Introduction

Berachain is a new Layer-1 blockchain that is fully compatible with the Ethereum Virtual Machine (EVM). It aims to transform liquidity management in decentralized finance (DeFi) through its innovative Proof of Liquidity (PoL) consensus mechanism and tri-token economic model. Traditional Proof of Stake (PoS) systems often misalign incentives between validators and applications.

Source: Citadel One

In PoS, value flows primarily toward validators and stakers, disconnected from the activities of applications. This discourages user engagement with applications, stifling innovation and reducing network activity. Berachain’s PoL addresses these challenges by distributing rewards across validators, users, and applications, ensuring a balanced and inclusive system that fosters active participation and a vibrant DeFi environment.

Source: Berachain

Since its inception in 2021, Berachain has rapidly gained traction. It attracted one million active wallets within 7.5 days of its testnet launch. Additionally, various ecosystem protocols have raised over $30 million before the mainnet launch, highlighting strong investor confidence and the project’s potential to become a dominant player in the crypto ecosystem.

The Berachain Origin Story

Berachain’s journey began in August 2021 with the Bong Bears NFT collection, launched by pseudonymous co-founders Dev Bear, Papa Bear, and Smokey the Bera. This initial set of 100 bears, priced at 0.069 ETH each, quickly gained attention due to its unique minting process on OpenSea, where buyers could view and select specific bears before purchasing. The success of Bong Bears led to additional bear-themed NFT collections like Bond Bears, Boo Bears, Baby Bears, Band Bears, and Bit Bears, each deepening community engagement and momentum.

Source: BongBears

Drawing inspiration from OlympusDAO’s rebasing protocol, the team introduced rebasing NFTs, resonating with their growing community. By late 2021, fueled by the success of their NFTs and a strong community, the Berachain team envisioned launching their own blockchain. This vision culminated in Berachain, a blockchain integrating decentralized finance (DeFi) principles with the novel Proof of Liquidity (PoL) consensus mechanism.

With a strong cult following, distinctive branding, and a unique sense of fun, Berachain has generated significant hype in the crypto industry even before its mainnet launch. It’s hard to ignore the excitement that Berachain has brought to the market.

Fundraising and Strategic Expansion: Powering Berachain’s Growth

Over the past year, Berachain has raised substantial capital, reflecting its growing influence in the blockchain ecosystem. In April 2023, it secured $42 million in a private token round led by Polychain Capital, with participation from investors like Hack VC, Shima Capital, and Robot Ventures. In early 2024, Berachain closed its Series B funding round, raising $100 million led by Brevan Howard Digital and Framework Ventures.

• Shogun, a DeFi protocol focusing on Trader Extractable Value raised $6.9 million USD
• The Honey Jar with just over $3 million USD in a Community Fundraiser
• Nav and Honeypot Finance have each secured approximately $3 million USD
• Infrared, a BGT / BERA liquid staking platform, has attracted $2.5 million USD in funding

This early influx of capital, totaling more than $30 million USD across the ecosystem, underscores the anticipation and potential that investors see in Berachain's unique approach to decentralized finance and its innovative Proof of Liquidity (PoL) consensus mechanism.

Source: Flipside

The Technology Behind Berachain

If you’re Ethereum native, you’ll find Berachain familiar, as it is EVM-identical. One of its key technological advancements is BeaconKit, a modular framework for constructing EVM consensus clients. BeaconKit enables developers to deploy both Layer-1 and Layer-2 EVM blockchains with full EIP compatibility and single-slot finality. Supporting execution clients like Geth, Erigon, Nethermind, Besu, Reth, and Ethereumjs, this broad compatibility enhances developer flexibility and improves performance by reducing block times up to 40%.

Berachain’s architectural approach is informed by lessons learned from Polaris, its previous testnet, which faced challenges like mempool congestion and execution bottlenecks. In response, the development of BeaconKit has not only made Berachain EVM-identical—providing an experience on par with Ethereum itself—but also positioned it as a more resilient and user-friendly blockchain. By decoupling the EVM execution environment from the consensus layer, BeaconKit offers a flexible and robust solution, ready to support the demands of the next wave of decentralized applications.

