EVM Compatibility

The Ethereum Virtual Machine (EVM) serves as the runtime environment for Ethereum’s smart contracts, defining the rules for executing instructions based on its native programming languages like Solidity or Vyper. EVM compatibility in another blockchain means that the blockchain can execute Ethereum-based smart contracts and DApps without requiring significant modifications.

Berachain’s EVM-Compatible Features

• Smart Contract Deployment: Developers can deploy existing Ethereum smart contracts on Berachain without major changes. This compatibility eases the migration of applications from Ethereum to Berachain, making it a less resource-intensive process.
• Tooling and Infrastructure: Berachain supports common Ethereum development tools and infrastructure, including popular frameworks and libraries like Truffle, Hardhat, and Web3.js. This support helps in maintaining a consistent development experience.

Proof of Liquidity

Proof of Liquidity (PoL) is a groundbreaking consensus mechanism used by Berachain, distinguishing it from more traditional approaches like Proof of Work (PoW) or Proof of Stake (PoS). This mechanism integrates liquidity provisioning directly into the consensus process, aligning the financial incentives of validators with the overall liquidity and stability of the network.

Proof of Liquidity requires validators to not only participate in transaction validation and block production but also to contribute to the liquidity of the network. This dual role enhances both the security and the economic viability of the blockchain.

Validators’ Role: Validators under PoL must lock up a portion of tokens which act as their “stake” in the consensus process. However, unlike PoS, these tokens must be actively used to provide liquidity. Validators are rewarded based on both their transaction validation activities and their contribution to the network’s liquidity.

Liquidity Pools: The locked tokens are typically used in decentralized finance (DeFi) activities within the network, such as liquidity pools. This ensures that the blockchain not only secures itself but also supports a vibrant ecosystem of trading and other financial operations.

Benefits of Proof of Liquidity

By requiring validators to contribute to liquidity pools, PoL inherently stabilizes the network’s financial ecosystem. This prevents large swings in liquidity and ensures that the blockchain remains functional even under volatile market conditions.

Alignment of Incentives

Validators are incentivized to maintain network stability and security because their rewards are directly tied to their performance in both validating transactions and managing liquidity. This alignment of incentives reduces the likelihood of malicious behavior that could undermine the network.

Economic Efficiency

PoL encourages the efficient use of capital within the ecosystem by ensuring that the assets locked up by validators are put to productive use, rather than merely sitting idle as in some PoS systems. This active utilization of assets promotes a healthier, more robust economic environment.

Scalability

Proof of Liquidity allows for more scalable network operations, as it supports a large number of transactions and interactions without compromising on speed or efficiency. This is particularly important for a blockchain aiming to support a wide array of DeFi applications.

Challenges and Considerations

The requirement for validators to actively manage liquidity can add a layer of complexity and risk to their operations. Validators must be adept at not only technical operations but also financial strategies. Since validators’ assets are tied up in market-driven liquidity pools, their holdings might be subject to market volatility, impacting their rewards and potentially the security of their stakes.

Tokens and Governance

Berachain introduces a sophisticated token ecosystem that supports its novel Proof of Liquidity mechanism and broader network functionalities. This ecosystem includes three primary tokens: BERA, BGT, and the Honey Stablecoin. Each plays a unique role in governance, network stability, and economic incentives.

BERA Token

BERA functions as the primary network token for Berachain, akin to “gas” in Ethereum, used to facilitate transactions on the blockchain. This utility makes BERA essential for performing operations within the Berachain network, covering transaction fees and thereby ensuring network activity.

BGT Token

BGT (Bera Governance Token) is unique in its role and acquisition. Unlike traditional Proof of Stake tokens, BGT is specifically a governance token used within Berachain’s Proof of Liquidity model. It secures the network through engagement in liquidity provision rather than mere token staking. BGT is non-transferrable and is obtained by engaging with the ecosystem, particularly by depositing liquidity in native BEX or participating in other authorized dApps.

BGT is essential for participating in governance, as it allows holders to vote on proposals, including those that determine the distribution of BGT emissions across LP pools. Additionally, it can be delegated to validators to earn various network rewards. Interestingly, BGT can be burned on a 1:1 basis to obtain BERA, emphasizing its integral role in balancing governance and economic activity within Berachain.

Managing BGT in Berachain

Managing the Bera Governance Token (BGT) in Berachain involves several critical functions that ensure the token’s effective use in governance, incentivization, and network security. Here are the detailed aspects of managing BGT::

BGT Emissions

BGT emissions are a fundamental part of the incentive structure within Berachain. They are designed to reward users for participating in the ecosystem, particularly through liquidity provision and other DeFi activities. Emissions are distributed to various pools and activities based on governance decisions. This includes deciding which liquidity pools in the Berachain Exchange (BEX) should receive BGT, thereby directing network resources to areas that enhance overall liquidity and activity.

BGT Delegation

Delegation is a mechanism by which BGT holders can support validators by delegating their governance tokens. This not only helps secure the network but also aligns the interests of token holders with those ensuring network integrity. By delegating BGT to validators, token holders can participate indirectly in the governance process, as validators often have the responsibility to vote on key network decisions on behalf of their delegators.

BGT Bribes

BGT bribes are a novel mechanism within the Berachain ecosystem used to influence decision-making, especially for proposals affecting the distribution of network emissions and other critical governance decisions. Token holders can use BGT to “bribe” or incentivize other users to vote for certain proposals. This strategy aims to shape governance outcomes in a way that potentially benefits larger groups within the network or supports specific strategic initiatives.

BGT Station

BGT Station serves as the central hub for all activities related to BGT management. It is an integral part of the Berachain infrastructure where users can engage in delegation, manage their stakes, and participate in governance actions. At BGT Station, users can delegate their BGT to validators and redelegate their tokens to different validators, optimizing their governance influence and rewards. Moreover, they can participate in governance votes, directly affecting how the network evolves and operates.

Honey Stablecoin

Honey ($HONEY) is Berachain’s answer to the volatility commonly associated with cryptocurrencies. Pegged to approximate the value of 1 USDC, Honey provides a stable medium of exchange, crucial for transactions and financial activities on the platform.

On the testnet, acquiring Honey involves getting testnet BERA from a faucet and swapping it for Honey on the Berachain BEX, showcasing its integration with the broader Berachain financial ecosystem.