Berachain: An Analysis of the Mechanism Design of Innovative Decentralized Finance Public Chains

1. Introduction

Berachain is an EVM-compatible Layer 1 public chain focused on Decentralized Finance, built on top of the Cosmos SDK, and using a liquidity proof (PoL) consensus mechanism. The project originated from the Bong Bears NFT series launched in August 2021 and has since derived multiple bear-themed NFT collections.

The Berachain team, after experiencing market cycles, has deeply realized the importance of liquidity in Decentralized Finance, and thus decided to design an L1 public chain with liquidity as the core. Internal testing will begin on November 28, 2023, and the public test network "Artio" will officially launch on January 11, 2024. It is reported that over 30 native protocols are in development, and several well-known protocols from other networks are also planned for deployment.

In April 2023, Berachain secured $42 million in funding led by Polychain, with a valuation of $420 million.

Berachain was founded by an anonymous team, with core members including Smokey the Bera, Papa Bear, Homme Bera, and Dev Bear. Although the team is anonymous, its fundraising capabilities indicate a wealth of resources in the cryptocurrency space.

2. Mechanism Interpretation

Polaris EVM

Berachain is built on Polaris EVM, which is an EVM-based operating system designed for building on top of the Cosmos SDK. Polaris uses messaging to connect the EVM and Cosmos SDK, separating the construction, processing, and storage of blocks from execution.

Advantages of using Polaris EVM:

1. Ethereum developer friendly, making it easier to attract other EVM chain developers.
2. Achieve powerful cross-chain interoperability through IBC

PoL proof mechanism

The PoL mechanism aims to bring mainstream asset liquidity into Berachain:

1. Users provide liquidity to the BEX( Berachain native DEX) to obtain BGT
2. Users delegate BGT to validators, who generate blocks based on the delegation weight.
3. The client and the validator receive on-chain rewards ( BERA and HONEY )
4. Validators can vote on the inflation situation of BGT in any liquidity pool.
5. The validator distributes bribes to the delegator.

The advantages of PoL compared to PoS:

1. Incentivize liquidity while enhancing security
2. Inflation distribution is more decentralized.
3. Coordinate the relationship between asset issuance agreements and validators.

three-token model

Berachain adopts a three-token model: BGT( governance token ), BERA( Gas Token ), and HONEY( stablecoin ).

• BGT: Governance token, non-transferable, only obtainable by providing LP on BEX.
• BERA: Gas Token, obtained through 1:1 one-way burn of BGT or as a validation reward
• HONEY: Native over-collateralized USD stablecoin, serving as a medium for protocol revenue distribution.

The operation mode of this model:

• Users provide liquidity to earn BGT rewards
• Delegating BGT to validation nodes can earn BERA + HONEY

Advantages of the three-token model:

1. Separation of governance tokens and Gas tokens
2. The only way to obtain BGT is to provide liquidity.
3. Staking supports a variety of assets, further stimulating liquidity.

3. Important Ecological Projects

the honey jar

As the entry point to the Berachain ecosystem, responsible for user education, project incubation promotion, and partnership matchmaking. Launched the Honey Comb NFT, which holders can use to obtain multiple project benefits.

Beradrome

The DEX and Restaking liquidity market on Berachain features mechanisms such as ve(3, 3) token economics, built-in bribery, voting, and more. The "Tour de Berance" NFT series has been launched, and holders are expected to receive future token airdrops.

Beradoge

The highly anticipated Meme project on Berachain has two NFT series. Holders may receive airdrops of BDOGE tokens.

Sudoswap

The full-chain NFT AMM liquidity market is planned to deploy the protocol after launching on the Berachain mainnet. It is expected to support blue-chip NFTs bridging to Berachain.

Beramonium

The chain game project of Berachain has released the "Gemhunters" idle role-playing game. Players can obtain NFTs from other Berachain projects through the game.

Redacted Cartel

Decentralized Finance yield protocols, covering the bribery market trading and LSD liquid staking sectors. Plans to deploy new projects on Berachain.

Summary

Berachain maximizes liquidity release through an innovative three-token economic model and PoL mechanism, addressing the contradiction between staking for governance and liquidity. With user growth and an increase in fee revenue, Berachain is expected to attract more users and projects, forming a positive flywheel effect.

However, the future development of Berachain still requires continuous attention, including the progress of the project itself, the expansion of the ecosystem, and the security of the protocol.