Berachain: First Look

January 31, 2024

What is Berachain?

Berachain is a new DeFi-focused Layer 1 blockchain designed to better align validators and stakers with applications building on the chain. It is an EVM (Ethereum Virtual Machine) compatible chain built using the Cosmos SDK with built-in DeFi capabilities. Powered by a novel consensus method called Proof-of-Liquidity, Berachain’s staking token may only be obtained by providing liquidity to different applications on the network. 

The chain is launching with a number of unique features and proprietary tools, including a custom-made EVM called Polaris, liquidity pools powered by validators, and three native tokens. Now that Berachain’s Artio testnet is live and open to the public, let’s take a closer look at what makes the chain so unique and what all the Bera buzz is about.

What problem does Berachain solve?

Berachain brings native DeFi to the L1. Using embedded liquidity pools, stakers and validators can help contribute to liquidity for a variety of crypto assets while also receiving staking rewards and helping to ensure the chain’s economic security. 

DeFi on Berachain is embedded and native. Popular features from DeFi apps on other chains including a decentralized exchange, perpetuals trading, and lending are all denominated in chain-native cryptocurrencies. Moving these features from apps on a larger L1 to a native protocol helps to build network effects for Bera’s ecosystem. Berachain is also modular and interoperable, allowing assets from other chains to be used across all of Bera’s native DeFi apps. 

The Berachain team has developed a number of new technologies and primitives that we are excited to see put into practice. These include the aforementioned consensus method (Proof-of-Liquidity), a brand new EVM equivalence called Polaris, a native oracle, and more.

Use Cases

Berachain has several in-protocol DeFi primitives; all of which are bear-themed (and thus start with a B) – BEX, Bend, and Berps.

What is BEX?

BEX is Berachain’s native Decentralized Exchange. Similar to a traditional DEX like Balancer, BEX allows users to provide liquidity to a pool of assets and be rewarded for swaps that occur in the pool. 

In addition, BEX allows for unique asset customizations, with up to 8 tokens in each pool. Any Berachain user can create a new pool permissionlessly using an asset weighting of their choosing. A pool creator can use the traditional DeFi AMM formula (x*y=k) for calculating pooled asset ratios, or set custom weighting ratios and formulas of their own.

In addition to user-generated pools, Berachain will also launch with ‘House Pools’ for popular trading pairs with deep liquidity on Day 1. Liquidity Providers to House Pools will be rewarded with Bera’s Governance Token (BGT) by default. 

Finally, Berachain also introduces the concept of MetaPools. In a MetaPool, one LP token is minted to represent a share of another liquidity pool. MetaPool LP tokens can then be used as part of an asset pair in another pool, helping to increase capital efficiency across the chain.

What is Bend?

Bend is Berachain’s lending protocol. Similar to Aave, users can lend out a variety of crypto assets to be paid out in over-collateralized loans in Bera’s native stablecoin, HONEY. Bend is noncustodial and the only associated fees are standard gas fees, denominated in Berachain’s gas token BERA. It’s important to note here that HONEY is not minted against these assets, but may be borrowed against them. 

By borrowing HONEY on Bend, users also earn rewards in Berachain’s non-transferable governance token, BGT.

Bend’s User Interface (℅ Berachain docs)

What are Berps?

Berps is Berachain’s native perpetual futures (perps) market. Users can trade perps 24/7 on crypto-asset pairs with up to 100x leverage. All trades occur entirely on-chain, and like Bend, Berps is noncustodial. Similar to other perps DEXs, fees are charged for opening levered positions, borrowing other assets, and for closing existing positions. Berps pair prices are set at the median of spot prices via Berachain’s in-house oracle. 

For better user experience, Berps also allows One-Click Trading (1CT) using an Externally Owned Account. 1CT allows traders to submit orders without directly interacting with their wallet, reducing time to trade.

What is Proof-of-Liquidity?

Though staking is still a core part of protocol functionality, Berachain is not a strictly Proof-of-Stake network. The team has developed a unique consensus method for the chain called Proof-of-Liquidity. 

As the name suggests, Proof-of-Liquidity (PoL) is designed to incentivize users to provide liquidity on Berachain. Liquidity providers in Bera’s protocol liquidity pools receive rewards denominated in BGT. This is the only token that can be staked to validators, who then produce blocks proportional to the amount of BGT currently delegated to them. Finally, validators can use their delegated BGT to vote on future BGT inflation rewards rates for any liquidity pools on-chain. While eligible liquidity pools are limited to the core chain primitives (BEX, Berps, Bend) as the chain goes live, over time, any smart contract on the chain may be incorporated into PoL such that their liquidity pools may receive BGT rewards.

Proof-of-Liquidity overview (c/o Berachain documentation)

The Berachain team contrasts PoL from PoS by how their consensus better aligns incentives for validators and stakers. Traditional PoS and dPoS (delegated Proof-of-Stake) protocol tokens denominate both governance and gas fees in the same token. When stakers delegate to a validator, the protocol token’s overall liquidity decreases, resulting in higher gas fees and disincentivizing on-chain application usage.

Berachain’s PoL and separate gas/governance tokens aim to keep on-chain gas fees low while also incentivizing ecosystem participants to both stake and provide liquidity.

What are Network Tokenomics?

Token Overview

Berachain is launching with three separate tokens with three distinct purposes; one for governance, one for gas, and one native stablecoin.

