Berachain has rapidly emerged as one of the most innovative Layer 1 blockchains in the decentralized finance (DeFi) space. Built using the Cosmos SDK and fully EVM-compatible, Berachain introduces a novel economic framework centered around its Proof of Liquidity (PoL) consensus mechanism and a unique three-token model. This article dives deep into how Berachain works, its core components like $BERA, $BGT, and $HONEY, and why its design may represent a sustainable future for blockchain ecosystems.
What Is Berachain?
Berachain—often nicknamed "Bear Chain" in Chinese communities—is a high-performance Layer 1 blockchain designed specifically to optimize DeFi applications. Unlike traditional Proof-of-Stake (PoS) chains that prioritize security at the cost of liquidity, Berachain flips the script by rewarding users who provide liquidity rather than just those who stake tokens.
By leveraging the Cosmos SDK, Berachain achieves scalability and interoperability while maintaining full compatibility with Ethereum Virtual Machine (EVM) tools and smart contracts. This makes it easy for developers and users familiar with Ethereum to transition seamlessly.
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The Rise of Berachain in DeFi TVL Rankings
As of early 2025, shortly after its mainnet launch, Berachain achieved remarkable traction. Its Total Value Locked (TVL) in DeFi surpassed well-established networks such as Arbitrum (the leading Ethereum Layer 2), Sui (a high-throughput blockchain launched in 2023), and Avalanche (a major smart contract platform).
Even after the initial phase of liquidity mining incentives ended—and some short-term “farm-and-dump” capital exited—the network maintained a top-7 position among all blockchains in terms of DeFi TVL. This resilience suggests that Berachain’s underlying economic model, particularly its PoL mechanism, may offer a more durable solution for retaining capital within an ecosystem.
Understanding Proof of Liquidity (PoL)
Traditional PoS systems require validators to lock up tokens to secure the network. While effective for security, this model removes large amounts of tokens from circulation, reducing market liquidity. Berachain addresses this issue through Proof of Liquidity (PoL)—a dual-staking system that aligns incentives across users, validators, and protocols.
In PoL:
- Users supply liquidity to on-chain protocols and earn $BGT (Bear Governance Token).
- Validators receive $BGT rewards from block production and must distribute them into protocol reward vaults.
- Protocols attract both users and validators by offering competitive incentives funded by protocol revenue or emissions.
This creates a self-reinforcing cycle where increased participation leads to greater liquidity, which in turn boosts protocol performance and validator rewards.
The PoL Positive Feedback Loop
The strength of Berachain lies in its positive flywheel effect, driven by the non-tradable nature of $BGT. Since $BGT cannot be traded on open markets, holders are incentivized to keep participating in the ecosystem to maximize returns.
| Role | Primary Goal | Flywheel Effect |
|---|---|---|
| User | Earn $BGT | Provide liquidity → Stake LP tokens → Earn $BGT → Delegate to validators |
| Validator | Maximize rewards | Attract $BGT delegation → Boost block rewards → Distribute $BGT → Earn protocol incentives |
| Protocol | Grow user base | Offer attractive rewards → Receive more $BGT allocations → Attract more liquidity |
This closed-loop system discourages speculative exits and promotes long-term engagement, making the economy more resistant to volatility.
The Three-Token Model: $BERA, $BGT, and $HONEY
Berachain operates on a sophisticated three-token architecture designed to separate functions and stabilize the economy.
$BERA – The Gas and Staking Token
$BERA serves two primary roles:
- Gas Fee Payment: All transaction fees on Berachain are paid in $BERA.
- Validator Participation: To become a validator, users must stake at least 250,000 $BERA. Only the top 69 validators are active at any time, ensuring network security through a limited validator set.
While $BERA can be freely traded, its utility is deeply embedded in network operations and governance participation.
$BGT – The Non-Transferable Governance Token
$BGT is central to Berachain’s incentive design. Key features include:
- Governance Rights: $BGT holders can vote directly or delegate voting power.
- Non-Tradable: Cannot be bought or sold—only earned through participation.
- Convertible to BERA: Can be exchanged 1:1 for $BERA at any time, but not vice versa.
- Reward Distribution: Generated via block rewards and distributed through protocol reward vaults.
Because $BGT can only be obtained by providing value to the network (e.g., supplying liquidity), it ensures that governance power is held by active participants rather than passive investors.
$HONEY – The Native Stablecoin
$HONEY is Berachain’s algorithmic over-collateralized stablecoin, pegged to the US dollar. It plays a critical role in DeFi by enabling:
- Trading pairs
- Liquidity provision
- Collateral for borrowing
Users can mint $HONEY by depositing approved assets via the Honey dApp or swap other stablecoins using BeraHub.
Balancing Liquidity: The BERA-BGT Equilibrium Mechanism
Berachain’s economy includes a built-in balancing mechanism between $BERA and $BGT to maintain stability:
- When protocol reward vaults offer high yields, users prefer to keep earning and staking $BGT instead of converting it to $BERA—increasing overall liquidity.
- When rewards decline, users convert $BGT to $BERA to realize gains, reducing circulating $BGT supply and restoring equilibrium.
This dynamic adjustment helps prevent inflationary pressure and keeps the system adaptable to changing market conditions.
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Tokenomics of $BERA
The total supply of $BERA is distributed as follows:
- Core Contributors: 16.8%
- Investors: 34.3%
- Airdrops: 15.8%
- Community Incentives: 13.1%
- Ecosystem Incentives: 20%
Unlock Schedule
All token holders follow the same release schedule:
- Initial Unlock: After a 1-year lock-up period, 1/6 of allocated tokens are released.
- Linear Vesting: The remaining 5/6 are unlocked linearly over the next 24 months.
This gradual release minimizes sell pressure and supports long-term price stability.
Funding and Backing
Berachain has raised a total of $142 million across two funding rounds:
- Series B (April 12, 2024): $100 million at a $1.5 billion valuation led by Framework Ventures and BH Digital.
- Series A (April 20, 2023): $42 million at a $420 million valuation led by Polychain Capital.
These investments signal strong confidence from top-tier Web3 venture capital firms in Berachain’s vision for a liquidity-driven blockchain economy.
Frequently Asked Questions (FAQ)
Q: Can I trade $BGT on exchanges?
A: No. $BGT is non-transferable and cannot be traded. It can only be earned through participation in liquidity provision or delegation.
Q: How do I earn $BGT?
A: You earn $BGT by providing liquidity to approved DeFi protocols on Berachain. The more value you supply and the longer you stay engaged, the more $BGT you accumulate.
Q: Is Berachain part of the Ethereum network?
A: No. Berachain is an independent Layer 1 blockchain built with Cosmos SDK, but it is fully EVM-compatible, meaning Ethereum tools and dApps can easily integrate.
Q: What happens when I convert $BGT to $BERA?
A: You receive an equal amount of $BERA in return. However, this conversion is irreversible—once converted, you cannot get $BGT back.
Q: Why is PoL better than traditional PoS?
A: PoL aligns incentives across users, validators, and protocols by rewarding actual economic activity (liquidity provision) rather than passive staking. This leads to higher capital efficiency and reduced token sell-off pressure.
Q: Where can I use $HONEY?
A: $HONEY is used across Berachain’s DeFi ecosystem—for trading, lending, borrowing, and as collateral in various protocols.
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