Berachain’s Proof-of-Liquidity: Explained 🐻

Consensus mechanisms are the linchpins of securing blockchain networks and enabling their functionalities. While Proof of Stake (PoS) has been a stalwart method, ensuring robust security and operational efficiency, it is not without its limitations. Berachain, an Ethereum Virtual Machine (EVM) compatible Layer 1 blockchain, introduces a unique alternative: Proof of Liquidity (PoL).

This article delves into the innovative mechanisms of Berachain, exploring its genesis, unique tri-token model, and the technical prowess that Chorus One brings to optimizing this approach, with ‘BeraBoost’.

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The Constraints of Proof-of-Stake

Berachain's Proof-of-Liquidity (PoL) consensus mechanism addresses several limitations inherent in Proof-of-Stake (PoS) systems. In PoS, validators and users lock up a substantial amount of native tokens to secure the network. This staked capital, while ensuring network security, remains idle and does not contribute to the liquidity of the ecosystem. Consequently, these tokens cannot be used for DeFi applications, trading, or other on-chain activities. Although PoS is a resilient method for achieving consensus and securing blockchain networks, aiming for a high percentage of staked tokens can counteract liquidity needs within the ecosystem.

Liquid staking was developed to mitigate these concerns by creating liquidity for staked tokens, and it has proven successful in many ecosystems. However, Berachain's PoL model aims to surpass liquid staking. PoL can be simplistically described as "security by liquidity," meaning the only way to secure the chain is by providing liquidity. Given Berachain's primary focus on DeFi, this model is particularly relevant. But how does PoL actually function on Berachain?

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The Genesis of Berachain 🐻

Berachain's innovative journey began with the "Bong Bears" NFT project—a whimsical collection that captivated the DeFi community. Through this creative endeavor, the founders recognized a crucial gap: the need to harmonize liquidity provision with network security. This insight led to the birth of Berachain, designed to leverage liquidity as the cornerstone of its security model. With substantial backing from prominent investors such as Framework Ventures, Brevan Howard, Polychain Capital, and Samsung Next, Berachain is well-positioned to redefine blockchain consensus.

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Berachain’s Tri-Token model 🐻

At the heart of Berachain's ecosystem lies its tri-token model, consisting of BERA, BGT, and HONEY. Each token serves distinct purposes, ensuring that the network can achieve its objectives of security, governance, and efficient transaction processing while maintaining a stable economic environment for decentralized finance (DeFi) activities:

$BERA (Liquid Token)

• Function: Used for transaction fees and general utility within the network.
• Liquidity: Fully liquid and subject to market price fluctuations.
• Role: Facilitates economic activities and interactions on the blockchain.

$BGT (Governance and Staking Token)

• Function: Primarily used for governance and staking.
• Liquidity: Non-transferable and earned by providing liquidity.
• Role: Influences network governance and secures the blockchain through staking.

$HONEY (Stablecoin)

• Function: Provides stable value transfer within the ecosystem.
• Liquidity: Fully liquid and pegged to USD.
• Role: Acts as a medium of exchange, collateral, and fee payment mechanism.

Let’s take a deeper look at their individual roles:

How does Berachain work? 🐻

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1. Users stake their Proof of liquidity (PoL) eligible digital assets into reward vaults to receive $BGT rewards. Reward vaults are the sole method for earning $BGT rewards and thus play a crucial role in getting entry into the PoL ecosystem.
2. Validators produce blocks and allocate a portion of their $BGT emissions to specific reward vaults according to discretionary strategies. These strategies aim to maximize yield for their stakers. Validators take a commission on the $BGT emissions.
3. Applications can offer incentives to validators to encourage them to direct BGT rewards to them, usually in exchange for rewards in the form of the protocol’s native token.
4. Liquidity providers participating in PoL receive yields in $BGT, minus the validators’ commission.
5. Liquidity providers can stake $BGT with validators that align with their strategy and participate in governance.
6. Liquidity providers who receive $BGT can choose to burn $BGT to obtain $BERA tokens at a 1:1 ratio.

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Optimizing PoL performance through BeraBoost 🐻

Under the hood, PoL requires validators to direct incentives to on-chain pools of capital called "reward vaults”. We are committed to approaching this process scientifically, through an algorithm we’ve named “BeraBoost” - it will be open source software, and run on a public dashboard. Beraboost will distribute incentives such that delegators to Chorus One earn maximum rewards, by tracking their LP positions and directing incentives to the relevant pools.

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Staking BGT 🐻

Berachain is currently on testnet and staking is not enabled. We are closely involved with the Berachain team and will support all institutional and individual use-cases for supporting BGT. If you're interested in knowing more, fill out this form.

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Email us - staking@chorus.one

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About Chorus One

Chorus One is one of the biggest institutional staking providers globally, operating infrastructure for 60+ Proof-of-Stake networks, including Ethereum, Cosmos, Solana, Avalanche, and Near, amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures. We are a team of over 50 passionate individuals spread throughout the globe who believe in the transformative power of blockchain technology.