Have you ever wondered how new blockchain technologies can enhance liquidity and governance in decentralized finance (DeFi)? If so, the emergence of BeraChain with its innovative Proof of Liquidity mechanism may pique your interest. This detailed overview breaks down the intricate functions and benefits of BeraChain, providing insights to help you understand its potential impact on the blockchain ecosystem.
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What Is BeraChain?
BeraChain represents a paradigm shift in blockchain technology as an EVM-identical Layer 1 network that operates on a unique consensus model known as Proof of Liquidity (PoL). This groundbreaking approach separates gas tokens from governance tokens, a feature that aims to foster a vibrant liquidity ecosystem. The main goal of BeraChain is to encourage users to contribute liquidity to decentralized finance applications, facilitating a harmonious relationship between validators and project ecosystems.
By leveraging its distinct features, BeraChain aims to tackle the pressing issues many blockchain platforms face, such as liquidity constraints and inefficient governance processes.
Key Takeaways on BeraChain
- BeraChain is an EVM-identical Layer 1 blockchain built with the Cosmos SDK.
- It utilizes the Proof of Liquidity (PoL) consensus mechanism, allowing for a seamless separation between gas tokens and governance tokens.
- The network employs BERA, the primary token for transaction fees, and BGT, a soulbound governance token.
- Users can expect rapid transaction finality and cost-effective transaction fees within the network while benefiting from its scalable and modular infrastructure.
- At the time of writing, BeraChain is in its public testnet phase, with plans for a mainnet launch in late 2024.
The design of Proof of Stake (PoS) blockchains has gained acclaim for its scalability; however, this consensus mechanism often results in liquidity challenges, as it requires validators to lock up significant amounts of native tokens. BeraChain addresses these on-chain liquidity problems by implementing a unique liquidity solution at the consensus level. Users are empowered to stake assets securely on the network while simultaneously utilizing those assets in DeFi protocols.
On June 9, 2024, BeraChain announced the launch of its public testnet, alongside the anticipated mainnet debut later that year. This article will elucidate how BeraChain functions and the advantages it presents.
Introducing BeraChain
BeraChain operates as a modular Layer 1 blockchain, providing an EVM-identical environment for developers. Utilizing the Proof-of-Liquidity (PoL) consensus, BeraChain incentivizes users to supply liquidity to the network, granting them access to a governance token known as BGT. This unique token is pivotal in determining reward distributions within the liquidity-rich environment BeraChain aims to build.
Developers will find that BeraChain’s architecture allows them to create reward vaults where users can stake assets eligible for PoL. These vaults are managed by validators, who choose vaults based on the incentives provided by different protocols, typically offering exchange rates between emitted BGT and other tokens.
In this framework, BeraChain aspires to create a regenerative flywheel effect that links all network contributors:
- Individuals who lock their assets into reward vaults will gain emissions of BGT from validators, which can subsequently be delegated to generate additional rewards.
- Applications built on the network can stimulate user engagement via BGT emissions, enriching the overall ecosystem.
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The Backbone of BeraChain: Funding
BeraChain originated from an NFT project called BongBears, conceived in 2021. This whimsical bear theme also reflects in the names of its founding team members: Smokey the Bear, Homme Bera, and Dev Bear.
To date, BeraChain has secured $142 million across multiple funding rounds. In April 2023, the initiative raised $42 million, with Polychain Capital leading this round at a valuation of $420.69 million. The momentum continued in April 2024, when BeraChain completed a Series B funding round, obtaining an additional $100 million led by Framework Ventures and Brevan Howard Digital, among others.
Investors are utilizing a Simple Agreement for Future Tokens (SAFT) to back BeraChain, ensuring strategic financial support.
How Does BeraChain Operate?
The design ethos behind BeraChain is to cultivate a cost-effective, secure, and high-performance blockchain network that prioritizes liquidity. This intention is embedded within both its execution and consensus layer frameworks.
Execution Layer: EVM-Identical Environment
BeraChain provides a cutting-edge execution framework that mirrors the EVM (Ethereum Virtual Machine) structure, facilitating effortless application porting without necessitating codebase modifications. This attribute distinguishes BeraChain as more advantageous than traditional EVM-equivalent or EVM-compatible processing environments, as those often require adjustments prior to deployment.
Furthermore, as the EVM undergoes updates, BeraChain can seamlessly integrate the latest advancements, ensuring its relevance and modernity.
Consensus Layer: Proof-of-Liquidity (PoL)
At the heart of BeraChain lies the revolutionary Proof-of-Liquidity consensus mechanism. PoL serves as an adaptation of the well-established Proof of Stake model, fundamentally redefining how staking, asset management, and reward distribution occur.
Primarily, PoL introduces a multi-token structure separating the network’s security and governance components, bolstering the network’s economy while laying a strong foundation for the consensus infrastructure.
