Berachain is a layer 1 blockchain built on the Cosmos-SDK and utilizes its native consensus mechanism Tendermint. BeraChain also introduces a new concept called Proof of Liquidity (POL) – a consensus mechanism capable of preventing Sybil Attack. With the combination of Tendermint and Proof of Liquidity, BeraChain offers fast transaction speed, low fees while creating a layer of interoperability between BeraChain and EVM.
How Berachain works
Proof of Liquidity
Proof of Liquidity is a new consensus mechanism created by BeraChain that allows users to staking tokens from different layer 1 platforms (wBTC, wETH, wAVAX, etc.) and stablecoins (USDC, DAI, etc.)to a specific validator to earn block rewards.
The consensus vault measures and distributes voting weights and block rewards. This mechanism is used as proof of liquidity to incentivize liquidity in the blockchain and enhance the security of the network to prevent Sybil Attack as well.
Users can stake different tokens and they will receive a reward of BERA tokens corresponding to the amount staked. These staked assets help provide liquidity to Berachain’s vAMM synthetic liquidity, which allows traders to buy and sell native perpetual futures exchange and lending markets.
BeraChain uses a system called Tri-Token that has 3 native tokens:
- BERA: The gas token of BeraChain.
- BGT: The governance token of BeraChain which is the ERC-721 standard token and is non-transferable. BGT holders have the right to vote on BeraChain’s development decisions and also can receive rewards from the platform’s transaction fees.
- HONEY: The native consensus collateralized stablecoin
Users stake different tokens into consensus vaults and receive BERA tokens. After that, users staking BERA to receive BGT tokens – BeraChain’s governance token. BGT holders can vote on issues like fees and tokens that qualify for the consensus. Users can also use staking tokens as collateral and borrow stablecoin HONEY. HONEY is used to make a spot or leveraged trades or go even further by leverage staking and purchasing more collateral to stake and mint more HONEY. This helps increase the liquidity of BeraChain, protects the network from Sybil Attack, and optimizes profits for users.