What is Berachain?

Imagine a blockchain ecosystem where network security, governance, and economic incentives are intrinsically linked, creating a synergy that drives growth and innovation. Forget traditional models that prioritize validator rewards over the well-being of the ecosystem.

Well, Berachain is that new paradigm. This new blockchain has a bold proposal that redefines the rules of the game in the world of cryptocurrencies. This blockchain layer 1 (Layer 1), identical to Ethereum Virtual Machine (EVM) It is incredibly efficient, using an innovative mechanism called «Proof of Liquidity» (PoL) built on the robust BeaconKit framework. In this article, we will unravel the mysteries of Berachain, exploring its foundations, objectives, working mechanisms, and its potential to revolutionize the blockchain landscape. Challenge.

What is Berachain?

Berachain is a high-performance blockchain project, developed by Big Bera Labs, which differentiates itself from other platforms by its focus on Proof of Liquidity (PoL). This unique mechanism aims to align the incentives of all ecosystem participants—validators, protocols, and users—in a virtuous cycle that favors the overall growth of the network.

And this is because, unlike traditional blockchains that base their security on the amount of computing power (Proof-of-Work) or the amount of tokens staked (Proof-of-Stake), Berachain prioritizes liquidity as the driving force of its operation. That is, it rewards participants who contribute to the liquidity and stability of the ecosystem.

Furthermore, its execution layer is EVM-compatible, meaning it is fully compatible with tools and applications developed for Ethereum, ensuring easy migration and broad interoperability. Its structure is based on the BeaconKit framework, a modular consensus client that offers flexibility and scalability.

The pillars of Berachain: Tokenomics, nodes and governance

Of course, all of Berachain's success lies in the synergy between three key elements: its economic model (tokenomics), its network of nodes and its governance system. Let's analyze each of them in detail.

Tokenomics: the economic engine of Berachain

Berachain operates on an innovative two-token system, $BERA and $BGT, designed to work synergistically and foster sustainable ecosystem growth. Unlike many systems that centralize rewards into a single token, this dual model creates a more robust and balanced structure. Let’s take a closer look at the role of each token:

$BERA, the security and transaction engine

$BERA is the native token of the Berachain network, essentially its exchange currency. It serves as a means of payment for transactions, and is used to cover the commissions or “gas fees” necessary to execute smart contracts and other operations on the blockchain. Beyond its usefulness as a means of payment, $BERA plays a fundamental role in the security of the network. Berachain validators need to to bet (to stake) a significant amount of $BERA to participate in consensus and validate transactions. This stake acts as collateral for their good behavior; a validator acting maliciously or negligently risks the loss of their staked tokens.

The amount of $BERA staked by a validator not only qualifies them to participate in the validation process, but directly influences their likelihood of being selected to propose the next block. The more $BERA that is staked, the higher the probability of being chosen. This means that validators are incentivized to attract and hold large volumes of $BERA in their stake, which, in turn, reinforces the security of the network.

The total supply of $BERA at launch was 500 million tokens. $BERA inflation is indirectly tied to $BGT emissions, resulting in an expected increase (subject to governance) of approximately 10% per year, a mechanism designed to balance the creation of new tokens with ecosystem demand. This flexible design allows inflation to adapt to the needs of the network as it evolves.

$BGT, the governance and rewards token

Unlike $BERA, which focuses on security and transactions, $BGT is responsible for governance and reward distribution in the Berachain ecosystem. Validators receive $BGT as a reward for proposing valid blocks, and in proportion to their “boost.” This “boost” is a multiplying factor that increases the $BGT reward earned by a validator, and is directly related to the amount of $BGT that holders delegate to said validator.

This mechanism of «boost» creates a virtuous circle that incentivizes both validators and $BGT holders to collaborate for the success of the ecosystem. Validators that offer superior performance and higher security will attract more $BGT delegations, increasing their boost and, consequently, their reward. On the other hand, $BGT holders will have the possibility to obtain additional returns by delegating their tokens to the most efficient validators.

But $BGT’s functionalities are not limited to rewards. This token also plays a central role in Berachain’s decentralized governance. $BGT holders are the ones who have the right to participate in important ecosystem decisions through proposal and voting mechanisms, ensuring that the future of the network is in the hands of the community. $BGT allows holders to participate in critical decision-making such as the addition of new assets to the PoL system, adjustments to protocol fees, and other crucial updates for the well-being of the ecosystem.

