Berachain has rapidly emerged as one of the most innovative Layer 1 blockchains in the decentralized finance (DeFi) space. Built on the Cosmos SDK and EVM-compatible, Berachain introduces a novel economic model centered around liquidity, sustainability, and long-term ecosystem growth. This article dives deep into its unique Proof of Liquidity (PoL) consensus mechanism, three-token system, and how it creates a self-reinforcing positive flywheel for users, validators, and protocols.
What Is Berachain?
Berachain — often nicknamed “Bear Chain” in Chinese-speaking communities — is a high-performance Layer 1 blockchain designed specifically to power DeFi applications. Unlike traditional blockchains that prioritize security through staking alone, Berachain reimagines tokenomics by aligning incentives across all participants using its proprietary Proof of Liquidity (PoL) mechanism.
Instead of rewarding only validators for securing the network, Berachain redirects block rewards toward users and protocols that provide liquidity. This shift fosters a sustainable economic loop where value circulates within the ecosystem rather than being locked away or exiting prematurely.
As of early 2025, shortly after mainnet launch, Berachain achieved remarkable traction. Its DeFi Total Value Locked (TVL) surpassed major competitors like Arbitrum, Sui, and Avalanche, ranking among the top 10 blockchains globally despite being in its early stages. Even after initial incentive-driven liquidity began to wane, Berachain maintained a stable position at #7 in DeFi TVL — a strong indicator of organic demand and structural resilience.
👉 Discover how Berachain's innovative design could reshape DeFi incentives.
Proof of Liquidity (PoL): A New Consensus Paradigm
Traditional Proof-of-Stake (PoS) systems enhance network security but often reduce market liquidity, as users lock up tokens without active utility. Berachain solves this with Proof of Liquidity (PoL) — a dual-staking model that simultaneously strengthens security and promotes liquidity.
The PoL mechanism connects three core actors: users, validators, and on-chain protocols, creating a symbiotic relationship:
Users
Users supply liquidity to DeFi protocols on Berachain and earn **$BGT**, the non-transferable governance token. They can then delegate their $BGT to validators, increasing the validator’s reward share while earning a portion of block rewards in return.
This dual benefit encourages long-term participation — users are incentivized to keep providing liquidity rather than withdrawing funds after short-term farming.
Validators
To become a validator, one must stake at least 250,000 $BERA and join the PoS active set (top 69 nodes). Validators not only secure the network but also compete to attract $BGT delegations from users.
When validators receive $BGT delegations, they earn higher block rewards. In turn, they must distribute a portion of these rewards into protocol-specific Reward Vaults, which fund user incentives. Validators may keep a commission on top.
On-Chain Protocols
Protocols such as decentralized exchanges or lending platforms offer attractive yields in their reward vaults to attract more $BGT allocations. More $BGT means more user liquidity, which increases protocol usage and revenue.
Thus, protocols are motivated to design compelling incentive structures to capture attention and capital from both users and validators.
The PoL Positive Flywheel
Berachain’s genius lies in its self-sustaining cycle — a positive flywheel driven by aligned incentives:
| Role | Primary Goal | Flywheel Mechanism |
|---|---|---|
| User | Earn $BGT | Provide liquidity → Stake LP tokens → Earn $BGT → Delegate to validators → Re-earn rewards |
| Validator | Maximize block rewards | Attract $BGT delegation → Boost validation income → Distribute $BGT to vaults → Earn protocol incentives |
| Protocol | Grow user base & TVL | Offer high-yield vaults → Attract $BGT → Increase liquidity → Boost user engagement |
Because $BGT cannot be traded, it has no speculative exit. This removes short-term dumping pressure and anchors value within the ecosystem. The longer users participate, the more $BGT they accumulate — reinforcing loyalty and stability.
👉 See how next-gen blockchains are redefining token utility and user rewards.
