Berachain Explained: A Modular EVM Framework + Proof-of-Liquidity Mechanism—Could It Solve the Liquidity Trilemma?
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Berachain Explained: A Modular EVM Framework + Proof-of-Liquidity Mechanism—Could It Solve the Liquidity Trilemma?
Berachain, not fake anymore.
Navigating Web3 tides with focused insightsAuthor: HAMSTER, ChainFeeds
On January 11, Berachain officially announced the launch of its public testnet, Artio. Although the testnet had been rumored to go live since November of the previous year, even with delays it did not dampen market interest. In less than ten days, Artio attracted over one million testnet users and more than 70 ecosystem DApps. This naturally raises the question: from an NFT project initiated by community members to a rising smart contract platform, what exactly makes Berachain stand out?
Origins
Berachain originated from the Bong Bears NFT project, launched by a group of early OHM veterans, later attracting numerous other OG OHM investors. "Bera" is a deliberate misspelling of "Bear," paying homage to the classic crypto meme "Hodl."
Berachain has evolved into a high-performance EVM-compatible blockchain built on the Proof-of-Liquidity (PoL) consensus mechanism. Its goal is to align network incentives by strengthening synergies between Berachain validators and the broader project ecosystem. Technically, Berachain is based on Polaris—a high-performance modular framework for building EVM-compatible chains atop the CometBFT consensus engine.
In April 2023, Berachain raised $42 million in Series A funding at a $420.69 million valuation. The round was led by Polychain Capital, with participation from OKX Ventures, Hack VC, former partners of Dragonfly Capital, Celestia co-founder Mustafa Al-Bassam, and Tendermint co-founder Zaki Manian.
Berachain Token Model
Berachain employs a three-token model consisting of BERA, BGT (governance token), and HONEY (stablecoin). Each token plays a specific role within the network:
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BERA: As a typical Layer 1 native token, it is primarily used for gas fees and block rewards. Advantage: Maintains network health and activity through gas fee mechanisms.
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BGT: Berachain’s non-transferable governance token. Currently, there are three ways to obtain it: providing liquidity on BEX, lending HONEY, or depositing HONEY into the bHONEY vault on Berps. Holders can participate in on-chain governance decisions, such as voting on block rewards for staked assets or selecting eligible staking tokens. Advantage: Separating governance from the base gas token allows more efficient allocation of network resources and rewards. This design enhances fairness and transparency in governance, ensuring active users do not lose voting power due to transaction fees.
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HONEY: Berachain’s native consensus-backed stablecoin. Users can mint HONEY by collateralizing other assets on the Berachain platform. Advantage: As an on-chain stable currency, HONEY provides a reliable medium of exchange for decentralized applications, increasing platform usability and appeal.
Beyond the three-token structure lies another key concept—BCV (Block-Captured Value). Certain transactions within Berachain’s DApps like BEX, Honey, and Perps generate fees that contribute to BCV. This means validators receive these fees as rewards whenever they include such transactions in their blocks. Validators collect a commission from BCV and pass the remainder to BGT delegators. In short, staking BGT becomes profitable because you earn not only BERA and BGT but also HONEY.
To summarize: users deposit assets (e.g., ETH, BTC, USDC) into the system and receive BERA tokens. These assets are then paired with HONEY to provide liquidity for protocols like AMMs. This enhanced liquidity attracts more traders and projects, generating additional trading fees for BGT. Since BGT can only be obtained by staking BERA, this mechanism incentivizes more users to stake BERA to earn BGT. Thus, the system continuously draws in new assets seeking BERA, creating a flywheel effect, illustrated below:
This diagram is provided by crypto researcher Yu Zhong Kuang Shui
Proof-of-Liquidity Consensus Mechanism (PoL)
PoL differs from traditional PoS systems in that it requires users to contribute to network security by providing liquidity to on-chain DeFi primitives such as AMM DEXs, perpetual exchanges, and stablecoin lending platforms. This mechanism directly links liquidity provision with network security, aligning incentives between security and liquidity.
The mechanism operates through several key components:
Multi-Asset Staking:
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Unlike traditional consensus mechanisms that rely solely on native token staking, PoL allows users to stake various assets such as ETH and BTC. These stakes are allocated to validators participating in DPoS.
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This diversified staking approach reduces reliance on any single asset and strengthens overall network health and stability through multi-asset liquidity support.
Coordinating Validators and Liquidity Providers:
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Users provide liquidity to certain pools to earn BGT, which they can then delegate to validators. Validators produce blocks proportionally based on the amount of BGT delegated to them, and both delegators and validators receive rewards from on-chain activities.
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In the PoL system, validators can use BGT to incentivize specific LP pools, while protocols may assist validators in accumulating BGT stakes via mechanisms such as bribes.
Integration of Liquidity and Governance:
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The PoL mechanism integrates liquidity provision into the blockchain's governance structure. Validators can vote on how BGT is distributed across different liquidity pools, further enhancing overall network liquidity and governance efficiency.
Long-term Impact on Network Health:
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Through this model, PoL aims to systematically build liquidity, promoting efficient trading, price stability, network growth, user adoption, and the successful operation of decentralized applications.
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PoL also helps mitigate centralization risks commonly seen in PoS systems, preserving chain integrity and preventing manipulation.
Berachain’s Modular EVM Framework “Polaris”
Polaris provides the execution environment for smart contracts on Berachain—an advanced, highly modular framework seamlessly integrated with the Cosmos ecosystem. Key features include:
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Enhanced EVM Experience: Polaris EVM offers improvements beyond Ethereum’s base implementation. It enables developers to create stateful precompiles and custom modules, making smart contract development more efficient and powerful.
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Modular Implementation: As a modular EVM implementation, Polaris can be easily integrated into any consensus engine or application, including the Cosmos SDK. This modularity simplifies EVM integration, reducing time and cost for developers building their own EVM solutions.
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Application of Stateful Precompiles: Stateful precompiles are precompiled contracts capable of modifying on-chain state, enabling more efficient state operations at lower gas costs. These enhance the functionality of Polaris EVM, making smart contract execution faster and more powerful.
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Custom Opcodes: Polaris EVM introduces custom opcodes to support more complex smart contracts.
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Full Interoperability with the Cosmos Ecosystem: Polaris Ethereum is a blockchain framework built on the Cosmos SDK that delivers full-featured EVM capabilities alongside complete interoperability with the Cosmos ecosystem. By integrating multiple stateful precompiles on-chain, EVM users can perform native Cosmos operations such as governance voting, validator delegation, and cross-chain interactions via IBC. This design achieves true interoperability between Cosmos and EVM while preserving the native EVM experience.
Conclusion
Understanding these elements reveals that Berachain is far from being a technically weak meme chain. In fact, Berachain’s three-token model and PoL consensus mechanism are ingeniously designed within efficient markets to ensure continuous value flow back to users. Moreover, on Berachain, users are not just investors but active participants in the ecosystem. This deep engagement combined with strong incentive alignment is precisely what distinguishes Berachain from traditional meme chains.
However, it is worth noting that both OHM and Luna were known for their unique economic models but ultimately suffered major collapses, leading to significant market cap losses. The failures of these two projects were largely attributed to unsustainable token issuance and staking mechanisms, along with excessive dependence on liquidity. While Berachain attempts to build a more robust and sustainable economy through its three-token model and proof-of-liquidity consensus, whether it can truly avoid the risks seen in the OHM and Luna cases remains to be seen.
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