Foreword

The crypto community is getting much attention nowadays, with a new world growing around a digital community powered by blockchain technology. To tap into this revolutionary movement, enthusiasts, and fans worldwide have created several platforms that enhance the industry’s growth.

Berachain is a new platform developed to join this ever-growing community. In this article, we will examine Berachain’s features, how it works, and the secret behind its recent popularity.

What is Berachain?

Berachain is a blockchain that originated from an idea by the Bonng Bears NFT community. It is an EVM-compatible blockchain that uses a novel consensus mechanism, Proof-of-liquidity, that enables users to stake layer-1 stablecoin assets and bluechip DeFi (household tokens with strong financial backing and steady returns on investment) with the chain’s validators.

It is a new DeFi protocol developed on the CosmosSDK. It uses Tedermint, its native consensus machine. The chain’s name comes from the developing team’s creation of an NFT project community called Bong Bears.

Berachain distinguishes itself from popular meme coins by planning to create a new level of capital efficiency in the De-Fi world. On Berachain, users can perform everyday transactions they can carry out on other De-Fi platforms but with some added features and benefits.

Berachain is more than a meme chain. It brings more to the table by planning to create new levels of capital efficiency for DeFi. This is due to its developers successfully creating a blockchain with a new three-token system. It also sets itself apart by claiming to solve major liquidity issues other blockchains face.

Who Created Berachain?

Berachain’s roots trace back to the creators of Bong Bears NFTs. It was originally an NFT project that is now morphing into an independent protocol. Berachain began with the Bong Bears NFT collection, which was launched around August 2021. The NFT collection project went through numerous phases before it announced the next phase of its plan.

The platform featured projects like Bond Bears, Baby Bears, Band Bears, Boo Bears, and Bit Bears. After the release of these different projects in April 2022, the Bong Bear team released an article on Medium revealing their plans to create a native protocol.

Currently, Berachain displays the same attribute as popular meme coins Dogecoin and Shiba Inu, which used the popularity of meme tokens to build a much bigger community to support it.

What is Behind the Recent Berachain Hype?

Berachain has recently sparked the interest of Olympus. The DAO platform plans to join the seed round of Berachain and work closely with the Berachain foundation as a strategic partner. The minds behind Olympus want to use around $500k from its treasury to invest in Berachain.

The investment would grant Olympus 1% of the network. That, paired with the added 1% they would get for their partnership with Berachain, would lead to them possessing 2% of the network.

How Does Berachain Work?

Berachain currently uses Cosmos-SDK, a framework for building blockchains. It also uses the native consensus mechanism Tendermint, one of the market’s most trusted and high-performing consensus frameworks.

The combination of Tendermint, Cosmos-SDK, and Berachain’s Proof of Liquidity Sybil resistance mechanism, allows Berachain to carry out transactions quickly, at low costs, and with deterministic finality. All these factors work together while building a simple, interoperable layer between different information systems.

This new layer is tasked with maintaining the consensus collateralized chain-native stablecoin, making staked capital more efficient, and, most importantly, making the blockchain less likely to be hacked than a blockchain built on the traditional proof of stake system.

What Makes Berachain Unique?

Berachain is an upcoming DeFi protocol, but it claims to be more than what the community is used to. So far, it has the backing of a community gathered through previous projects launched on its NFTs platform, but now it has set up certain features that set it apart from the everyday DeFi protocol we see in the ecosystem.

One major attraction to Berachain is its innovative approach to solving the fractionalized liquidity issue. Fractionized liquidity occurs when liquidity is fragmented into several assets; the liquidity pool dries up and becomes liquidity debt. Berachain’s approach to this is very peculiar. Rather than adopting the normal approach other blockchains use, Berachain went with a new system consisting of two fundamental parts:

• Tri-Token System
• Proof of Liquidity

Berachain’s Tri-Token System

Unlike popular chains like Ethereum and Terra, Berachain took an alternative approach to its native tokens. Instead, it adopted a Tri-Token System, which means Berachain has three different native tokens.

