Weekly Gauge #71: Berachain
Native vs Composable
The DeFi stack and DeFi lego are two concepts representing the granularity of crypto on-chain infrastructures and ecosystems that expand, evolve and iterate thanks to the coordination of different architectural layers, often motivated by goals like security, accessibility, efficiency, or network effect. The ability to leverage existing layers functionalities to innovate and create new services can be referred to as composability.
A main characteristic shared by most layers is that they should distribute incentives to users and generate revenues for operators ; seeing this as an opportunity, a group of clever builders figured out a way to consolidate them all under one banner, Berachain.
Introducing the Proof-of-Liquidity, a consensus mechanism establishing a framework to reward ecosystem liquidity that contributes to efficient trading, price stability, securing the chain, and increasing the network/user growth.
However, one interrogation remains: if all services are native to the chain, what else could be built on it ? Highlighting the importance of leaving enough room for composability to encourage adoption.
Area for Composability
Native Layers on Berachain:
Settlement Layer: Berachain itself acts as the settlement layer, handling all transaction recording and finality.
Asset Layer: Berachain’s native tokens ($BERA, $BGT, and $HONEY) provide the foundational assets for the ecosystem.
Protocol Layer: Includes Berachain’s native protocols such as BEX (decentralized exchange), BEND (lending and borrowing), and BERPS (derivatives trading).
What Could Be Built on Top:
Application Layer: Integrated applications and interfaces can be built on Berachain, such as wallets and dashboards that utilize the underlying protocols.
Aggregation Layer: Tools like liquidity aggregators and yield optimizers that leverage multiple protocols within Berachain.
Protocols from other chains, such as Curve, could deploy on Berachain and benefit from its native liquidity incentives, for example by opening $HONEY stablecoins trading pools.
By deploying on Berachain, other protocols can tap into the network's liquidity and security, gaining access to a robust ecosystem designed to support DeFi applications effectively. The EVM compatibility ensures seamless integration and the potential to leverage native incentives to enhance their services.
Proof of Liquidity
Proof of Liquidity (PoL) is an innovative consensus mechanism that evolves from Proof of Stake (PoS) by integrating DeFi native incentive mechanism to align validators and dAPP users. In PoL, validators secure the network by staking whitelisted PoL assets - starting with $BERA, the native token- as a gas token bond, and are rewarded with $BGT, the governance token of the chain.
$BGT holders, if they are not already validator, are required to delegate their voting power to validators who will be the only able to vote and direct future $BGT emissions, in the same fashion than veTokenomics from Curve or Balancer, the several whitelisted PoL assets that secure the network will be attributed a gauge in which validators will cast votes to define the weight of $BGT emissions those PoL providers will be rewarded each epoch.
Now imagine you are an LST/LRT or Stablecoin project, your native asset is already yield bearing thanks to Ethereum mainnet PoS rewards, you can now deploy on Berachain, become a PoL whitelisted asset, and just like that you are securing a second network and earning a new layer of base yield. That’s restaking at its finest. Note that protocols such as Infrared are already introducing liquid staking solutions for the $BERA token (https://x.com/InfraredFinance/status/1813574350844641548) confirming this area for composability on the network.
It sounds familiar isn’t it, and you already know where we’re heading to, vote incentive markets for $BGT, more yield for validators, more PoL, more security.
BEX, BEND, BERPS
As we introduced in the first part of this article, Berachain is equipped with a suite of native products encompassing the biggest DeFi primitives, and benefiting from the chain tokenomic and overall design. This presents various advantages but also can be a brake to the development of other non native applications, let’s break this down;
BEX is the decentralized exchange of Berachain, inspired by Balancer and Ambient AMMs. Specific pools in BEX are implementations of Proof-of-Liquidity Gauges which are rewarded with $BGT when staked in a rewards vault, this alone is a massive competitive advantage against other DEXs.
BEND is Berachain’s lending protocol. By borrowing HONEY on Bend, users also earn rewards in $BGT which again is an advantage against other lending markets on the chain.
BERPS is Berachain’s native perpetual futures (perps) market, it is not tied to the chain tokenomic as closely as the others.
In conclusion, Berachain’s design comes with very promising features to align the chain users and operators making it more accessible, secure, and economically efficient ; however, on the other hand, it is thought to provide unique advantages to native applications that can represent a brake to the development of certain primitives in a healthy competitive environment.