Berachain
This is a new upcoming EVM-compatible L1 blockchain using Proof of Liquidity, meant to replace Ethereum. It is built on top of Polaris, using cometBFT consensus. It claims to solve the problems with Proof of Stake.
It claims to solve the following problems with Proof Of Stake which are -
- Improving the chain’s security leads to less liquidity.
- Staking becomes centralized because the same players get rewards.
- Protocols have little opportunity to improve the security of the chain they’re building on.
- Validators receive little upside from the protocols that they are ultimately running infrastructure for.
In Proof of Liquidity, a user stakes their token in the BEX liquidity pools. This gives them BGT, Bera Governance Token, which they can stake with a validator. The rewards are distributed in BGT, and BGT can only be obtained through providing liquidity to BEX pools. BGT is non-transferable, and it can be burned 1:1 for BERA, the chain's native token.
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Each validator, based on how much BGT is delegated to it, gets to decide on how much BGT inflationary rewards are distributed to which liquidity pools. This inflationary BGT is given to the LPs based on how much liquidity they have provided to those liquidity pools. This is called BGT emissions. The validator gets more blocks to write as the proportion of staked BGT with them increases. The validator can also set BGT bribes, which are essentially bribes to you that reward you for delegating to that validator.
Block Captured Value (BCV) is the fees that come from the native DApps of Berachain: BEX, Honey, and Perps. Certain transactions within each of these DApps will incur a fee that is passed on as BCV. This means that any time a validator includes one of these fee-incurring transactions in their block, they’ll be earning that fee as a reward. The validators also earn gas fees, which is a tip from a user to the validator to include the transaction in the block.
The incentive structure is interesting, and I would love to see how it plays out. One interesting thing that I think will happen is that all transactions will have to add a tip that is proportional to the fees that are generated by transactions that contribute to Block Captured Value.
Another interesting aspect is how liquidity pools, along with the regular rewards generated by the fees. The users of the liquidity pools, will give BGT token rewards. Two liquidity pools with the exact same functionality, tokens, and risk might have different BGT token rewards, which would probably result in one of the pools dying.
I don’t see how this chain solves the second problem it states, where the chain gets more centralized, as the same group of liquidity providers get BGT rewards. Sure, some of them might not stake it, but besides staking BGT, the only thing you can do is burn it. This creates the same problem present in current PoS chains.
Overall, I am excited to see the yields generated on this chain.
