Berachain PoL Consensus Mechanism Upgrade: Injecting New Energy into the Ecosystem

Berachain, as a unique Layer 1 blockchain project, is most notably innovative for adopting the PoL (Proof of Liquidity) block reward distribution mechanism. This mechanism transforms the chain's block rewards into an internal economic driver for promoting ecosystem growth by directly distributing a majority of the rewards to ecosystem users and liquidity providers, thereby facilitating application growth and on-chain liquidity accumulation.

In this model, all ecological assets participating in staking directly provide on-chain liquidity support for Berachain. The rewards generated from PoL liquidity mining come from the chain's native incentive mechanism, aimed at building a more capital-efficient and targeted incentive underlying architecture.

Recently, Berachain upgraded its PoL Consensus Mechanism and officially launched the new V2 version. This upgrade mainly introduces a new token economic model, further clarifying the rights to earnings and value support of the $BERA token.

PoL Consensus Mechanism Overview

The operational logic of PoL is both simple and intriguing. It integrates the PoS Consensus Mechanism, liquidity mining, and Curve's veCRV liquidity game model, creating a new paradigm for on-chain governance and incentive distribution.

Berachain has designed two core types of on-chain native assets:

• BGT: As the native governance token and the dominant asset for incentive distribution.
• BERA: Staking asset for validators, also承担链上交易费用功能.

The main participants in the PoL model include: on-chain protocols on Berachain, validators in the network, and liquidity providers (LP).

In this mechanism, protocols or DApps that wish to obtain BGT incentives need to apply to join the PoL reward fund whitelist and provide attractive incentives to attract validators' BGT allocations. Validators are the block-producing roles in the network and need to stake BERA tokens. When a validator successfully produces a block, the system will provide BGT token rewards, including the base block reward and "variable quantity rewards."

Validators will allocate most of the variable rewards to the approved whitelist PoL pools according to their own strategies through the BeraChef contract. Validators will also receive incentives set by the treasury, such as HONEY, USDC, etc., when allocating BGT rewards.

Protocols that usually provide higher returns for LPs can also bring better returns for validators, so validators tend to allocate more BGT rewards to PoL pools that can offer higher protocol incentives.

The PoL pool of the protocol will be allocated to LP users after receiving BGT rewards. By becoming an LP in the PoL pool of projects on Berachain, users will not only receive regular Farming rewards but also earn native BGT token incentives from the underlying protocol, with APY generally being higher.

BGT stakers can delegate BGT tokens to validators to help increase their "Boost" value, and validators will periodically distribute the protocol incentives they earn proportionally to the BGT delegators who support them.

Therefore, under the PoL model:

1. A long-term game will form between the agreements, continuously attracting liquidity through returns, providing a better liquidity foundation for Berachain.

2. Validators are also engaging in games to attract more BGT holders' support, in order to achieve better "Boost" values and potential returns, continuously helping to optimize liquidity for the network.

3. Participants who provide more liquidity can have more say and economic benefits, forming a growth flywheel that integrates liquidity, security, and incentive distribution.

Innovation of POL v2

In Berachain v1, the BGT token, which serves as an asset with both governance and incentive functions, has been deeply integrated into the economic circulation system. As an incentive asset with inflationary characteristics, BGT has clear native use cases at the blockchain layer and possesses sustainable revenue capabilities.

In contrast, the economic role of BERA in the v1 phase is relatively weak. Apart from bearing transaction fees and acting as staked assets for validators, users can hardly obtain on-chain returns from BERA in a native manner. Most BERA holders can only rely on third-party DeFi protocols, such as participating in LP farming that supports BERA or its wrapped assets, to indirectly generate returns. However, such paths often have high barriers to entry, cumbersome operations, and poor experiences.

Similarly, under the current increasingly stringent global compliance environment, BERA and other native PoS assets on the chain face similar issues, namely the lack of compliance-friendly yield models, making it difficult for institutional users to adopt or integrate them into the traditional financial system, thus limiting market expansion opportunities.

The most intuitive improvement of v2 to Berachain lies in the introduction of the BERA incentive module, which allows BERA to better integrate into the Berachain economic ecosystem and empower the ecosystem more effectively without significantly altering the original economic ecological system.