Contrary to conventional staking reward systems prevalent in PoS networks, BGT emissions within PoL differ. Validators emit BGT determined by their delegation weight, but neither they nor their delegates directly earn these rewards. Instead, they receive the authority to allocate BGT emissions to specific reward vaults.
In these vaults, staking supported assets can yield a share of BGT emissions, allowing users to capitalize on their contributions to the network’s liquidity pool.
| Features | Proof-of-Liquidity (PoL) | Traditional Proof of Stake (PoS) |
|---|---|---|
| Token Structure | Multi-token separation | Single token model |
| Stake Management | User-controlled vault allocations | Direct staking rewards |
| Reward Distribution | Allocated to vaults | Directly to validators and delegates |
| On-chain Liquidity Flexibility | High flexibility | Limited due to token locking |
This architecture fundamentally distinguishes BeraChain, creating a dynamic marketplace where applications compete for a portion of BGT emissions. Real-time incentives are crucial as protocols forge competitive rates between BGT and other assets.
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BeraChain Tokenomics
The multi-token economic system of BeraChain is designed to compartmentalize key operational aspects: economic function, security, and on-chain governance.
BERA
BERA functions as the native token of the BeraChain network, ensuring the settlement of transaction fees for both regular and smart contract processes. This token extends beyond mere utility; it embodies a vital role in governance and security as holders can stake their BERA, eventually obtaining the governance token, BGT.
Berachain Governance Token (BGT)
BGT serves as BeraChain’s governance token, contributing significantly to network security. Holding this soulbound and non-transferable token requires staking BERA and other accepted assets within reward vaults. Validators must also stake BGT tokens to validate blocks and are entitled to BGT emissions as rewards, albeit indirectly as they must channel them into reward vaults for valuated returns.
The governance aspects of BGT empower it to influence decisions made via the project’s decentralized autonomous organization (DAO). Token holders can vote on critical matters, such as asset acceptance in reward vaults and improvements to decentralized applications.
BGT can also be redeemed for BERA through a one-to-one burn process, fostering interconnectivity within the token ecosystem.
HONEY
HONEY emerges as BeraChain’s native stablecoin, pegged softly to the US dollar. This token strives to provide users with a reliable medium for transactions and exchanges within and outside the BeraChain ecosystem. The minting process involves systematic management by the vault router, a smart contract designed to accommodate stablecoin collateral for HONEY generation.
The DAO oversees the adjustment of minting rates, fees, and the types of collateral accepted, establishing a nuanced economic model.
Native dApps on BeraChain
BeraChain boasts various native dApps catering to the DeFi landscape, harnessing the network’s unique features and offering a preview of potential applications.
BEX – Decentralized Exchange
BEX represents BeraChain’s decentralized exchange, optimally engineered as an Automated Market Maker (AMM). Utilizing liquidity pools to satisfy users’ trade requests, BEX can transition its pools into Proof-of-Liquidity Reward Vaults, allowing liquidity providers to stake LP tokens in the corresponding vaults for BGT rewards.
BEX also introduces numerous transaction conveniences, including:
- Gas-saving and gasless transactions: Users encounter lower gas fees for swap operations. The range spans from 0.05% to 1% of the transaction’s value with a further 0.1% fee dedicated to BGT holders.
- Account abstraction: This feature permits users to perform transactions off-chain via relayers, easing the execution of delayed transactions while optimizing costs.
- Permissioned pools: Beyond standard permissionless pools, BEX will facilitate permissioned pools that dictate user access via specific actions or parameters.
- Surplus collateral: Implementing a smart contract mechanism, surplus collateral allows users to hold assets outside liquidity pools, establishing a more efficient means of transacting on the DEX.
BEND – Lending Platform
BEND operates as a native lending platform on BeraChain, allowing users to secure loans in stablecoins using their cryptocurrency assets. Exclusively utilizing HONEY for borrowing provides BEND with an intrinsic stability.
Crypto holders can lend their HONEY tokens into the platform’s lending pool to earn passive income based on prevailing interest rates. This means lenders can enjoy consistent returns while borrowers submit accepted cryptocurrency assets to facilitate lending agreements, creating a profitable synergy on the BeraChain infrastructure.
With these native applications, BeraChain emphasizes a future where decentralized finance becomes increasingly accessible and user-centric, underlining its core mission of liquidity enhancement in the blockchain space.
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Toward the Future
BeraChain’s innovative architecture seeks to redefine the relationships between liquidity providers, validators, and applications in the blockchain sector. By adopting the Proof-of-Liquidity framework, it offers a fresh perspective on consensus mechanisms and tokenomics.
As BeraChain progresses through its public testnet phase, the anticipation for its mainnet launch grows. With strong funding backing, an adaptable modular design, and a commitment to fostering liquidity-rich environments across DeFi applications, BeraChain represents the forward-thinking vision necessary for the sustainable growth of decentralized finance.
In this rapidly evolving space, understanding projects like BeraChain and their mechanisms will be essential for users, developers, and investors as they navigate the complexities of the blockchain universe.
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