Berachain & Proof of Liquidity: What is PoL and the Tri-Token Model?

Dead chains with dead projects can be a drag. Berachain is trying to fix that with a novel concept called Proof of Liquidity. Let's get into it.

Introduction

Berachain is a blockchain project on decentralized finance (DeFi) and NFTs, built on the Cosmos SDK with EVM compatibility. Berachain is a Layer-1 blockchain that integrates innovative economic models such as Proof of Liquidity (PoL) and Proof of Stake (PoS). Its goal is to create a more capital-efficient DeFi ecosystem by utilizing the liquidity provided by users in its consensus process.

Berachain has gained attention for its unique "tri-token model," which consists of $BERA (governance token), $HONEY (staking rewards token), and $BGT (gas token for transactions). This model helps balance liquidity, governance, and rewards in the ecosystem.

What is Berachain?

Berachain is a next-generation, modular Layer 1 blockchain network that operates on a novel consensus mechanism called Proof-of-Liquidity (POL). Unlike traditional blockchains, which rely on proof of work or stake, Berachain encourages users to provide liquidity in return for governance tokens that fuel the system. With Berachain, you can deploy Ethereum-based applications without modification since the network is fully compatible with Ethereum Virtual Machine (EVM).

Additionally, Berachain uses a Proof of Liquidity (PoL) consensus model, which allows users to provide liquidity for securing the network rather than just staking tokens. This reduces the risk of centralization, a common concern with Proof of Stake (PoS) systems like Ethereum, where the largest ETH holders become wealthier over time by earning more ETH through staking. Berachain’s PoL model also creates opportunities for decentralized applications to contribute liquidity and receive rewards, promoting a more decentralized and liquid ecosystem.

Introducing Berachain Tri-Token Model

Berachain's tri-token model is a different system within the blockchain ecosystem that ensures a robust decentralized system where governance, transaction utility, and staking are separated. This approach offers significant advantages compared to Ethereum's single-token approach. 

Ethereum uses ETH for gas fees and staking, reducing its circulating supply when tokens are staked, thereby increasing the cost of gas fees. Berachain, however, separates these functions across three tokens: BERA (gas token), BGT (government token), and HONEY (stablecoin). This separation prevents gas fees from rising when tokens are staked, creating a more efficient system.

Technical Infrastructure

The infrastructure of Berachain is designed to be modular. Berachain uses BeaconKit's EVM-identical network, allowing Ethereum-based decentralized applications (dApps) to run seamlessly on it. The infrastructure is also designed to accommodate future upgrades, such as Ethereum's anticipated Dencun upgrade.

With its unique proof-of-liquidity model, modular framework, and substantial backing from prominent investors, Berachain will play a pivotal role in the blockchain space. It offers a compelling environment for developers and users, fostering a system where liquidity and rewards drive decentralized innovation.

How Does Proof-of-Liquidity Work?

In the Berachain ecosystem, users who provide liquidity to the network are rewarded with a soulbound governance token known as the Berachain Governance Token (BGT). Tokens represent governance rights and staking power. Stakers can lock POL-eligible assets in "reward vaults," where they earn additional BGT emissions. The emissions can then be delegated to validators, creating a continuous loop of incentives.

Applications can set up reward vaults, offering liquidity providers the chance to stake and earn BGT. Validators choose vaults based on the incentives provided, often through an exchange rate between the BGT and another token. This dynamic creates an incentive flywheel that attracts users and developers, forming a liquidity-rich environment for decentralized applications.

How Berachain Works: A Deep Dive into Liquidity-Driven Blockchain

Berachain is designed to be a cost-effective, secure, high-performance blockchain network that prioritizes liquidity. Built on the BeaconKit framework, Berachain’s architecture is modular, providing a highly efficient execution and consensus layer that drives its unique approach to liquidity.

Execution Layer: EVM-Identical Environment

Berachain offers an Ethereum Virtual Machine (EVM) compatible chain—which means developers can easily deploy their Ethereum-based applications without modifying their code. 

Unlike other EVM-compatible or equivalent blockchains that may require modifications, Berachain mirrors Ethereum’s execution layer, making it fully adaptable to future EVM upgrades like Ethereum’s upcoming Dencun update. This creates a seamless experience for developers migrating from Ethereum or other EVM chains.

Consensus Layer: Proof-of-Liquidity (POL)                       

Berachain introduces a novel consensus mechanism called Proof-of-Liquidity (POL), an adaptation of Proof-of-Stake (POS) designed to tackle on-chain liquidity issues. POL modifies traditional staking, asset management, and reward distribution processes to build a value-rich network economy.

POL's multi-token structure separates security from governance, which is one of its core innovations. By staking, the network's economy is supported, ensuring both systems remain strong. Instead of typical staking rewards, Berachain’s governance token (BGT) plays a central role in distributing rewards and influencing the system.

Conclusion

Berachain represents a transformative step in blockchain innovation, blending cutting-edge technology with an ecosystem designed for maximum liquidity and decentralization. By introducing the Proof-of-Liquidity (PoL) consensus mechanism and a modular, EVM-compatible infrastructure, Berachain tackles the inefficiencies and centralization risks faced by traditional Proof-of-Stake systems. Its tri-token model—BERA, HONEY, and BGT—redefines how governance, utility, and rewards interact, ensuring a more balanced and capital-efficient ecosystem.