A symbiotic ecosystem

The success of Berachain's tokenomic system lies in the interdependence between $BERA and $BGT. Network security, guaranteed by the $BERA stake, is reinforced by the $BGT reward mechanism that encourages active participation by holders through the delegation system.

In turn, governance, led by $BGT holders, manages the expansion of the $BERA supply, creating a dynamic environment where each token influences the stability and development of the other. In this way, the Berachain ecosystem fosters collaboration between all stakeholders, maximizing growth opportunities for all.

So for example, let’s consider two validators, Validator A and Validator B. Both proposed a block with a base reward of 100 $BGT. Validator A has a 1.5x boost thanks to a higher amount of delegated $BGT, while Validator B has a 1.1x boost. As a result:

Validator A receives 150 $BGT (100 $BGT * 1.5x).
Validator B receives 110 $BGT (100 $BGT * 1.1x).

This difference in reward incentivizes Validator B to improve its service by attracting more $BGT delegations to increase its boost and compete fairly with Validator A. In turn, $BGT holders benefit by earning higher returns for delegating to Validator A.

This is a clear example of how the tokenomic system generates healthy and efficient competition that benefits the ecosystem as a whole. The boost mechanism not only facilitates the allocation of tokens, but also encourages collaboration and efficiency between validators and holders.

Nodes and their role in the network

The Berachain network is made up of validators, which are nodes that maintain the security and integrity of the blockchain. To become a validator, you need to stake a minimum amount of $BERA. Validators compete to propose new blocks, and the probability of being selected depends on the amount of $BERA staked.

This process is similar to Proof-of-Stake (PoS), but differs significantly in the way rewards are distributed. On Berachain, $BGT rewards are primarily directed towards the 'Reward Vaults' from different protocols, which offer additional incentives in their tokens to validators who send rewards to their vault.

Example: If a validator directs their $BGT emissions to a specific DeFi protocol's Reward Vault, they receive a certain amount of the protocol's tokens in return. This mechanism provides economic incentives to validators to support specific protocols within the Berachain ecosystem, encouraging growth and interaction between different parts of the ecosystem.

Governance: power in the hands of the community

Berachain governance is a fundamental aspect of its development and sustainability. $BGT holders have the power to influence the future of the blockchain. Through a process of proposals and voting, they can decide on crucial issues such as the addition of new assets to the liquidity proof, changes to fees for native protocols (e.g. BeraSwap), and other critical aspects of the network's operation.

The governance process, according to official documentation, governance generally involves several stages: creation of a proposal, a waiting period, an active voting period, and finally, the execution or rejection of the proposal which has to pass a 'Timelock' which serves as an anti-hostile protocol to secure the network. The guardian system adds an additional level of security, acting as a last resort against potentially harmful actions in the ecosystem.

For example, if a community believes that a specific protocol is not meeting quality requirements, or the functioning of some part of the network needs to be optimized, they can create a governance proposal to fix it. If the proposal receives enough support from $BGT holders, the necessary changes will be implemented.

Proof-of-Liquidity (PoL): Berachain's innovative engine

Proof of Liquidity, or PoL, is the heart of Berachain. This is a novel mechanism that seeks to optimize network efficiency and security by aligning the incentives of validators, protocols, and users. Instead of primarily rewarding validators, as in other blockchains, PoL redirects a significant portion of rewards (in $BGT) through 'Reward Vaults', where users with assets eligible to participate in the PoL 'liquidity' acquire rewards through mechanisms similar to 'yield farming' families.

Each protocol must go through a process of “whitelisting» to receive $BGT emissions, and to do so they will need to obtain the support of $BGT holders through the governance system. This ensures that the Berachain ecosystem is comprised of high-quality protocols with great growth potential in conjunction with the Berachain network, with the added incentive of providing more rewards to users who contribute their liquidity to those protocols and, therefore, to the Berachain network.

The PoL model creates a symbiotic ecosystem:

1. Validators: receive rewards in $BGT for proposing blocks, and can earn additional incentives in protocol tokens by sending part of these emissions to the 'Reward Vaults'.
2. Protocols: compete to attract $BGT emissions by offering attractive incentives in their 'Reward Vaults'.
3. Users: earn rewards in $BGT by providing liquidity and staking in 'Reward Vaults'.

