Quickly understand Berachain White Paper: What are the benefits of dual tokens and PoL mechanisms?

Original title: "I read the Honeypaper so you don't have to"

Author: Knower

Compiled by: TechFlow

Honeypaper has been officially released. For the sake of everyone's understanding, I have made a brief summary of the content.

We have long seen many L1 and L2 blockchains try to solve the “blockchain triad” in different ways (i.e. , the trade-off between decentralization, security, and scalability ) and focus on technology In terms of performance, especially reducing transaction costs and increasing throughput -these two points directly determine the user experience of blockchain.

While these issues are indeed crucial to blockchain scalability, at the protocol level, we have not seen innovative economic models introduced before

• until today.

We are excited to release this Honeypaper and explain to you what’s unique about this L1: how its architecture opens up new directions for blockchain economics, what works behind it, and how these elements work together. Also, you can rest assured that this chain does have a bear (the logo of Berachain).

Berachain’s design goal is to coordinate incentives among key stakeholders on the chain, including decentralized applications (dApps), users and validators (Validators).

More importantly, the design of this chain allows applications developed and used on it to create value for the chain itself through mechanisms, and the chain itself can also inversely empower the application.

Berachain’s design is inspired by observations of existing L1 and L2 – many chains invest too much in economic security but fail to effectively utilize these resources. Rather than continuing this industry practice and making it easy for validators to make money, Berachain innovatively designed a dual token system: BGT and BERA . This design ensures that rewards can be truly used for actual requirements on the chain, rather than just simple allocations.

All of this is implemented based on Berachain's unique consensus mechanism: Proof-of-Liquidity (PoL). If you have followed Berachain’s blog, you may already know something about PoL.

(The original image is from know , compiled by Shenchao TechFlow)

Actually, this is how PoL works, but it will be easier to understand by explaining it in a simpler way.

Under the PoL model, users and dApps have higher priority than validators, but the three need to work together to create a more secure and economical blockchain network.

As mentioned earlier, the problem of excessive spending on economic security often creates an unhealthy relationship between new chains and validators. This relationship leads to a lack of shared incentives among key stakeholders. If users and dApps (as a core component of the L1 blockchain) cannot get fair returns on their economic output, then paying validators for security alone is not worth it.

The biggest difference between Berachain's PoL and other consensus mechanisms is the way rewards are distributed. In PoL, most rewards go to the application's reward vault instead of going directly to the verifier's account. This does not deny the importance of validators, but promotes the economic innovation we describe by adjusting the reward distribution mechanism.

On Berachain, applications can inspire various user behaviors through reward vaults. For example, they can guide more liquidity to enter a specific fund pool, or use the unique behavior model of users on the chain to optimize economic activities.

In addition, Berachain adopts a delegated proof of stake (dPoS) model that combines BERA's stake and BGT's delegated mechanism. This design ensures that verifications are not only profitable from it, they also need to actively interact with other main interests to participate in chain governance and ecological development.

Under the PoL model, the interaction between validators and dApps and users is crucial to the healthy development of the entire ecosystem. Competition and market dynamics will naturally drive users and dApps to align with the most active validators, thus driving efficient operation of the entire network.

However, most Proof-of-Stake (PoS)-based blockchains usually have only one network token. This design forces users to use the same token to pay for transaction fees, pledge assets, and participate in governance. This single token model may not meet the needs of different types of users and will also be difficult to encourage healthy behaviors of long-term token holders.

A more ideal design is to allocate these different functions into separate tokens to meet diverse user needs and to drive long-term token holders to make more ecologically beneficial behavioral choices.

In Berachain, this multi-token system is implemented by BERA and BGT. As gas and pledged tokens, BERA is mainly used to pay for online transaction fees. At the same time, users can also pay for the activation fees of the verifier by pledging BERA. BGT is a governance and economic incentive token, which has an untransferable feature and can only be obtained by pledging assets that meet PoL standards in the reward vault.

This dual token design not only makes Berachain's economic model more flexible, but also better meets the diverse needs of users and ecosystems, while promoting healthy long-term economic behavior.

Simply put, the separate design of BERA and BGT ensures that all stakeholders have direct interests in the system, and in an economic system like Berachain, those who are more active in participating tend to get greater rewards.