The tokens are split into three, and each one has a specific role:

1. $BERA

BERA possesses attributes similar to that of a typical Layer 1 native token. Its primary function is to be used as gas fees and block rewards. Once collected, the BERA tokens are burnt.

BERA’s most noticeable feature is how it is staked to earn BGT, which according to the developers, is the only way to earn BGT. There are two options for staking Bera; the first is to stake BERA alone, while the second is to stake BERA earned from stalking other tokens.

BERA tokens are expected to be issued at an annual 10% inflation rate over the coming years after their release.

1. $BGT

Berachain’s governance token is a nontransferrable NFT given to long-term users of the platform. The only way to earn $BGT is by staking your $BERA. This gives the owners a role in the chain’s decision-making process.

BERA is the gas fee token, while BGT is the governing token. Its task is simple: determine the block reward for every staking asset and decide which tokens can be added for staking.

By splitting up the gas token and the governance token, BERA is able to solve the proof-of-liability problem.

1. $HONEY

Berachain’s native consensus collateral stablecoin can be obtained by staking $BGT from fees related to DeFi activities. Users can mint $HONEY on the Berachain platform by using other assets as collateral.

HONEY is Berachain’s key currency because it is usually paired with other assets staked by users and is also used as liquidity. It is also used to settle funding fees in the platform’s perp exchange.

HONEY has certain measures in place so it does not lose its peg. Firstly, HONEY has a steady demand since it is used to settle funding fees in perp exchange. Also, when minting HONEY with other staked assets, the interest rate for minting can be changed mid-process.

The Tri-Token system is fueled by the belief that every decentralized economy is made up of three major pieces that are critical to the chain’s success. The first piece is the need for a way to price a unit of work and do that work through smart contract execution. The second piece is a tool for democratically organizing, reaching a consensus, and making decisions regarding the network’s future. The third piece is a way to conduct transactions through a general stablecoin.

The developers of Berachain found that the most active users who make the most transactions in a system with a token serving as both the fee and governance token end up losing their voting power over time. A solution to this issue was to separate the fee and governance tokens and allow for a fair and different way for users to gain governance tokens by using different tokens on the network and giving value to Berachain’s proof of liquidity system.

Berachain’s Proof of Liquidity System

Proof of liquidity is a new system created by Berachain’s developers. It allows users to stake different assets, such as ETH, TC, and other stablecoins, to a validator. Berachain’s proof of liquidity is a new Sybil resistance mechanism that uses consensus vaults to compute validator vote weights and distribute block rewards.

The system allows users and validator operators to deposit various assets into the consensus vault system. These users or validators are later rewarded with tokenized shares, a sign of their deposit. Under normal circumstances, staking is done in a protocol’s native token. Berachain’s adoption of Cosmos makes it easier to create a communications hub that allows tokens from different chains to carry out transactions amongst each other.

Berachain’s unique system allows users to stake tokens from the numerous tokens out there and assign those stakes to validators to participate in the DPoS. Berachain does not require you to stake any of its native coins (BERA, HONEY, BGT); you only need to prove you have liquidity.

Berachain’s Governance Model

With a tri-token system in place, one would expect a different style from the platform’s Governance and staking systems. Although it is not entirely the same, Berachain did try to follow the traditional system. Amongst the tri-token system is the chain’s Governance token, BGT, which is a non-transferable NFT.

BGT, which stands for Bera Governance Token, is used to decide the block reward for every staked asset and which other asset will be made available on the platform for staking. BGT holders will earn from the fees produced by the Bera native protocols and be rewarded with the native token $HONEY.

This means staking $BERA would be lucrative since you earn $BERA & $BGT and eventually $HONEY.

Berachain Ecosystem

With its launch set for several months from now, Berachain already has a budding ecosystem featuring partnerships with projects that intend to launch on the network.

One such partnership has been formed with Crocswap. Crocswap plans to integrate a native decentralized exchange (DEX) on Berachain. The proposed DEX has unique features, such as a single smart contract foundation and a dual liquidity model. Crocswap’s DEX is set to become the next generation of AMM.

