The main difference between Berachain and other public chains is its adoption of the Proof of Liquidity (PoL) mechanism, which is favorable for the DeFi ecosystem. Boyco Markets provides the foundation for guiding the liquidity of PoL. Currently, the Berachain Boyco Markets Pre-deposit TVL exceeds $2.3 billion, with around 155,000 users participating. Among them, ether fi Pre-deposit reached $675 million, StakeStone reached $463 million, CIAN reached $366 million, Lombard reached $353 million, Solv reached $282 million, and Ethena reached $138 million.
Three-Token Model: BERA, BGT, and Stablecoin HONEY
① BERA —— Circulation and Gas Token on Berachain
Uses:
- Used as a Gas token for transaction payments on the Berachain mainnet
- Staked by validator nodes to increase the security of the chain
② BGT —— Non-Transferable Governance Token on Berachain
Uses:
- Governance: Voting on governance proposals, such as deciding which assets can be used as collateral for HONEY
- Users can delegate BGT to validators to increase their reward emissions; the rewards will be distributed to the BGT holders who helped increase the validator's boost
- Receive fee distributions from native Berachain dApps
- Fees collected from minting and redeeming HONEY are distributed to BGT holders
- BGT can be burned 1:1 to BERA (BERA cannot be converted back to BGT)
③ HONEY —— Fully Collateralized Native Stablecoin of Berachain
Acquisition: Users can deposit whitelisted assets (USDC and PYUSD) into a Vault and mint HONEY through HoneySwap based on the collateralization ratio. HONEY can also be exchanged on platforms like BerasWap.
Use: Used within the Berachain DeFi ecosystem
POL – Proof of Liquidity Mechanism Interpretation
Unlike traditional Proof of Stake (PoS), PoL ties the network's security to the provision of liquidity. Validator nodes support the network's security by providing liquidity, rather than just locking or staking tokens. Liquidity is key to the healthy operation of the Berachain network, and PoL enhances the network's stability and efficiency by incentivizing nodes to provide liquidity.
From the perspective of a validator node, let's look at the operating principles of PoL:
① Validators need to stake 69,420 BERA to activate a node
② Validators pack blocks and receive block rewards in BGT, with all validators having an equal chance of producing blocks
③ Validators distribute the block rewards in BGT to the application Reward Vaults, and the delegation weight of BGT determines the amount of BGT emissions, but validators have the discretion to adjust the distribution ratios to the different application Reward Vaults, allowing for preferences and potential bribery
④ Application projects receive the BGT and distribute it to users, see the next section from the perspective of application projects and users
From the perspective of Berachain project teams and users, the operating principle of PoL:
① Project teams design liquidity incentive programs and apply for Reward Vaults to obtain BGT emissions from validators
② Users deposit designated assets into the project's Reward Vaults to obtain BGT, thereby increasing the TVL
③ Users receive BGT rewards and project's own rewards, the amount of which depends on their share in the Reward Vaults
④ Users can delegate their BGT to the project that they deposited assets into, or other ecosystem applications or validators (bribed validators may redistribute a portion of the bribe tokens to users)
⑤ BGT delegators receive project tokens or other economic incentives (or share project revenue)
Forming a positive flywheel:
⑥ The increase in project liquidity/TVL and the increase in BGT delegation attract more users to deposit assets and participate in the application, earning more BGT and application incentives. The entire system thus forms a self-reinforcing positive flywheel effect.
boosted —— Incentives and bribes for project teams
① Projects provide token or other incentives to validators: Projects can attract validators to support their liquidity pools/Reward Vaults by providing additional token incentives to validators. In this way, validators may have the motivation to allocate more BGT or other reward tokens to the project's Reward Vaults when processing token emissions.
② Projects provide token or other incentives to users: Such as token airdrops or revenue sharing, to attract users to delegate BGT to the project, thereby expanding the BGT delegation weight share.
③ Validators' support for partner projects or even their own projects: Validators can increase BGT token emissions to help specific projects obtain more liquidity rewards or user incentives, further enhancing the competitiveness of the projects in the entire ecosystem.
④ Incentive rebate mechanism: There may be a "rebate" mechanism between validators and projects, where the project provides a portion of the rewards to the validators, and the validators will allocate more block rewards to the project's reward pool, forming a win-win cooperation between the two parties.
What problems have been solved:
(1) The balance between liquidity and security
In PoS blockchains, users lock a large amount of assets on validator nodes to obtain staking rewards, which leads to a decrease in the available liquidity for transactions; but at the same time, the PoS system itself relies on a large amount of staking to maintain network security, so there is a conflict between liquidity and security, which is also the reason for the birth of LST/LRT.
The key feature of the three-token model is to separate security and incentive governance into two types of tokens, where validators pledge BERA to maintain network security, while the non-transferable BGT is used for governance and token reward emissions, and its delegation weight determines the BGT rewards that validators can obtain. Validators have the preference and bribery customization space to distribute BGT, they can both retain a certain commission reward and accept bribes from applications to increase node income and make adjustments to the distribution ratio. Users obtain BGT distribution by providing liquidity in different applications. In other words, users' assets can be used for both liquidity provision and staking reward acquisition, thereby improving capital utilization efficiency. In addition, by holding BGT, users can enjoy the fee distribution of Berachain's official dApps, or continue to repeatedly delegate BGT to obtain more economic rewards, and can also directly burn BGT for BERA.
(2) Alleviating the proliferation of LST/LRT in PoS blockchains from the bottom-layer design
The core of the PoL design is to reward those who provide liquidity to the ecosystem, rather than just rewarding token holders. Liquidity providers, validators, and users all receive rewards for contributing liquidity, and this mechanism is directly linked to the chain's security and efficiency, using economic incentives to naturally manage and optimize liquidity. BERA is mainly used for validator staking to ensure network security, while BGT emissions are based on liquidity contributions, not repeated staking, which avoids users endlessly converting staked assets into liquidity tokens.
In addition, users obtain BGT by providing liquidity to ecosystem projects, rather than simply staking, and the liquidity is guided to applications with real utility, rather than being in a state of ineffective circulation and endless nesting like some LST/LRT.
(3) Ecosystem flywheel
An example of how bribes are applied and a positive flywheel is generated in the cooperation between Berachain's liquid staking protocol Infrared invested by Binance Labs and Kodiak, a DEX incubated by Berachain's incubation fund Build-a-Bera.
- Bribes to Infrared Gauges: Kodiak injects funds into Infrared's liquidity pools and bribes Infrared's gauges (nodes that allocate token rewards through voting or incentive mechanisms) to ensure that more BGT rewards are allocated to its LP token pools, thereby increasing the liquidity attraction of Kodiak in the PoL system.
- Boosted BGT Rewards: By depositing Kodiak's LP tokens into Infrared's liquidity pools, users will receive more BGT rewards.
- Multiple income rewards: LP Fees, iBGT and IRED (Infrared potential token)
Flywheel effect:
- Users provide liquidity and receive BGT incentives;
- Kodiak attracts more BGT emissions to its liquidity pools through the bribery mechanism;
- The increase in liquidity pool funds generates transaction fees, iBGT and IRED, strengthening Kodiak's treasury;
- The strengthened treasury allows Kodiak to continue to drive liquidity incentives, maintain the depth of the liquidity pool, and form a self-reinforcing cycle.