Proof of Liquidity (PoL)

Existing consensus mechanisms like Proof of Stake (PoS) have become the gold standard for securing decentralized networks. However, PoS, while effective at bolstering network security, has its shortcomings—particularly in how it aligns incentives across different participants in the ecosystem. Berachain’s Proof of Liquidity (PoL) is designed to address the issues by fundamentally rethinking how protocol rewards are distributed, aiming to create a more balanced and inclusive system.

In traditional PoS, validators are rewarded for securing the network through staking, but these rewards do not extend to the applications or users that drive activity on the chain. Berachain’s PoL flips this dynamic by ensuring that protocol rewards flow to all participants—validators, users, and applications alike. This is achieved through Berachain’s tri-token model, which consists of BGT (Berachain Governance Token), BERA (Network Token), and HONEY (Stablecoin). Each token plays a specific role in maintaining the balance of incentives across the ecosystem.

BGT, the inflationary token distributed to liquidity providers, is the glue that holds the PoL system together. Unlike traditional governance tokens that are often seen as mere voting rights, BGT is a non-transferable token earned exclusively through providing liquidity on Berachain. The distribution of BGT is not random; it is carefully orchestrated through a system of gauges and incentives.

A gauge refers specifically to smart contracts that allow users to stake a specific asset to earn BGT rewards. A user earns BGT rewards from gauges proportional to their share of the total assets staked in the gauge.

Validators on Berachain control the flow of protocol emissions by directing BGT rewards to specific applications through gauges—smart contracts where users can stake their assets to earn BGT. This alignment of incentives encourages liquidity to flow naturally within the ecosystem, driven by the promise of governance influence and attractive rewards.

Source: Citadel One

Validators have a dual incentive in this system. They can direct emissions to the applications they use, thus benefiting directly from increased activity. Alternatively, they can be influenced by applications and protocols offering bribes—incentives in the form of native tokens—to redirect emissions in their favor. This dynamic creates a symbiotic relationship between validators and applications, fostering collaboration rather than competition.

Source: Citadel One

One of the most compelling aspects of PoL is how it guarantees alignment across the ecosystem. By allocating all protocol emissions to applications and giving validators the power to influence future emissions, PoL ensures that all participants are working towards a common goal: the growth and sustainability of the Berachain ecosystem.

Source: Berachain

This is not just a theoretical improvement. The PoL model draws from lessons learned in DeFi, where closed-loop incentive systems like Curve’s veCRV have proven effective at aligning incentives within a single protocol. Berachain takes this concept further by embedding it into the consensus layer, creating an open-loop system where every participant—validators, users, and applications—has a stake in the optimal distribution of rewards.

The introduction of PoL on Berachain is expected to create a powerful flywheel effect. As more users engage with the network and provide liquidity, they earn BGT, which they can delegate to validators. These validators, in turn, direct BGT emissions back to the most productive applications, further incentivizing user participation. This positive feedback loop is designed to ensure that the Berachain ecosystem grows organically, with every participant playing a crucial role in its success.

Moreover, PoL addresses a critical issue faced by many existing blockchains: the risk of applications outgrowing the chain they are built on. In traditional systems, as applications scale and become less dependent on the network for users, they may begin to view the protocol as an unnecessary drain on resources, leading to potential migrations to independent chains. PoL mitigates this by ensuring that applications remain integral to the ecosystem, benefiting directly from the network’s growth and security.

Tokenomics

Berachain operates on a tri-token model consisting of BERA, BGT, and HONEY, each serving a specific function within the ecosystem.

