Sometimes, crypto projects with a meme-like concept can evolve to take on a new life with greater utility. One example is Berachain, which began life as the Bong Bears NFT project.
At the 2024 edition of Token2049 in Singapore, Berachain’s anonymous co-founder, Smokey the Bera, explained that the team had noticed problems with how a number of blockchain networks worked today. Specifically, they realized that in many cases, liquidity and security weren’t aligned at the chain level. That led to Bong Bears taking on a new life as a Layer-1 blockchain that integrates with the Ethereum virtual machine (EVM).
Berachain runs on a Proof of Liquidity (PoL) consensus, which provides security for the chain and rewards participants who provide liquidity. Although still in its testnet phase at the time of writing with the mainnet launch expected to happen by the end of 2024, Berachain deserves a closer look.
In this article, we'll explain what Berachain is, how it works, the benefits brought by its Proof of Liquidity consensus, and much more.
TL;DR
Berachain started as an NFT project. Now, it’s a Layer-1 blockchain with EVM capabilities that helps address liquidity and security issues.
Its unique Proof of Liquidity consensus rewards users for providing liquidity and boosts network security.
Berachain is currently on a testnet. The mainnet launch is expected by the end of 2024.
Ethereum decentralized applications can be easily deployed on Berachain because it uses EVM and the BeaconKit modular framework.
The $BGT token manages governance, empowering liquidity providers and promoting decentralized decision-making.
What is Berachain?
Berachain is a Layer-1 blockchain, offering a unique approach to speed and security. If you’re familiar with Ethereum, you’re in good shape because Berachain is EVM-identical — meaning it works just like Ethereum but with its own twist. At the time of writing, Berachain is in its testnet phase, with the mainnet launch expected to happen by the end of 2024.Berachain uses the same tools and clients (like Geth and Nethermind) that Ethereum developers use, so no extra setup is required. Every time Ethereum gets an upgrade, Berachain can adopt it right away.
What sets Berachain apart from other Layer-1 blockchains is its Proof of Liquidity (PoL) consensus mechanism. Instead of using staked tokens to secure the network, like Proof of Stake (PoS), Berachain focuses on liquidity.It rewards its community members who provide liquidity for trading and governance, so the more active the network is, the more secure it becomes. This aligns the incentives for everyone in Berachain, from validators to participants.Berachain is powered by BeaconKit, a modular framework that builds on the EVM and leverages Cosmos SDK. This adds flexibility, allowing Berachain to scale, while keeping the network user-friendly for developers.
How does Proof of Liquidity (PoL) work?
PoL is different from traditional consensus mechanisms like PoS. PoL rewards participants for providing liquidity while also securing the network. Let’s break it down.
With PoS, validators stake tokens to help validate transactions and make sure the network is secure. By staking, you earn rewards in return. But with PoL, there’s a different twist. Validators not only stake tokens but also provide liquidity.
Instead of locking up your tokens, they actively contribute to the decentralized exchange and liquidity pools. This means the tokens are making Berachain more efficient while still securing the blockchain.The beauty of PoL is that it incentivizes all community members, from validators to individuals and protocols. This strengthens the entire network, making it harder to attack. Consider a validator that's staking tokens on Berachain. With PoL, they also supply liquidity to a DEX. As they help facilitate trades, they earn both validator rewards and trading fees.
The network stays secure, while participants enjoy the rewards from PoL. By combining liquidity incentives with network security, PoL creates a collaborative and inclusive environment for everyone involved.
What is Beaconkit?
BeaconKit is the modular consensus layer powering Berachain, and it’s built using the Cosmos SDK. It provides flexibility for Ethereum-based blockchains, by giving developers the tools to create Layer-1 and Layer-2 solutions. Think of it as a tool kit that helps blockchains achieve scalability, composability, and finality, without having to reinvent the wheel.
BeaconKit helps Berachain remain EVM-compatible, where any Ethereum decentralized application (DApp) or smart contract can be deployed on Berachain without making any changes. This saves developers the time and effort of rewriting programming languages.
When Ethereum goes through massive upgrades like the Dencun upgrade, Berachain can quickly release the same upgrades too, thanks to BeaconKit’s modular design. Meanwhile, Cosmos SDK plays the role of creating blockchains with the ability to interoperate with others.
This allows BeaconKit to combine the strengths of Ethereum’s EVM with Cosmos’ enhanced composability and single-slot finality. Developers can plug in different modules — whether it’s a custom consensus layer, data availability solutions, or a rollup layer — making it adaptable from DApps to more complex blockchain structures.
For developers who want more control over their blockchain environment, BeaconKit lets them connect to different tools while benefiting from Ethereum’s security. Whether you’re building on Layer-1 or scaling up with Layer-2, BeaconKit makes deploying adaptable and secure solutions easier across the board.
What are Berachain DApps: BEX, Bend, and Berps
Berachain’s DApps are designed to maximize the benefits of PoL. Let’s look into Berachain’s three core DApps.
BEX: decentralized exchange
BEX is Berachain’s decentralized exchange (DEX), which allows community members to trade different types of crypto assets. BEX doesn’t require a centralized authority — it operates through smart contracts where trades are executed automatically.
Since it’s PoL-integrated, you can provide liquidity to the exchange, earning not only on trading fees but also on governance tokens like $BGT.
What it does: Facilitates decentralized trading and liquidity.
