stimulate prosperity, but instead focuses on sustainable transaction demand and liquidity value within the ecosystem, which ideally can support longer-term growth.
Risks : Ecological hollowing out: If Berachain's "project ecological prosperity" only remains on paper or conceptual hype, and lacks real user retention and transaction income, then the demand for BGT will be unsustainable, and investors may eventually choose to burn BGT in exchange for BERA and then sell it, which will lead to a more serious price drop and loss of confidence;
Excessive speculation: New models are prone to attracting a crazy influx of hot money. Once the ecosystem fails to meet investors’ expectations for the project’s prosperity, funds will quickly flee, causing the bubble to burst;
Security and governance risks: When PoL is embedded in the L1 layer, if incentive allocation or governance is manipulated by large users or interest groups, the security and economy of the entire network may be threatened, especially in a negative cycle.
How do retail investors participate? Timeline and key points
1. Mining
- Phase 1: Only the official whitelist asset pool has BGT rewards.
- Phase 2 (about one month later): More project pools are “unblocked”, the demand for BGT increases greatly, and FOMO is prone to occur.
- The third stage: entering a stable period, with many ecological projects but rewards tending to be balanced.
Note: Pay attention to the lock-up mechanism, currency price fluctuations and Impermanent Loss; retail investors with small amounts of capital should try to keep their strategies flexible.
2. New listings
Most of the projects in the Berachain ecosystem are native, and there are opportunities for airdrops, whitelisting, public offerings, etc. in the early stages. Do a good job of due diligence on the project and the token economy to avoid blindly following the trend.
3. Governance and other methods Holding BGT and participating in governance proposals and delegated voting may win more voice or continuous benefits.
If you are optimistic about the long-term value of PoL, you can also obtain a higher share of block rewards through Boost validators.
Can PoL become the next generation L1 incentive paradigm?
Berachain shows us an imaginative fusion of "basic public chain + DeFi incentive":
It brings the liquidity game model of Curve’s “Gauge Wars” to the L1 level;
Through PoL, block rewards are no longer just rewarded to validators, but are injected into the Reward Vault of various applications;
More importantly, the white paper depicts the broad prospects of PoL that are not limited to DeFi, covering multiple fields such as RWA, L2, and arbitrary ERC20 receipts.
However, whether all these beautiful blueprints can be truly implemented ultimately depends on whether the ecosystem can have enough innovative and sticky application support. If the flywheel effect can continue, the BTC may really be able to be realized; if it is weak in the middle, PoL may also face the embarrassment of a rapid bubble burst.
For ordinary investors, if you are optimistic about this new model, the most direct way is to mine and buy new shares, which may bring super high returns in the early stage; but don’t forget that there are also risks of high volatility, hot money influx and rapid withdrawal. Be sure to do a good job of risk assessment and position management.
In short, Berachain has brought new possibilities to Layer1 incentive design through the PoL mechanism, and has also opened the door to cross-domain applications such as RWA and L2. It still has a long way to go, but for the industry, this attempt to deeply integrate application prosperity with token value from the "first principle" is undoubtedly worthy of our close attention and exploration. Perhaps, in the near future, we will witness the true rise of a DeFi/L1 ecosystem that is compatible with multi-dimensional assets and has greater scalability. Please wait and see.