• BERA: The primary gas token used for network transaction fees and staking. Validators stake BERA to secure the network and participate in consensus. BERA is minted by irreversibly burning BGT.
• BGT: The governance and reward token, central to the Proof of Liquidity mechanism. BGT is distributed to liquidity providers based on the amount of liquidity they provide to various gauges. It can be delegated to validators or irreversibly burned to mint BERA 1:1, creating a dynamic interplay between governance, staking, and liquidity provision.
• HONEY: The network’s native stablecoin backed by USDC; it is the native base pair and collateral used for Berachain’s three native applications - Bend, BEX, and Berps.

Unlike many blockchain projects that establish fixed or limited token supplies, Berachain has opted for a more flexible approach. This decision allows the ecosystem to adapt dynamically as it evolves, though it also introduces an element of uncertainty.

The tri-token model is designed to align incentives across the ecosystem, ensuring that all participants—validators, liquidity providers, and developers—are adequately rewarded for their contributions. This structure supports the long-term sustainability and growth of the Berachain ecosystem.

Testnet Usage

Source: Flipside - please visit the link for full-sized interactive dashboard

Berachain V2’s testnet has seen substantial participation, with its usage metrics, including daily transaction count and daily transactions per second, on par with several of the largest Layer 1 and Layer 2 blockchains. A key element of the network's operation is the distribution of BGT among validators, who are randomly selected to produce blocks.

The BGT emissions during the testnet phase were carefully monitored by the Berachain Foundation to ensure that the distribution was both fair and conducive to the network’s goals.

Roadmap and Future Developments

Berachain’s roadmap is focused on scaling the network, expanding its ecosystem, and enhancing the functionality of its core components. Some upcoming features and upgrades include:

• Scalability Enhancements: The introduction of BeaconKit and support for EIP-4844 have laid the groundwork for significant scalability improvements. Future upgrades will focus on further reducing block times, enhancing data availability, and supporting Layer 2 solutions.
• Ecosystem Expansion: Berachain aims to attract more developers and projects to its ecosystem through initiatives like the Build-a-Bera incubator program. This program provides support for new projects building on Berachain, ensuring that the ecosystem continues to grow and innovate.
• Developer and Community Engagement: Berachain plans to host hackathons, grant programs, and community-driven initiatives to engage with its developer community and attract new talent. These efforts will be crucial in maintaining the momentum generated by the project’s early successes.

Berachain aims to become the leading platform for decentralized finance, where liquidity and security grow together through the Proof of Liquidity (PoL) mechanism. As the rumored mainnet launch approaches in Q4, the team focuses on optimizing the network for high throughput, low latency, and decentralization. Refining the PoL mechanism ensures fair rewards for all ecosystem participants.

Conclusion

Berachain represents a significant leap forward in blockchain economic design, offering a novel approach to liquidity and security through its Proof of Liquidity (PoL) consensus mechanism. With a strong foundation built on community engagement, innovative tokenomics, and cutting-edge technical architecture, Berachain is well-positioned to become a major player in the blockchain ecosystem.

As the platform continues to evolve, it will be important for the Berachain team to stay true to its ethos of decentralization, inclusivity, and innovation. By doing so, Berachain can ensure that it remains at the forefront of the industry, attracting developers, users, and investors alike.

The journey from meme-fueled NFTs to a fully-fledged Layer 1 blockchain is a testament to the power of community-driven development and the potential for innovation within the blockchain space. Berachain’s story is still unfolding, and its future looks bright as it continues to push the boundaries of what’s possible in decentralized finance.

InfStones is closely involved with the Berachain team, as well as several ecosystem projects, and is proud to operate a validator on Berachain’s Bartio testnet. We are preparing to support all institutional and individual use-cases for BGT and BERA staking and we’ll be live on mainnet from day one.

Interested in delegating for extra rewards on Berachain? InfStones offers a range of services aimed at delivering safe and reliable staking rewards for your assets. To stay up to date with the latest Berachain news and learn more about how to stake with InfStones, please fill out this form or reach out to us here to discuss it step by step.

Article written by Rohit Sarkar, Business Operation Generalist at InfStones.