Upcoming layer 1 blockchain Berachain opened its testnet to the public on Thursday, a debut for its ‘proof of liquidity’ consensus mechanism that Last year there was $42 million in funding.
Berachain is a meme-driven project built in the Cosmos ecosystem. Its creators are largely pseudonymous crypto developers who identify themselves online with images of cartoon bears – some of them smoking weed.
That didn’t stop companies like Polychain Capital from investing in their vision for a new kind of blockchain. Under the hood, it’s powered by a new take on the popular proof of stake model for securing blockchains, called proof of liquidity, or PoL.
Under PoL, ecosystem players help secure the Berachain network by providing liquidity to the trading infrastructure built on top of it. Infrastructure can mean many things: an automated market maker, a crypto game, a lending protocol – basically anything that requires a pool of user-supplied tokens to facilitate transactions via smart contracts.
In decentralized finance (DeFi), it is common for these protocols to reward their liquidity providers (LPers) with a token. That is also the plan for Berachain. Any protocol that has passed a Berachain board vote will ensure that BGT is given to their LPers.
These BGT tokens are the governance tokens for Berachain, meaning the holders have power over the network. It is striking that the tokens are also illiquid; you can’t buy or sell them. The only way to get them is to earn them as rewards, Berachain co-founder Smokey the Bera told CoinDesk.
“Berachain is the first chain built to connect value to protocols,” Smokey said in a Telegram message.
The creators of the token intend for it to have some economic value. Any BGT holder can burn their assets in exchange for an equivalent number of BERA tokens, which are tradable. Or they can delegate their BGT to others in exchange for the Berachain stablecoin called HONEY, which Smokey said will be backed by USDC.
This setup does not guarantee that Berachain will be completely immune to economic whales. While “you can’t just buy the staking token,” deep pocket holders can still buy a lot of BERA, provide it as liquidity to trading protocols and receive excessive BGT, and the power they hold, Smokey said.
Still, it’s a much more active version of proof of stake than simply lending your tokens to a validator. Under Berachain, the protocols themselves receive liquidity from all users seeking economic returns.
The ramp-up liquidity will allow Berachain to “achieve more with fewer initial resources,” Smokey said. That could be an important distinction given the number of new layer 1 blockchains being rolled out and announced.
Berachain is positioning itself to appeal to both the Ethereum audience and Cosmos builders, Smokey said. It has been in a private testnet for about a month and has more than 30 native teams, plus dozens of protocols from other ecosystems preparing to deploy versions of their project on Berachain.
