In the evolving blockchain landscape, effective liquidity management and decentralization are critical. Berachain addresses these needs with its EVM-identical Layer 1 blockchain, leveraging a unique Proof-of-Liquidity (PoL) consensus and a specialized staking model to optimize liquidity and security.

In this article, we'll explore Berachain's architecture, Berachain staking model, and the advantages it brings to the DeFi ecosystem.

What is Berachain?

Berachain is an EVM-identical Layer-1 blockchain using a Proof-of-Liquidity (PoL) consensus mechanism. It enhances liquidity and security through a tri-token system and innovative staking model.

Berachain originated as Bit Bears, an NFT platform, before evolving into an EVM-identical Layer-1 blockchain. An EVM-identical network is an ecosystem that mirrors the Ethereum Virtual Machine (EVM) runtime on the Ethereum mainnet and uses the same clients as Ethereum to execute smart contracts. In addition, it upgrades every time Ethereum does, giving users the entire benefits package of developing in an Ethereum environment without the challenges of the behemoth blockchain network.

BeackonKit: Enhancing Development

At the heart of its operations is BeackonKit, a modular EVM library. This protocol facilitates compatibility with Ethereum tools and avails tools such as Ethereum Request Comments (ERCs) and opcodes, providing a better dApp development and deployment environment and experience than the traditional Ethereum setup.

Berachain’s PoL: A New Era in Blockchain Staking

The modular network built on the Cosmos SDK leverages the PoL consensus mechanism. This approach diversifies liquidity sources while rewarding all ecosystem participants (validators and users). Berachain’s mode of operation seeks to defragment and decentralize liquidity to give automated market makers (AMM), perpetual and stop decentralized exchanges (DEXs), and lending pools on the chain a more stable environment to make them more efficient.

The Tri-Token System: BERA, BGT and HONEY

It has entrenched a tri-token mechanism. The three tokens at the center of Berachain’s PoL consensus mechanism are BERA, BGT, and HONEY. BERA facilitates transactions on the chain, whereas BGT, the governance token, is a soulbound token (SBT). HONEY is a wholly collateralized stablecoin softly pegged on the US dollar. The mechanism allows users to stake cryptocurrencies, provide liquidity in PoL-eligible assets, and earn BGT. BGT owners can vote on platform decisions, earn validator incentives, and exchange them for BERA. This approach incentivizes liquidity provision and building on the chain by aligning dApps with liquidity.

The Premise of Berachain Network

Challenges in Blockchain Evolution

The first-generation blockchain networks have fought many challenges. Scalability and interoperability constraints have siloed value and information, and limited the variety of use cases they can address effectively. Moreover, creating a delicate balance of security, speed, and decentralization in a way that optimizes the output of a PoS network is almost impossible, regardless of how well such a network aligns with validators. The balance is elusive because while the network may take care of its validators, its architecture needs to provide a straightforward way of taking care of users, which often is not the case.

Berachain's Innovative Response

Berachain, a result of community discussions and feedback, wants to address some of these challenges. Its model realizes that the PoS model Ethereum has implemented does not provide a collaboration path between the native and deployed protocols and the set of validators they rely on for security. By default, Ethereum's model does not create a need to align to a central goal because protocol incentives and validator rewards are detached from one another.

Therefore, Berachain allows users to stake and secure the chain and provide liquidity using approved cryptocurrency. This approach expands the base and breadth of liquidity, increases the depth, structure, and strength of the chain’s security, and improves the environment for building and deploying decentralized applications (dApps).

Besides, it aligns the incentives of the validators, protocols, and platform users to create synergy and cohesion among chain users and foster the long-term sustainability of its ecosystem. Berachain effectively addresses the issue of stake centralization and takes a fair crack at decentralizing the staking environment. While not yet announced, an Berachain airdrop could provide additional incentives for early adopters and liquidity providers.

How Does Berachain Work?

To understand how Berachain Network works, it is vital first to understand PoL and BeackonKit, the modular EVM-focused consensus client protocol it is built on, respectively.

Proof-of-Liquidity

Proof-of-Liquidity is an advancement of the Proof-of-Stake (PoS) consensus mechanism. Whereas PoS depends on the native gas token that nodes stake to secure the network, PoL introduces the concept of additional tokens. These other tokens take on different responsibilities, such as determining the staking structure, rewards, and format and exchanging value, among other uses.

The tokens used for security and gas differ from governance tokens. BERA is the native gas token, while BGT is the non-transferable governance token.

Berachain’s implementation of the tri-token approach and the system of rewards for providing liquidity to the ecosystem facilitates efficient trading, ensures impregnable chain security and price stability, and increases user and network growth.

BeackonKit

BeackonKit is a modular, customizable, composable consensus layer for Ethereum-based blockchain networks. Its framework leverages the Cosmos SDK to create a flexible and customizable consensus layer. Besides, it is compatible with the Engine API. Engine API is the bridge that facilitates data exchange between the consensus and execution layers of an EVM node. This feature makes BeackonKit pairable with EVM clients, lending Berachain its EVM-identical stature.

The two characteristics highlighted above make the platform friendly to dApps because they ease the development and deployment process and ensure that the flow of liquidity is unbridled.

What Makes Berachain Blockchain Network Useful?

Berachain was developed from forum discussions and feedback. Therefore, it is solution-centered. Some remedies it proffers are liquidity fragmentation, stake decentralization, and improving EVM accessibility.

• Liquidity Defragmentation—Liquidity in the DeFi space is a tricky issue. Crunches are typical in the crypto markets. Berachain has developed an approach that incentivizes users to provide liquidity in the chain. Its diversified liquidity provision process creates a favorable environment for decentralized finance (DeFi) applications.

• Stake Decentralization—The tri-token model on Berachain’s PoL presents an apparent advantage over single-token PoS blockchain networks. For instance, the more users stake ETH on Ethereum, the lower its overall supply gets. Lower supply translates to higher ETH prices, increasing the network's gas cost. However, since block rewards are also paid in ETH, the holders get more coins in supply, creating a risk of stake centralization.

• EVM Accessibility—The modular framework that anchors Berachain’s BeackonKit integrates many different layers. Besides, it is compatible with existing Ethereum tools that builders prefer.