  • BGT (Bera Governance Token): ‘The governance token’ and primary token used for Bera governance and staking. BGT is soulbound, non-transferable, and is only awarded for providing liquidity through BEX pools and staking. Users cannot buy or sell the token on the open market. BGT can be burned 1:1 for BERA, but the inverse is not possible.
  • BERA: ‘The gas token’, used for sending transactions on-chain.
  • HONEY: A Berachain-native stablecoin that is designed to peg as closely as possible to USDC. HONEY can be minted through the HONEY dApp or by lending collateral on Bend.

BGT tokens are paid out to BEX liquidity providers. LPs can deposit different tokens in different proportions depending on a pool’s composition, but all rewards are paid in BGT. 

How to stake BGT

As mentioned before, staking is still a crucial part of Berachain PoL consensus. BGT token holders delegate to validators, who in turn produce blocks proportional to their staked BGT weighting. Rewards are then paid out to delegators and validators. Both of these parties receive their pre-set reward commissions, but additional block rewards are sent to liquidity pools across the chain.

Validators can use their staked BGT weight to vote on BGT inflation rates in different liquidity pools. Pools are only eligible for BGT emissions when a governance proposal approving of it has been passed. Validators also control which portion of their BGT emissions go to each liquidity pool.

Though some details are forthcoming, many key staking parameters will match Cosmos SDK chain standards, including: 

  • Unbonding period: 21 days
  • Redelegation delay: None (as long as assets are not re-delegated multiple times in 21 days)
  • Distribution Frequency: Every 7 seconds to a separate account (does not accrue to existing stake)

Berachain Staking Rewards

Another unique Berachain feature is multiple sources for staking rewards. In a traditional PoS blockchain, the vast majority of rewards come from protocol token inflation. Namely, BGT stakers receive rewards from direct BGT inflation, as well as Block Captured Value, and Gas Fees.

  • BGT Inflation: Built-in token inflation sent to liquidity providers of eligible BEX pools.
  • Block Captured Value: Charged to users on Berachain’s 3 primary apps and paid to validators and stakers.
    • BEX Fee: A percentage of swap fees are charged to users and paid to stakers.
    • Honey Fee: Moving between USDC and HONEY incurs a take rate to help stabilize the stablecoin’s peg; a portion of which is paid to stakers. 
    • Berps Fee: Fees charged for Perps transactions detailed above are paid to stakers.
  • Gas Fees: Submitting a transaction on Berachain requires both a base and priority fee. Similar to how EIP-1559 functions, the base fee is burned while the priority fee is paid to validators.

What are Bribes?

In addition to regular BGT inflation rewards, stakers can also receive bribes from their delegated validator. Validators must set a bribe before the start of a Bera epoch and can then customize the number of tokens paid per proposal. Bribes are used to allow users or protocols to incentivize validators to direct more of their BGT emissions towards the bribe proposer’s desired pools.

Berachain Architecture Highlights

Though by no means exhaustive, the below are some of the key components behind Berachain’s technical stack.

  • Cosmos SDK: The core architecture behind Berachain is the Cosmos SDK. Widely used across blockchains including Osmosis, dYdX, Celestia, and many more.
  • CometBFT: CometBFT is the core consensus algorithm on Berachain, also widely used across popular Layer 1s.
  • Polaris EVM: Berachain’s proprietary implementation of the Ethereum Virtual Machine. It’s designed to be fully modular and can be implemented on top of any L1 host chain, regardless of host architecture. This allows chains built using Polkadot Substrate, Cosmos SDK, or any other development framework to pick and choose different aspects of EVM compatibility through Polaris.
  • Oracle: The chain is also launching with a fast, accurate, and native oracle powered by Skip Protocol’s Slinky module. Live on testnet today, Berachain’s oracle has both a Cosmos module and EVM precompile. Live price feeds and trading pairs include ATOM/USDT, BTC/USDC, ETH/USDC, TIA/USDT, and USDC/USDT. Price information is sourced from Coingecko, Coinbase, and OKX. Validators can choose to  contribute price pairs to the oracle or use default provider pricing.
  • Precompiles: Berachain is launching with a number of other unique EVM precompiles, including Berachef, a contract that handles BGT emissions. Pool creators can use Berachef to set BGT-denominated inflation rewards coming from their LP. A full list of precompiles can be found here.

Who is the Berachain Team?

Berachain’s team is mostly anonymous and includes founding team Smokey the Bera, Papa Bear, Dev Bear, and Homme Bear. The founders can sometimes be seen in public wearing bear-themed headwear. Some of the team were previously involved with the DeFi 2.0 ecosystem and had launched their own NFT collection called Bong Bears.

Berachain raised a $42M Series A round from top crypto venture investors including Polychain, Hack VC, Shima Capital, Citizen X, and Robot Ventures. Notable angel investors include Zaki Manian (Sommelier, Tendermint) and Mustafa Al-Bassam (Celestia). Their Series A valuation? $420.69 million. Nice.

How is Figment involved with Berachain?

Figment is live on Berachain’s Artio testnet and will support mainnet staking on launch day. If you are interested in staking Berachain, Figment offers a host of services aimed at delivering safe and reliable staking rewards for your assets. Connect with us here for a demo.

Our 250+ institutional clients rely on Figment to provide best-in-class staking services including seamless and easy integrations, detailed rewards reporting, insights, double sign slashing, and downtime penalty coverage. Figment’s team has extensive Berachain knowledge and is happy to discuss chain specifics such as rewards and staking mechanics. Meet with us to learn more about Berachain staking.

The information herein is being provided to you for general informational purposes only. It is not intended to be, nor should it be relied upon as, legal, business, or investment advice. Figment undertakes no obligation to update the information herein. 


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