Another project set to launch on Berachain is the Synapse Protocol, which will provide cross-chain infrastructure for Cosmos and other chains. With Synapse protocol, Layer 1 DeFi protocols can bridge to Berachain to access the various staking strategies on Berachain.

Other projects set to launch on the mainnet at release with extensive use cases include Gumball, Abacus, and Decentralized Autonomous Organizations like Temple DAO and Olympus DAO.

Berachain V2

On June 13, 2024, Berachain announced an upgrade to Berachain V2. This version improves architecture and consensus with the BeaconKit framework for better EVM smart contract development, boosting liquidity and economic security. V2 keeps the tri-token model and PoL incentive mechanism, and increases validators from 100 to 256 to handle the expected high TVL. The new modular design enhances collaboration and security across the entire ecosystem through shared liquidity. It also improves execution client diversity, solving V1 mempool’s block space demand issues.

Key Enhancements

1. Introduction of BeaconKit Framework: Berachain V2 introduces the BeaconKit framework, enhancing its architecture and consensus mechanism. This improvement aims to provide a better EVM smart contract development experience and boost liquidity and economic security.
2. Technical Architecture Improvements: V2 addresses the limitations of the previous version by increasing the diversity of execution clients and resolving issues related to the memory pool’s inability to keep up with block space demands. These improvements enable Berachain to handle a higher transaction volume and enhance overall performance.
3. Preservation of the Three-Token Model: Despite the substantial upgrades, Berachain V2 maintains its tri-token model, ensuring that the core principles of liquidity alignment and incentives remain intact at the protocol level.
4. Consensus Mechanism: The Proof-of-Liquidity (PoL) consensus mechanism continues to be the foundation of Berachain V2, balancing incentives between validators and ecosystem participants (users and applications) to foster the growth of liquidity and economic security.
5. Developer Experience: The V2 architecture is designed to improve the developer experience by using any execution client (e.g., Reth, Geth, or Nethermind) for development, strengthening Berachain’s EVM compatibility advantage.
6. Validator Setup Adjustments: V2 adjusts the validator setup process by increasing the maximum number of validators from 100 to 256, ensuring sufficient economic backing to support the expected high Total Value Locked (TVL).

Berachain V2 introduces significant economic and mechanical changes to enhance network security and efficiency. Key changes include increasing the staking requirement for validator nodes from BGT to a higher amount of BERA, enhancing network security, and increasing BERA’s utility. Furthermore, V2 adjusts the slashing mechanism only to impact the BERA stake of validator nodes, protecting BGT delegators from the consequences of misbehavior. Regarding block production, V2 ensures equal block production opportunities for all validator nodes. It proportionally distributes block rewards based on the amount of delegated BGT, promoting a fairer reward system and network participation. Berachain V2 also strengthens the economic role of BGT, clarifying its value proposition, and addresses technical limitations from V1 by improving the diversity of execution clients, signaling a positive development outlook for the Berachain ecosystem and providing a more optimized experience for users, developers, and validator nodes.

Conclusion

The setup for Berachain shows a strong and efficient system supported by a strong and determined community. All these are backed up by the innovative technology (tri-token system and proof-of-liquidity) behind the workings of the chain. How much of the chain’s plans will be fully functional or operational is impossible. What’s certain is the developers’ dedication to ensuring the project’s success.

With the launch of Berachain V2, we have witnessed a steadfast commitment to enhancing security, improving network performance, and optimizing user experience. By increasing the staking requirements for validator nodes, adjusting the slashing mechanism, and implementing fairer block production and reward distribution, V2 represents a significant step forward for Berachain. Furthermore, the economic role of BGT has been clarified, strengthening the ecosystem built around iBGT, while improvements in execution client diversity address the technical limitations of previous versions.

Although Berachain’s goals and vision may still be evolving, the development team’s unwavering efforts and the community’s steadfast support ensure that Berachain will continue to make strides in the blockchain space, ensuring the project’s success and continued growth.