The functions of BGT include voting on governance proposals and can be redeemed to BERA at a ratio of 1:1 (but by design, BERA cannot be redeemed to BGT). In addition, users can participate in the economic activities of the verifier and obtain corresponding incentives by delegating the BGT to the verifier.

The validator's BGT yield is directly related to the number of BGTs delegated to them, and also depends on how they utilize these BGT delegated. This design creates an interesting dynamic mechanism that accelerates user adoption of the application layer through the incentives of new issuances.

When the incentive growth rate of the BGT commissioned is lower than the new BGT issuance rate, the user can choose to burn BGT (Burn) and redeemed for BERA. More redemption behaviors will reduce the number of BGTs in circulation, thus forming a cycle of supply and demand interaction, ultimately helping the system achieve higher stability.

If you read this, you may start to be curious about Berachain's mathematical model. All white papers involve mathematical formulas, and honeypaper is no exception. Although these formulas may seem complex, they are an important basis for the various dynamic parts of the Berachain operation and PoL model.

The PoL model defines the issuance plan and block generation mechanism of BERA and BGT. Validators’ rewards are based on their participation in PoL, which is specifically manifested as a variable ratio that relies on validator bonuses (Boost). The block generation mechanism is to select N validators from the active set of validators, and these validators are selected according to the number of BERAs they pledged, and the specific selection probability is proportional to the number of BERAs they pledged.

If you are interested in mathematical formulas and want to have an in-depth understanding, here is what the relevant formulas look like:

The following is a formula used to calculate how many BGTs are generated in each block, which is based on the validator's addition value x . The addition value x is a ratio between [0,1], indicating the percentage of the BGT assigned to a certain validator as a total assigned BGT for all validators.

• B (Basic Reward Rate) : The fixed BGT reward obtained by the validator when successfully generating a block.

• R (Reward Rate) : The number of BGTs that the validator needs to allocate to the reward vault before applying the bonus coefficient.

• a (addition coefficient) : used to adjust the impact of the bonus value on the allocation of the reward vault. The higher the bonus coefficient, the greater the impact of the bonus value on reward allocation.

• b ( convexity parameter) : used to adjust the sensitivity of the bonus value to reward allocation. The higher the convex parameter, the more serious the punishment of the authentication of the low value.

• m (Minimum Reward) : Set the minimum limit for the bonus vault allocation. A higher minimum reward can ensure that the low bonus verifier can still receive certain rewards.

Okay, let’s talk about the technical details here first. Let’s take a

look at what actual value Berachain’s dual token system and PoL model can bring.

In Honeypaper, a portion specifically explores the potential application scenarios of PoL in the real world, such as real-world assets (RWAs), automated market makers (AMMs), and second-tier solutions (L2s).

PoL is particularly significant in the DeFi field, especially in the way it can efficiently integrate users and dApps interests. However, PoL's potential is much more than that, and other areas can benefit from it.

Real-world assets (RWAs) have always been regarded as one of the "ultimate goals" of blockchain technology. If we believe that in the future, traditional financial personnel will trade with our tokens and interact with us on the chain, a series of products closer to traditional finance will gradually take shape.

For example, if you want to tokenize offline assets like real estate or Treasury bonds into ERC20 tokens, asset issuers can use Reward Vault to solve the problem of finding asset promoters and rewarding them. These reward vaults, as well as users who deposit assets into them, can also benefit from secondary market liquidity and validator incentives.

Assuming there is a built-in decentralized exchange (DEX) on Berachain, users can create new liquidity pools without permission. These pools not only receive native rewards on the chain, but also enjoy BGT incentives.

Sounds a bit complicated? In fact, simply put, dApps can establish a reward vault based on these liquidity pools through governance applications, and all of this is powered by PoL. This mechanism can easily solve the "cold startup problems" faced by many dApps when starting on a new chain, while also promoting efficient collaboration among validators.

Depending on the different stages of development in which dApp is located, it can choose to offer BGT rewards or native rewards above or below market value to attract different types of users on the chain. Compared with traditional PoS liquidity pools, PoL-based liquidity pools (with reward vaults) provide more refined decision-making capabilities—this flexibility was difficult to achieve in the past.

Other interesting content is also mentioned in Honeypaper, such as how incentive markets and reward vaults are whitelisted. If you are interested, you can study it in depth, but the above content should be enough.

Beras can’t read or write, so it’s a miracle if you can keep reading here. If you want to learn more about it yourself, you can refer to honeypaper .