Detailed explanation of Berachain: Modular EVM framework + liquidity proof mechanism, will Berachain be the solution to the liquidity dilemma?

On January 11th, the official announcement of Berachain’s public testnet, Artio, went live. Despite rumors of its launch since November last year, the delay did not diminish the market’s attention. In less than ten days, Artio has attracted over 1 million testnet users and over 70 ecosystem DApps. This begs the question, what makes Berachain unique?

Origin

Berachain originated from the Bong Bears NFT project, which was jointly launched by several old OHM OGs, and subsequently attracted a number of OHM OG investors to join.”Bera” is a typo deliberately made by Bear in order to pay tribute to the old crypto-meme “Hodl”.

Berachain has now developed into a high-performance EVM-compatible blockchain, built based on the Proof-of-Liquidity (PoL) consensus mechanism, with the goal of strengthening the synergy between Berachain validators and the project ecosystem. Adjust network incentive mechanisms. Additionally, 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 $42 million Series A round of financing in April 2023, with a valuation reaching $420.69 million. Polychain Capital led the investment, and OKX Ventures, Hack VC, former Dragonfly Capital partner, Celestia founder Mustafa Al-Bassam and Tendermint jointly Founder Zaki Manian and others participated in the investment.

Berachain Tokenomic 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 the typical Layer 1 native token, it is primarily used for paying gas fees and block rewards. Advantage: 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, borrowing HONEY, and providing HONEY in the bHONEY vault on Berps. Holders can participate in on-chain decision-making processes, such as voting on block rewards for staked assets and the selection of stakable tokens. Advantage: Separating governance tokens from the base Gas token allows for more efficient allocation of network resources and rewards. This model enhances governance fairness and transparency, ensuring that the most active users do not lose governance rights due to transaction fees.
• HONEY: Berachain’s native consensus collateral stablecoin. Users can mint HONEY by collateralizing other assets on the Berachain platform. Advantage: As an in-chain stable currency, HONEY provides a stable medium of exchange for decentralized applications, increasing the platform’s usability and attractiveness.

In addition to the three tokens, there is a concept that needs to be understood - BCV (block capture value). Certain transactions in the three DApps of BEX, Honey, and Perps will generate a fee, which is passed on by BCV. This means that validators can earn these fees as rewards as long as they include one of these fee-generating transactions in their blocks. Validators collect a portion of BCV as commission and transfer the remaining portion to BGT delegates. This implies that staking BGT can be profitable because it allows you to earn BERA, BGT, and HONEY.

To summarize, users deposit assets (such as ETH, BTC, USDC, etc.) into the system to receive Bera tokens. Subsequently, the system pairs these assets with Honey to provide liquidity for AMM and other protocols. This increased liquidity attracts more traders and projects, generating more transaction fees for BGT. Since there are limited ways to obtain BGT and staking BGT allows you to earn BERA, BGT, and HONEY, the system continuously attracts more assets, creating a flywheel effect.

Proof of Liquidity Consensus Mechanism (POL)

PoL differs from traditional PoS systems in that it requires users to contribute to network security by providing liquidity for on-chain DeFi primitives such as AMM DEX, perpetual exchanges, and stablecoin lending platforms. This mechanism directly links the act of providing liquidity with enhanced network security, promoting incentive alignment between network security and liquidity.

The operation of this mechanism can be broken down into several key links:

1. Multi-asset staking:
   • Unlike traditional consensus mechanisms that only use native tokens for staking, PoL allows users to stake various assets, such as ETH, BTC, etc., and the pledges are assigned to validators to participate in DPoS.
   • This diversified staking 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.
2. Coordination between validators and liquidity providers:
   • Users provide liquidity to certain pools to earn BGT, which is then delegated to validators. Validators produce 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 with BGT, and the protocol can help validators accumulate BGT staking through mechanisms such as bribes.
3. Integration of liquidity and governance:
   • The PoL mechanism integrates the concept of liquidity into the governance structure of the blockchain.Validators can vote to determine the allocation of BGT among different liquidity pools, further enhancing the overall liquidity and governance efficiency of the network.
4. Long-term impact on cyber health:
   • In this way, PoL aims to systematically establish liquidity, promote efficient trading, price stability, network growth, user adoption, and successful operation of decentralized applications.
   • PoL also helps solve the staking centralization problem that exists in PoS systems, helping to maintain the integrity of the chain and prevent manipulation.
     

Berachain’s modular EVM framework “Polaris”

Polaris provides an execution environment for smart contracts on Berachain. It is a feature-rich, highly modular framework that is seamlessly integrated with the Cosmos ecosystem. Its core features include:

1. Enhanced EVM experience: Polaris EVM provides an improved EVM experience beyond the base implementation of Ethereum. It allows developers to create stateful precompiled and custom modules, making smart contract creation more efficient and powerful.
2. Modular implementation: Polaris is a modular implementation of EVM that can be easily integrated into any consensus engine or application, including Cosmos-SDK. This modular approach simplifies the EVM integration process and reduces the time and cost for developers to implement their own EVM integration solutions.
3. Application of Stateful precompiles: State precompilation is a precompiled contract that can change the state on the chain, achieving more efficient state operations with lower gas costs. These precompiled contracts provide additional functionality to the Polaris EVM, making it more efficient and powerful when executing smart contracts.
4. Custom OpCode: Custom opcodes have been added to the Polaris EVM implementation to support more complex smart contracts.
5. Comprehensive interoperability with the Cosmos ecosystem: Polaris Ethereum is a blockchain framework built on the Cosmos SDK. It not only provides a full-featured EVM, but also achieves complete interoperability with the Cosmos ecosystem. By integrating multiple state precompilations on-chain, EVM users are able to perform native operations of Cosmos such as governance voting, validator delegation, and interact with other chains through IBC. This design enables true interoperability between Cosmos and EVM while preserving the native EVM experience.

Summary

After understanding this, one can realize that Berachain is not a technologically weak Meme chain. In fact, Berachain’s three-token model and PoL consensus mechanism are designed very cleverly in the efficient market, ensuring a continuous flow of value back to the users. In addition, on Berachain, users are not only investors, but also active participants in the ecosystem. This combination of in-depth participation and incentive mechanism is the core advantage that distinguishes Berachain from traditional Meme chains.

But it’s worth noting that both OHM and Luna, known for their unique tokenomic models, both ended up suffering major crashes that resulted in significant losses in market cap. The collapse of these two projects was mainly attributed to the unsustainability of their token issuance and staking mechanisms, as well as their over-reliance on liquidity. As for Berachain, although it attempts to create a more robust and sustainable economy through its three-token model and liquidity proof consensus mechanism, whether it can truly avoid the risks seen in the cases of OHM and Luna remains to be observed.

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