✨Three Tokens and Proof of Liquidity
Liquidity is the cornerstone of Berachain.
This article is for newcomers who have heard about Berachain for the first time. Welcome to the Berachain community! 👏
How is Berachain different from many L1 blockchains? The differences that can be directly observed include at least the following aspects:
Bera is said to have three tokens operating simultaneously, unlike the traditional L1 which only has one GasCoin;
Bera’s consensus mechanism is called Proof of Liquidity, which is different from the common PoW and PoS;
Berachain has the official self-operated decentralized exchange BEX, the perpetual contract BERPS and the lending protocol BEND, rather than just providing the blockchain as a ledger.
What is the purpose of such a complex mechanism? So let’s dive into this issue together.
Three Tokens
Berachain's three tokens are $Bera, $BGT and the stablecoin $Honey.
$BERA is used as a Gas Fee;
$HONEY is a stablecoin on Berachain that serves as a low-risk alternative to cash.
$BGT is the governance token used by validator nodes to perform Proof of Liquidity (PoL);
$BGT is non-transferable and cannot be purchased;
$BGT can be burned to redeem $BERA;
The most complex design is on $BGT. Berachain rewards $BGT to those who contribute to the liquidity protocol, such as providing liquidity in BEX, or lending $Honey on the perpetual contract BERPS, and may receive $BGT as a reward.
$BGT is essentially a voting right, serving as the weight for blockchain consensus validators to vote for blocks.
Proof of Liquidity
The consensus mechanism determines the rules for producing blocks. Sometimes we only need to consider a simple question: Who are the miners?
Under the PoW mechanism, miners are the people who provide computing power to package transactions and record them on the chain.
Under the PoS mechanism, there are two kinds of miners; one is who provide computing power and package transactions as miners; the second one is who only provide $ETH as a deposit to become miners on the cloud.
On PoL, there are three types of miners:
The validator nodes that provide computing power, package transactions, and set the distribution rules of $BGT are miners;
They earn gas and fees from the exchange, also known as BCV.
People who provide liquidity are also miners;
They receive $BGT emissions and fees from the exchange as incentives.
Voters who delegate $BGT to nodes are also miners;
They can obtain bribes from nodes.
In the past, PoS only had one coin mechanism. For example, if you own $ETH, you can stake $ETH to become a miner and get more $ETH as income, just like a snowball. At the same time, $ETH can be purchased directly on the market. If you are rich enough, you can buy enough voting rights to become a giant mining pool.
Proof of liquidity completes the separation of voting rights and GasCoin. The creation of blocks in the blockchain must be decided by those who have truly taken the risks and contributed to the liquidity of the chain.
The ecosystem of a blockchain is supported by many applications and their user communities. In the past, we often saw examples like this: an application issued tokens and provided incentives for the liquidity pool of its own tokens to ensure stable market value and win the trust of community users. These incentives are often more air tokens, which will eventually destroy the market value that has been painstakingly maintained. Once the community collapses, the project will disappear.
In the mechanism of PoL, we can see an ingenious path to improve the level of decentralization:
The project deploys nodes and sets $BGT rewards to the pool with its own tokens;
Community users and supporters of the project delegate their $BGT to the project’s nodes;
The community has greater voting power, more $BGT incentives and deeper liquidity.
Note that these incentives are real $BGT and not more token liabilities from the air.
In the past consensus mechanism, the relationship between the blockchain and the applications on it was independent, and the application could go to the deployment contract of any chain at will to provide the same function. In terms of the PoL mechanism, project parties will be able to deeply bind themselves to the chain and build a win-win ecological flywheel for the community, developers and the blockchain.
More
If you have more questions about Berachain, we highly recommend reading Berachain’s official documentation!
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