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🐻⛓️ What's is Berachain?
Berachain is an EVM identical L1 built on top of BeakonKit, using Proof of Liquidity, a variant of delegated Proof of Stake. Berachain aims to align incentives between security and liquidity at the protocol level. This is accomplished by enabling users to earn rewards in the form of the staking tokens of the network in exchange for providing liquidity to a set of enshrined DeFi primitives along with any governance approved smart contract on the chain.
tl;dr - Berachain allows liquidity to serve as security, and helps power and incentivize the applications built on top of it.
🐻⛓️ What is Proof of Liquidity (PoL)?
Proof of Liquidity radically changes the way L1 economics are structured, prioritizing users and applications over validator rewards at baseline, strongly aligning incentives between network participants (validators, protocols, users), and contributes to the overall long-term health of the chain.
- Network incentives go towards enriching ecosystem liquidity, contributing to efficient trading, price stability, securing the chain, and increasing network/user growth.
- This stands contrary to typical proof-of-stake chains where users possessing a fixed amount of capital have to choose between contributing to security by staking with a validator or contributing to on-chain liquidity. With Berachain, you can have your stake and eat it too.
- With PoL, the only way to contribute towards network security is by first doing the “work” of providing liquidity to a set of governance approved smart contracts and DeFi primitives that are built into the chain itself. This expands to any application built on the chain, pending approval by governance, allowing any source of liquidity on the chain to become a source of security.
- Berachain Governance Token (BGT), the staking token of Berachain, is earned by providing liquidity to the system.
- BGT is nontransferable, which means it cannot be purchased; The only way to acquire it is to provide liquidity.
🐻⛓️ Why Berachain?
Berachain is the first chain with mechanics structured to sustainably enable protocols to build their liquidity base and drive capital efficiency over time.
- Protocols who successfully pass a governance vote will have their smart contracts included in the set of contracts whose LPs will receive BGT rewards. This means that a new NFT AMM, on-chain game, SoFi protocol, or any other DApp seeking that extra helping hand in bootstrapping their protocol could launch on Berachain and effectively subsidize their cost of user acquisition by passing a governance vote for their vault / LP contract to receive BGT rewards, thereby giving their LPs emissions in the form of the staking token of an L1 blockchain (in addition to any native token emissions).
- In short, protocols are able to attract more liquidity at lower costs. The chain is aligned, as it attracts the best protocols to build on top of it which serve as user acquisition channels. PoL allows protocols building on the chain to become “enshrined” into the base layer and contribute to security (BGT generation) via their users’ liquidity provisioning without modifying user behavior.