Berachain is a high-performance EVM-Identical Layer-1 blockchain, which means it can support the same applications as Ethereum. It uses Proof-of-Liquidity (PoL) as a consensus mechanism to keep the network stable and efficient.
This blockchain is built on BeaconKit, a modular framework explicitly made for EVM, which helps ensure flexibility for developers working with Berachain.
The key difference in Berachain is that validators have more influence on the network. They get to choose how they diversify their rewards, which helps them align their work with the network’s goals. This is made possible through the use of BGT and the PoL system.
In this article, we will talk about the BGT token and how it works in Berachain. We will also discover the leading roles of validators and other PoL participants. Without further ado, let's move on to the BGT token.
What is BGT, and how does it work?
BGT (Bera Governance Token) is a non-transferrable governance token that users can receive by providing liquidity in PoL-eligible assets.
Validators are rewarded with BGT tokens when they produce a new block. And then, validators can point their BGT emissions to decentralized apps (dApps) on Berachain. For example, they can allocate 80% to one dApp and 20% to another, depending on what they believe is most beneficial for the network. In return for directing BGT emissions, dApps or participants in the ecosystem reward validators with incentive tokens.
Validators direct BGT tokens to reward vaults, which are then distributed among users who have provided liquidity to support the network. This makes them BGT holders and allows them to delegate their BGT to a validator.
The distribution of BGT to reward vaults strengthens the bond between validators and protocols, as validators get the chance to promote protocols’ liquidity on Berachain while their rewards are shared with the ecosystem protocols.
What is Proof-of-Liquidity?
Proof-of-Liquidity (PoL) is a new consensus mechanism similar to the Proof-of-Stake (PoS) concept. In PoS, a certain amount of native tokens must be staked to secure the network.
In PoL, in addition to the regular gas token, a special governance token appears, which is used to manage rewards. This governance token can be earned just by providing liquidity to the network.
This mechanism separates the role of the tokens in Berachain – BERA tokens are responsible for gas and network security, and BGT for reward management.
How does Proof-of-Liquidity work in Berachain?
- A validator contributes the BERA gas token to secure the network and be able to create blocks.
- All active validators have an equal chance to be selected to create a block.
- When a validator is chosen, he receives BGT tokens as a reward. These tokens are then allocated to the reward vaults that the validator has selected.
- Reward vaults track who has contributed liquidity and distribute BGT tokens to users as a percentage according to their contribution share.
- BGT holders can choose which validator to delegate their tokens to. This increases the weight of the validator's rewards and affects the amount of BGT distributed to their selected reward vaults.
Thus, PoL separates the functions of security and reward management and encourages users to contribute liquidity to the network.
Who are PoL participants?
PoL involves the cooperation of all blockchain participants, unlike PoS. While in PoS validators have no incentive to interact with other protocols, PoL encourages all parties to work together to get the most out of liquidity.
The following diagram shows a breakdown of the different participants in the PoL ecosystem.
Let’s take a closer look at each of them.
Validators
These participants coordinate with one another to reach a consensus on the state of the blockchain. To become an active validator, you need to stake BERA tokens.
Validators earn rewards in three ways:
- Gas fees and priority fees.
- Setting a fee on BGT distribution.
- From protocols for directing $BGT rewards to their reward vaults. This is where PoL comes into play.
In PoL, validators perform a greater function than maintaining the network, they can cooperate with protocols to increase their liquidity on Berachain. Finally, they must engage BGT owners to distribute rewards and receive incentives efficiently.
BGT Holders & Farmers
The holders of BGT play a crucial role in developing and managing the Berachain ecosystem. Here are the main roles of holders:
- Vote for important decisions that affect the development of the network.
- Delegate their tokens to validators, influencing where Berachain's economic incentives are directed.
Bera Foundation
The Bera Foundation operates major decentralized applications (dApps) such as Bex, Bend, and Berps. These applications generate fees that are distributed among BGT holders, creating a stable demand for BGT earnings.
Liquidity in these default dApps also serves as default reward vaults for users to provide liquidity and earn BGT until other protocols' reward vaults are plugged into PoL through governance.
Ecosystem Projects
Projects in PoL get a new way of attracting deposits. Instead of traditional liquid mining, projects can connect to PoL and drive liquidity by attracting BGT rewards from validators to their Reward Vaults.
All network participants are interested in increasing the value of BGT, as this will also increase the value of the tokens of the projects that offer these rewards.
For their Reward Vaults to be approved for participation in the PoL system, new projects must receive the support of BGT holders and delegates.
Last words
Validators in Berachain’s PoL go beyond their traditional role of securing the network. They actively collaborate with protocols to promote liquidity and ensure efficiency. Additionally, validators must earn the favor of BGT holders to distribute rewards and maximize incentives.
This cooperative approach keeps the interests of all participants and creates an ecosystem where everyone works together to enhance liquidity and network value.
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