BERA Incentive Module

In v2, Berachain introduced the BERA incentive module, allowing users to stake BERA tokens directly through single-coin staking on Berahub, earning native rewards from the chain ecosystem.

The BERA incentive module is similar to a staking method. When users natively stake BERA tokens, the system first converts them into wrapped tokens WBERA, and after staking them in the network, it provides a receipt token sWBERA. Users can also directly stake WBERA tokens, which will similarly yield the sWBERA receipt token.

sWBERA token is similar to an LST and can serve as a collateral asset, with the potential to capture yields again in the DeFi protocols of the Berachain ecosystem, enhancing capital utilization for multiple benefits.

When users stake BERA tokens, they directly stake into the contract of Berachain, experiencing a single-token staking similar to PoS, rather than delegating to validators. It is important to note that redeeming sWBERA for BERA requires a 7-day unlocking period.

From the perspective of revenue sources, in v2, the bribe income obtained by validators will be 33% repurchased as WBERA and then distributed to BERA stakers (reinvestment). The staking income that users receive depends on the proportion of their staked BERA tokens in the overall share.

In v2, the threshold for users to earn income from BERA is significantly lowered, allowing for direct staking at the blockchain layer, with higher security and reliability, eliminating the need to engage with third-party protocols to become an LP or to perform delegated staking.

Currently, the unilateral staking yield of BERA can reach 103%, making it the highest yield Layer 1 for single token staking. Although some trading platforms also offer BERA's earning features, the overall yield ranges between 60% and 90%, but staking directly on-chain is more cost-effective.

BERA Staking Yield Authenticity

The native staking of BERA does not rely on inflation to "print coin distribution"; its mechanism itself has real yield support.

In the PoL model of Berachain, the protocol competes for BGT rewards by initiating "bribes" to validators, with most of these funds coming from the protocol's own treasury, paid in the form of stablecoins, mainstream assets, or protocol tokens. These funds are not given directly to the validators; instead, the system collects a 33% fee, auctions them off as WBERA, and finally distributes them proportionally to users who stake BERA.

Although BERA rewards are indeed issued on-chain, this is not inflation created out of nothing like other PoS networks, but rather backed by real funds. This process is similar to the network selling the "minting rights" and then distributing that monetized income to the stakers.

For example, if both ETH and BERA issue tokens worth 100 million dollars annually:

• ETH directly gives stakers 100 million USD
• Berachain sells inflation through a bribery mechanism, and if the efficiency is 80%, it will receive an additional approximately 80 million dollars in real gains.

The result is: with the same inflation, Berachain can achieve $180 million in on-chain value return, while ETH only manages $100 million.

Therefore, the staking yield of BERA belongs to "protocol layer real yield", which is not only more sustainable but also provides long-term value support for its native staking scenario.

Institutional Friendliness

The Berachain PoL v2 model converts inflation into actual revenue for the protocol, creating a clear and well-defined on-chain real yield model for BERA. This model does not rely on third-party protocols or secondary market speculation, and is entirely derived from the real bribery expenditures of the on-chain protocol, which are transformed into traceable incentive funds through auctions.

The returns generated by this model can be uniformly packaged, split, and distributed in a centralized exchange custody environment, allowing BERA staking to have the potential to be packaged by institutions as wealth management products, custody agreements, and structured income tools. This effectively addresses the pain point of being difficult to directly reach institutional users.

On the other hand, the recently watched "Clarity Act" establishes a clearer compliance framework for crypto assets. The launch of PoL v2 is timely, binding returns to real economic behavior through the mechanism layer. On-chain financial instruments should have clear sources of income, an auditable underlying structure, and asset properties that are custodial and interpretable for holders, which is one of the directions advocated by the "Clarity Act".

If BERA launches a Digital Asset Treasury in the future, it will provide institutions and even listed companies with a compliant, custodial, and on-chain revenue path with sustainable cash flow characteristics.

Overall, the launch of v2 not only accelerated the flywheel within the ecosystem but also has a more profound strategic significance for ecological development.