What is Berachain?
A fresh new EVM Layer-1 network, Berachain is drawing attention with its proof of liquidity model. Learn more about Berachain and how it works in our guide.
Berachain is bringing fresh ideas to how Layer-1 networks can work. This Ethereum-compatible blockchain is not just about connecting to the Ethereum ecosystem but introducing an entirely new approach to blockchain consensus with its Proof of Liquidity (PoL) model.
While still in its testnet phase, with a mainnet launch expected in 2024, Berachain is creating buzz, thanks to its liquidity-friendly design and developer accessibility. In our guide, we’re covering what Berachain is, the Proof of Liquidity model, what it brings to the DeFi space, and more.
What is Berachain?
Berachain is a Layer-1 blockchain designed to be a liquidity-focused, EVM-identical platform that reimagines blockchain consensus and token utility.
Unlike most blockchain networks that rely on Proof of Stake (PoS), Berachain introduces a novel Proof of Liquidity (PoL) consensus model. This approach incentivizes liquidity provision within its ecosystem, allowing users to stake assets while keeping them available for DeFi protocols. Essentially, it addresses the liquidity lockup issue seen in PoS systems, where staked assets are unavailable for other uses. With PoL, Berachain aims to build a network that not only operates securely but also fosters an active, liquidity-rich DeFi environment.
A key feature of Berachain is its full compatibility with the Ethereum Virtual Machine (EVM), meaning developers from Ethereum and other EVM chains can deploy applications on Berachain without needing any code adjustments. This “EVM-identical” setup mirrors Ethereum’s environment, making migration straightforward for developers while benefiting from Ethereum’s ecosystem updates, such as the anticipated Dencun upgrade. This compatibility keeps Berachain flexible and scalable, ensuring it can incorporate future innovations in the EVM landscape.
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Ethereum vs. Berachain
At its core, Berachain is an EVM-identical Layer-1 blockchain. This means it’s fully compatible with Ethereum’s Virtual Machine (EVM), allowing Ethereum-based decentralized applications (dApps) to deploy on Berachain seamlessly, without needing any code changes. Developers using Ethereum’s ecosystem can easily leverage Berachain’s unique features while keeping their existing code.
Berachain’s innovation largely lies in its PoL consensus mechanism, which rethinks how blockchains handle liquidity and security. Traditional Proof of Stake (PoS) systems require tokens to be locked for staking, reducing their availability in the market
In contrast, Berachain’s PoL allows users to stake assets without fully locking them up, which keeps liquidity in circulation. This “staking without lockup” system means the network remains liquid, which is particularly beneficial for DeFi applications that depend on a steady flow of tokens.
Berachain tokenomics
Berachain runs a unique tri-token system that divides the blockchain’s main functions across three tokens:
BERA: This is the native utility token used for transaction fees, similar to how ETH functions on Ethereum. BERA holders can also earn governance rights by staking in reward vaults.
BGT: Known as the Berachain Governance Token, BGT allows holders to vote on network proposals and updates. It’s a non-transferable token earned through staking BERA and other accepted assets. BGT powers governance decisions within Berachain’s DAO, where decisions about accepted assets, protocol upgrades, and key platform changes are made. Holders can either vote directly or delegate their vote.
HONEY: Berachain’s native stablecoin, HONEY, is pegged to the US dollar and supports transactions across the network. Minted through a collateral-backed process, HONEY aims to offer stability within the ecosystem, functioning in lending, trading, and other DeFi operations.
Read next: What is Tokenomics?
What is Proof of Liquidity?
Berachain’s Proof of Liquidity model enables a system where validators, liquidity providers, and the broader user base all play a role in maintaining a liquidity-rich network. In the PoL system, users contribute assets to “reward vaults,” allowing these assets to earn governance tokens without being locked away from use in DeFi protocols. Validators then decide how to allocate BGT rewards to these vaults, creating a marketplace where applications offer incentives for BGT distribution. This structure creates a powerful incentive system, aligning liquidity provision with network security.
Berachain key features
To build Berachain, the developers leveraged BeaconKit, a modular framework for constructing EVM-compatible consensus layers. BeaconKit brings benefits like modular composability, fast transaction finality, and support for upgrades as Ethereum evolves. With BeaconKit, Berachain can swiftly incorporate updates from Ethereum’s network—such as the upcoming Dencun upgrade—keeping the chain nimble and up-to-date with the latest EVM advancements.
EVM Compatibility: Berachain’s execution layer is identical to Ethereum’s EVM, meaning it uses unmodified EVM clients like Geth and Nethermind for executing smart contracts. This setup ensures smooth integration for dApps on Ethereum, enhancing Berachain’s flexibility and offering immediate compatibility with Ethereum’s ecosystem upgrades.
Read next: What was the Ethereum Merge?
Berachain ecosystem
Berachain has several DeFi applications within its ecosystem:
BEX: Berachain’s native decentralized exchange (DEX) uses an automated market maker (AMM) model for token swaps, where users can earn rewards by providing liquidity. BEX offers unique features, including gasless transactions, enabling users to pay transaction fees with the exchanged asset rather than BERA.
BEND: A lending platform exclusively using HONEY as the borrowing currency. Borrowers earn BGT incentives, providing additional utility for the stablecoin. Lenders can earn passive income by depositing HONEY in lending pools, benefiting from the network’s liquidity-friendly design.
BERP: A perpetual trading platform that leverages HONEY as its base token, allowing liquidity providers to earn rewards in BGT by depositing HONEY into the platform’s vaults. This application supports leveraged trading, giving users more flexibility in managing their assets.
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What funds has Berachain raised?
Berachain’s journey began as an NFT project called BongBears in 2021, and its “bear-themed” branding remains prominent today. The team, with aliases like Smokey the Bear and Dev Bear, has raised $142 million in funding through two major rounds. In April 2023, Polychain Capital led a $42 million round, and in 2024, another $100 million was raised with backing from Framework Ventures and Brevan Howard Digital’s Abu Dhabi branch.
Is Berachain a good investment?
As promising as Berachain is, there are some caveats. It’s still in the testnet phase, meaning the network could encounter unexpected technical challenges or delays before the mainnet launch. Additionally, Berachain’s founding team remains semi-anonymous, which might be a red flag for more cautious investors.
Looking ahead, Berachain’s PoL approach and the unique tri-token system could carve a strong niche for the network in the DeFi ecosystem, especially if it successfully launches on mainnet in 2024. Its combination of EVM compatibility and a liquidity-friendly consensus mechanism gives it a competitive edge, particularly for developers and users looking for cost-efficient and flexible blockchain solutions.
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What is the Berachain airdrop?
Berachain plans to conduct an airdrop of its native token, BERA, when the mainnet launches in 2024. Users who engage with the testnet could become eligible for this airdrop. However, be cautious and ensure you understand the terms and potential risks before participating in any testnet activities.
Berachain taxes
Any crypto transactions come with tax implications, including airdrops of BERA tokens and any profits from trading tokens. Koinly is always adding support for new blockchains, and you can easily use it to calculate your crypto tax liability. Try it free today.