The Three-Token Economy: $BERA, $BGT, and $HONEY
Berachain operates on a sophisticated three-token model that separates functions clearly across gas, governance, and stablecoin use cases.
$BERA – The Native Utility Token
$BERA serves two primary roles:
- Gas fee payment: All transactions and smart contract interactions require $BERA.
- Validator staking: Becoming a node requires staking 250,000 $BERA, ensuring high skin-in-the-game for network security.
Additionally, $BERA is the redemption target for $BGT holders: users can convert $BGT to $BERA at a 1:1 rate. However, this conversion is irreversible — once converted, $BERA cannot be turned back into $BGT.
This one-way peg ensures that as confidence grows, more $BGT flows into $BERA, creating upward pressure on demand.
$BGT – The Governance & Incentive Token
$BGT is non-transferable and earned through liquidity provision and delegation. Despite being untradeable, it holds significant power:
- Used for voting on governance proposals.
- Delegated to validators to boost their rewards.
- Distributed via block emissions and protocol reward vaults.
Its scarcity and utility encourage long-term holding and active participation.
$HONEY – The Native Stablecoin
$HONEY is Berachain’s algorithmic over-collateralized stablecoin pegged to USD. It plays a central role in DeFi activities:
- Traders use it for low-slippage swaps.
- Liquidity providers pair it with volatile assets.
- Borrowers use it as yield-bearing debt.
Users can mint $HONEY by depositing approved collateral through the Honey app or swap into it directly via BeraHub.
Market Equilibrium Through Dynamic Supply Adjustment
One of Berachain’s most elegant features is its self-regulating supply mechanism between $BGT and $BERA:
- When protocol rewards are high: If the value of rewards in vaults exceeds new $BGT issuance, users prefer to keep staking and earning — reducing conversions to $BERA and maintaining system liquidity.
- When rewards dip: If vault returns fall below issuance rates, users convert more $BGT into $BERA, reducing circulating $BGT supply until equilibrium restores.
This feedback loop prevents inflationary spirals and ensures sustainable economic balance.
Tokenomics: $BERA Distribution and Unlock Schedule
Total $BERA supply is allocated as follows:
- Investors: 34.3%
- Core Contributors: 16.8%
- Ecosystem Incentives: 20%
- Airdrops: 15.8%
- Community Rewards: 13.1%
All stakeholders follow the same unlock schedule:
- After 1 year: 1/6 of allocated tokens unlocked.
- Next 24 months: Remaining 5/6 released linearly.
This gradual release minimizes sell pressure and supports long-term alignment.
Funding and Backing
Berachain has raised $142 million across two rounds:
- Series B (April 2024): $100M at a $1.5B valuation led by Framework Ventures and BH Digital.
- Series A (April 2023): $42M at a $420M valuation led by Polychain Capital.
These investments signal strong institutional confidence in Berachain’s vision for sustainable DeFi growth.
Frequently Asked Questions (FAQ)
Q: Can I trade $BGT on exchanges?
A: No. $BGT is non-transferable and cannot be bought or sold. It exists solely within the Berachain ecosystem for governance and delegation purposes.
Q: How do I earn $BGT?
A: You earn $BGT by providing liquidity to supported DeFi protocols on Berachain and staking your LP tokens in designated farms or vaults.
Q: Is Berachain EVM-compatible?
A: Yes. Developers can build and deploy Ethereum-based dApps on Berachain with minimal changes, making migration easy.
Q: What makes Berachain different from other L1s?
A: Its PoL mechanism uniquely ties network security to DeFi liquidity, creating a flywheel where user activity directly strengthens the chain’s health.
Q: Can I stake $BERA directly?
A: Yes, but only validators who meet the 250,000 $BERA threshold can join the active set. Regular users can indirectly participate by delegating $BGT to validators.
Q: Where can I use $HONEY?
A: $HONEY is used across Berachain’s DeFi ecosystem — for trading, lending, borrowing, and providing liquidity in various protocols.
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