Modular EVM Framework + Liquidity Proof Mechanism, what sets Berachain apart?

ChainFeeds

2024-01-25 15:30

Read this article in 10 Minutes

AI summary

View the summary

Original Title: "Detailed Explanation of Berachain: Modular EVM Framework + Liquidity Proof Mechanism, Will it Become the Breakthrough in Liquidity Dilemma?"

Original Author: HAMSTER, ChainFeeds

On January 11th, Berachain officially announced the launch of its public testnet Artio. Despite rumors of the testnet's launch since November of last year, the delay did not affect market attention. In less than ten days, Artio attracted over 1 million testnet users and over 70 ecosystem DApps. This begs the question, what sets Berachain apart from its initial NFT project as a community member to a cutting-edge public chain?

Origin

Berachain originated from the Bong Bears NFT project and was jointly launched by several OHM OGs. It later attracted a group of OHM OG investors to join. "Bera" is intentionally misspelled as "Bear" to pay tribute to the classic crypto meme "Hodl".

Berachain has now developed into a high-performance EVM-compatible blockchain, built on the Proof-of-Liquidity (PoL) consensus mechanism, with the goal of adjusting network incentive mechanisms by strengthening the synergy between Berachain validators and the project ecosystem. In addition, Berachain's technology is based on Polaris, a high-performance modular framework for building EVM-compatible chains on top of the CometBFT consensus engine.

Berachain completed a Series A financing of $42 million in April 2023, with a valuation of $420.69 million. The round was led by Polychain Capital, with participation from OKX Ventures, Hack VC, former partners of Dragonfly Capital, Celestia founder Mustafa Al-Bassam, and Tendermint co-founder Zaki Manian.

Berachain Token Model

Berachain uses a three-token mechanism, consisting of BERA, BGT (governance token), and HONEY stablecoin. Each token plays a specific role in the network:

· BERA: As a typical Layer 1 native token, it is mainly used to pay for gas fees and block rewards. Advantages: Maintains the health and vitality of the network through the gas fee mechanism.

· BGT: As the governance token of Berachain, this token is non-transferable and currently has three ways of obtaining it: providing liquidity on BEX, lending HONEY, and providing HONEY on Berps' bHONEY vault. Holders can participate in on-chain decision-making processes, such as voting on block rewards for staked assets and the selection of staking tokens. Advantages: Separating governance tokens from the underlying Gas token allows for more efficient allocation of network resources and rewards. This model increases the fairness and transparency of governance, ensuring that the most active users do not lose their governance rights due to transaction fees.

· HONEY: Berachain's native consensus collateralized stablecoin. Users can mint HONEY by collateralizing other assets on the Berachain platform. Advantages: As an in-chain stable currency, HONEY provides a stable trading medium for decentralized applications, increasing the platform's usability and attractiveness.

Outside of third-generation tokens, it is necessary to understand a concept - BCV (Block Capture Value). Some transactions in the DApps BEX, Honey, and Perps will generate a fee, which is transmitted through BCV. This means that as long as a validator includes one of these fee-generating transactions in their block, they can receive the fee as a reward. The validator takes a portion of the BCV as commission and then transfers the remaining portion to the BGT delegate. In other words, staking BGT will be profitable because you can earn both BERA, BGT, and HONEY.

Generally speaking, users deposit assets (such as ETH, BTC, USDC, etc.) into the system to obtain Bera tokens. Subsequently, the system uses these assets to pair with Honey and provide liquidity for AMM and other protocols. This enhanced liquidity attracts more traders and project participants, thereby bringing more trading fees to BGT. Since BGT can only be obtained by staking Bera, this mechanism attracts more users to stake Bera to generate BGT. In this way, the system continuously attracts more assets to join in order to obtain Bera, forming a flywheel, as follows:

This image is from the cryptocurrency researcher Yuzhong Kuangshui.

Proof of Liquidity (POL) Consensus Mechanism

PoL is different from traditional PoS systems in that it requires users to contribute to network security by providing liquidity for DeFi primitives (such as AMM DEX, perpetual exchanges, and stablecoin lending platforms) on the chain. This mechanism directly links liquidity provision behavior with enhanced network security, promoting incentive consistency between network security and liquidity.

The operation of this mechanism can be divided into several key steps:

Multi-asset collateralization:

· Unlike traditional consensus mechanisms that only use native tokens for staking, PoL allows users to stake various assets such as ETH, BTC, etc., which are allocated to validators to participate in DPoS.

· This diversified pledging method helps reduce reliance on a single asset and enhances the health and stability of the entire network through the liquidity support of multiple assets.

The relationship between validators and liquidity providers coordination:

· Users provide liquidity to certain pools to earn BGT, which is then used to delegate to validators. Validators generate blocks based on the proportion of BGT delegated to them, and delegators and validators in turn receive rewards from the chain.

· In the PoL system, validators can incentivize specific LP pools through BGT, while the protocol can help validators accumulate BGT staking through mechanisms such as bribery.

Liquidity and Governance Integration:

· The PoL mechanism integrates the concept of liquidity into the governance structure of the blockchain. Validators can vote to determine the allocation of BGT in different liquidity pools, further enhancing the overall liquidity and governance efficiency of the network.

The long-term impact on internet health:

· Through this approach, PoL aims to systematically establish liquidity, promote effective trading, price stability, network growth, user adoption rates, and successful operation of decentralized applications.

· PoL also helps to solve the problem of centralization in PoS systems, which helps to maintain the integrity of the chain and prevent manipulation.