Key feature: Liquidity providers earn governance tokens, aligning with PoL.
Why it matters: It helps maintain liquidity in the Berachain ecosystem, boosting network security and governance.
Bend: lending protocol
Similar to Aave or Compound, Bend is Berachain’s lending protocol. It allows users to deposit their tokens as collateral and borrow against them.
Lenders earn interest, and liquidity providers can earn additional rewards through $BGT. Here, the PoL consensus helps to incentivize liquidity.
What it does: Allows you to lend and borrow crypto assets using PoL.
Key feature: Liquidity providers are rewarded with governance tokens.
Why it matters: Bend adds utility and liquidity to Berachain while supporting decentralized finance (DeFi) growth.
Berps: perpetual futures
Berps is Berachain’s DApp for perpetual futures trading. It allows you to bet on the price movements of digital assets without owning them. This is a popular type of derivatives trading.
As a trader, you can open positions, while liquidity providers earn trading fees. Just like with BEX and Bend, liquidity providers in Berps also earn $BGT thanks to PoL, tying their contributions to governance and security.
What it does: Enables perpetual futures trading on Berachain.
Key feature: Traders can take leveraged positions, while liquidity providers earn fees and rewards.
Why it matters: Berps increases engagement and liquidity, making the network more robust and interconnected.
These DApps allow participants whether a trader, lender, or liquidity provider to contribute to the security and governance of Berachain. PoL rewards these participants for their contributions to the network.
How does $BGT manage governance?
$BGT is the Berachain’s governance token, which incentivizes participation for their community members. $BERA is a gas token, used for transactions and staking.
Let's look now at how $BGT governance works.
Proposals
Any $BGT holder can propose changes to the Berachain network.
These proposals could cover several topics, like improving the system, changing how PoL rewards work, or letting new assets be added to liquidity pools.
Voting
Once a proposal is created, $BGT holders vote on whether to approve or reject it.
The more $BGT you hold, the more weight your vote carries.
Voting power can also be delegated to others, allowing community members to pool their influence.
Execution
If a proposal reaches the minimum required number of votes and passes, it enters a waiting period (also called a “timelock”).
After that, the changes can be executed, directly impacting the network’s functionality or reward systems.
Why separate $BGT and $BERA?
By separating $BGT from $BERA, Berachain ensures that governance decisions aren’t dominated by those who simply hold a lot of gas tokens. Since $BGT is distributed to liquidity providers and network participants, it provides the added bonus of having a say in how the network moves forward. They're participating in the ecosystem and being incentivized, too. This creates a long-term alignment between validators, developers, and participants.
Berachain has warned participants that the $BERA token and mainnet aren’t live, and $BERA is a testnet token at the time of writing. Any messaging stating otherwise is a scam.
Benefits of $BGT governance
Decentralization: Governance is distributed across a diverse group of participants in Berachain.
Alignment: Liquidity providers contribute the most to network growth and influence its future by earning $BGT.
Flexibility: Governance proposals can focus on growth areas, from reward structures to protocol upgrades
What is $HONEY?
$HONEY is Berachain’s stablecoin. It can be used for trading, lending, and borrowing across the Berachain platform. Unlike volatile digital assets, stablecoins tend to be pegged against currency or gold. Here’s how $HONEY works, as claimed by Berachain.
Collateralized stability
$HONEY is soft-pegged to the U.S. dollar, and it’s backed by a mix of crypto assets like $BERA and $HONEY-wrapped tokens. This multi-collateral approach claims to strengthen its stability, providing more resilience compared to stablecoins backed by a single asset.
Lending and borrowing
On DApps like Bend, you can deposit your crypto assets as collateral and borrow $HONEY against them. For example, if you own $BERA tokens but want to unlock liquidity without selling them, you can deposit your $BERA as collateral and borrow $HONEY.
Trading
Traders can swap $HONEY on BEX for other assets without worrying about price volatility, as the token remains stable. Liquidity providers who deposit $HONEY in pools can also earn rewards in the form of trading fees and governance tokens like $BGT.
Why use $HONEY?
Stability: Think of it as a digital version of a dollar that you can trade, lend, or borrow within the ecosystem, without the stress of wild price fluctuations.
Versatility: $HONEY can be used across multiple DApps for lending, borrowing, and trading on Berachain.
By using $HONEY, participants can engage with Berachain’s lending and trading protocols while benefiting from reliability and stability.
The final word
Berachain combines EVM compatibility with the Proof of Liquidity mechanism. This not only allows the community to stake tokens, but also contribute to liquidity and be rewarded for their contribution.For developers, Berachain provides tools like BeaconKit, which makes it easier to scale both Layer-1 and Layer-2 solutions. Meanwhile, participants can access Berachain DApps like BEX, Bend, and Berps for decentralized trading, participating in a lending protocol, and perpetual futures trading.
Interested in learning more about other Layer-1 solutions out there today? Check out our article on Sei, the Layer-1 built for decentralized crypto trading.
FAQs
Berachain is similar to Ethereum but uses a unique Proof of Liquidity consensus mechanism. It focuses on community-driven liquidity for network security.
PoL rewards participants for providing liquidity. They can earn validator rewards and trading fees. This helps to make the network more secure.
BeaconKit is a framework for Berachain. It lets developers build Layer-1 and Layer-2 solutions that work with the Ethereum virtual machine.
BGT is the governance token. BGT holders can vote on changes to the network.
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