Berachain operates with a novel consensus mechanism called Proof-of-Liquidity, which is similar to Proof-of-Stake but utilizes deposited tokens for liquidity within the network’s DeFi ecosystem rather than simply locking them up. This system means there are currently some high yields to be found through participating, and protocols such as Kodiak, Infrared, Stride, IVX, and Goldilocks are all worth exploring, among many other interlinked platforms.
New EVM-compatible Layer-1 Berachain launched on mainnet last month, and this week the chain has moved forward with its next significant event, the full launch of a system called Proof-of-Liquidity, so let’s look at what this means and go through some of the opportunities it opens up.
What Is Berachain Proof-of-Liquidity?
While the majority of blockchains are either Proof-of-Work (like Bitcoin), or Proof-of-Stake (like Ethereum since it switched systems in 2022), Berachain uses a novel consensus mechanism called Proof-of-Liquidity.
This is close to Proof-of-Stake, but aims to improve capital efficiency as instead of simply locking up tokens in staking contracts, it allocates tokens to be used for liquidity in DeFi protocols. Users are incentivized to provide liquidity through protocol rewards, and so the system should benefit the Berachain network itself, the protocols operating on it, and the users who are providing liquidity.
Note also that Berachain has three native tokens, BERA, BGT and HONEY, of which BERA is for transaction fees and staking, BGT is used for emissions and block rewards–and can be swapped 1:1 for BERA–and HONEY is a dollar-pegged stablecoin.
Validators receive BGT emissions, but then direct most of those tokens to applications of their choosing, and applications can try to ‘bribe’ validators (through offering their own native tokens, or any other token) in return for BGT emissions, which can then be passed on to users.
You can find a list of the first whitelisted application vaults–meaning those that will initially receive BGT emissions–in this official Berachain governance post, and these are good places to get started on the network.
Berachain Protocols
Before we highlight some Berachain platforms, please keep in mind the risks involved, which include smart contract vulnerabilities, frontend attacks, and systemic risks across DeFi and crypto, while this guide is not an endorsement of the protocols mentioned.
Kodiak
A major platform in the Berachain ecosystem, Kodiak is very useful when first diving in as it contains a bridge to get assets across to the network, and a swap function to get hold of the tokens you need.
Additionally, there are some high APRs on offer for providing liquidity, and one way to find those is in the Farms section, where you can deposit and start earning. As an example, the OHM-BERA farm is currently offering Farm APR up to almost 51%.
Also, you can use the option to provide single-sided liquidity, which is a simpler method since you only need one token, and additionally, it removes the risk of Impermanent Loss.
Kodiak’s Islands are also interesting, as these provide an automated version of Concentrated Liquidity Provision, and as an example here, the BERA-HONEY Island is offering over 16% pool APR, and BGT APR of 69%, and again, users can opt for a single-sided deposit.
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