What is Proof-of-Liquidity?

Proof-of-Liquidity (PoL) is a novel economic mechanism that uses network incentives to align the interests of ecosystem participants and bolster both application-layer and chain security.

Two Token Model

Berachain's consensus borrows from the Proof-of-Stake (PoS) model and contains two key components:

1. $BERA - Validators secure the chain by staking the native gas token

2. $BGT - A soulbound governance token distributed by validators for proposing new blocks, which is ultimately rewarded to users who provide ecosystem liquidity (see Reward Vaults)

A validator's $BGT emissions increase with the amount of $BGT delegated to them. Protocol-provided Incentives are received for these emissions, and validators pass these to their delegators after collecting a commission.

This model creates meaningful economic alignment between previously isolated groups. Validators who return the maximum value to their $BGT delegators are likely to receive more delegations.

Separation of Concerns​

Significantly, Proof-of-Liquidity separates the token responsible for gas and security from the token used to govern chain rewards and economic incentives.

Ecosystem Alignment 🤝​

By integrating Berachain's native network rewards among all ecosystem participants, PoL creates alignment between:

• Validators: Need $BGT delegation to maximize their block rewards and must efficiently direct emissions to reward vaults to earn Incentives and attract more boost.

• Protocols: Compete for $BGT emissions by offering attractive Incentive rates in their reward vaults

• Users: Earn $BGT by providing liquidity, then delegate to validators who maximize returns

Read More: https://docs.berachain.com/learn/pol/