This flow of $BGT encourages a collaborative dynamic where all actors benefit from the growth of the network.

BeaconKit: The Berachain Infrastructure

Of course, Berachain is not just a simple blockchain; it relies on an innovative and sophisticated infrastructure that ensures its efficiency, scalability, and interoperability. That infrastructure is called BeaconKit, a modular and adaptable framework designed specifically for consensus clients of blockchains based on the Ethereum Virtual Machine (EVM). Its carefully thought-out architecture is the key to Berachain’s key advantages.

Building with Lego blocks

In that sense, modularity is the core principle of BeaconKit. Rather than being a monolithic system, BeaconKit is built as a set of interconnected modules that can be swapped, upgraded, and customized. Imagine building with Lego blocks: each block represents a specific component (consensus, execution, etc.), and they can be combined in different ways to create unique, adaptable systems.

This modularity provides the flexibility to adapt to new needs and technologies. If a component needs to be upgraded or replaced, only that specific module needs to be updated without affecting the rest of the system. This greatly simplifies maintenance and allows for faster and safer evolution of the platform.

Adaptability above all

BeaconKit is designed to be adaptable to various EVM runtime clients. This means that it can be integrated with different EVM implementations (such as Geth, Nethermind, Erigon, etc.) without the need to modify its codebase.

This is crucial for interoperability and resilience. If one execution client experiences issues, Berachain can easily switch to another without losing functionality. We could say that BeaconKit is like a chameleon that adapts to its environment, in this case, the selected EVM execution client.

EVM Compatibility, a bridge to Ethereum

EVM compatibility is a fundamental and perhaps the most important feature of BeaconKit and, by extension, Berachain. This means that Berachain is functionally identical to Ethereum when it comes to running smart contracts. Any smart contract that works properly on Ethereum will work without any modifications on Berachain, and vice versa.

This compatibility greatly simplifies the migration of applications and developers from Ethereum to Berachain, opening up a wide range of possibilities. It is not just a simple adaptation; it is true machine-level compatibility, ensuring perfect interoperability.

Scalability beyond Layer 1

BeaconKit's modularity also allows for building and deploying Layer 2 solutions. Being a modular architecture, it allows for the integration of different scaling protocols without affecting the foundation of its operation. Layer 2 solutions are designed to relieve the load on the main layer, improving performance and transaction speed. In other words, the main chain (Layer 1) can be optimized and in turn features and optimizations can be added that allow for higher scaling and performance.

This significantly expands Berachain’s potential. The blockchain can operate as a robust and secure Layer 1, while Layer 2 solutions provide the scalability needed to handle high transaction volumes with optimized speed and efficiency. The development of the Berachain network is focused on being a blockchain that not only acts as a core layer, but also as a foundation for different Layer 2 solutions to run on and benefit from its security. In this way, Berachain helps overcome the scalability limitations typical of Layer 1 blockchains.

Additional Benefits of BeaconKit

In addition to its main features, BeaconKit offers other significant advantages:

1. Single Slot Purpose (SSF): BeaconKit provides fast transaction finality, significantly reducing the wait time for transaction confirmation.
2. Optimistic payload construction: Parallel construction of block proposals reduces block times by up to 40%.
3. Eth2 Modularity Compliance: BeaconKit follows the modularity principles of Ethereum 2.0, making it compatible with the Ethereum ecosystem as a whole.
4. Full EIP support: It remains compatible with all Ethereum Improvements (EIP), ensuring long-term interoperability.

The future of Berachain

With all this, Berachain represents an innovative vision of the blockchain ecosystem. Its innovative PoL mechanism, its solid infrastructure based on BeaconKit, and its decentralized governance system, give it significant potential to become a leading force in the sector.

By aligning the incentives of all participants, Berachain seeks to foster organic growth, innovation, and greater ecosystem adoption. EVM compatibility simplifies the migration of Ethereum developers and applications to the new ecosystem, ensuring easy interoperability. It remains to be seen what Berachain’s long-term impact will be, but its unique concept and ambitious execution positions it for an important role in the future of the cryptocurrency world.