Why Berachain?
Last updated
Last updated
Berachain is a high-performance EVM-Identical Layer 1 (L1) blockchain utilizing Proof-of-Liquidity (PoL) as a consensus mechanism. POL introduces a new dynamic by rewarding ecosystem liquidity, enhancing capital allocation efficiency and increasing network/user growth. Read more about POL here. It’s “liquidity at heart”.
This approach opens up new opportunities for protocols that use Protocol owned liquidity to issue synthetic assets. We saw the number of such protocols at the dawn of DeFi summer — see Frax protocol, Olympus, FEI protocol, Basis Cash. Most of these projects suffered from misalignment of incentives between different parties, leading to a case where the only use case was from liquidity mining. As a result, as soon as the rewards from LM fell, this led to protocol compression.
In contrast with other EVM chains, Berachain’s POL model creates a positive feedback loop between validators, LPs and protocols, creating a coordination layer for growth of liquidity inside protocols and network usage. In other words, we believe Berachain’s POL core incentive model is the fix to the incentives->TVL problem that protocols have faced on other chains. Berachain embraces liquidity as the core value, and NOME can amplify that vision.
That’s why we’re launching on Berachain. We believe that creating a native synthetic platform for Berachain with a POL consensus framework will be beneficial for the Berachain ecosystem. Similar to how FRAX was able to absorb a large share of the CRV supply in the ve-tokenomics, NOME will absorb the BGT supply, creating a positive value redistribution mechanism among participants in the Bera economy.
BGT and the underlying POL mechanism are the secret sauce of infusing life into an algostable feedback loop.
As noted above, Berachain’s own POL model allows for projects with good value add to reserve an external source of incentives streaming, allowing to further protect the derivative during sharp contraction periods. This wasn’t possible before for Basis Cash due to how the stabilization mechanism was using endogenous rewards only.
With $BGT, ownership of the incentive stream allows it to have strong backing when needed. Therefore, it will give power during contractions due to being an uncorrelated stream. See it like trying to make USD (real smelly American dollars we are talking about here) stronger by printing more dollars… weird, right?
Instead, if you actually have another asset to reinforce the peg, it can work much better.
