Berachain is a Layer 1 blockchain that integrates liquidity provision into its core consensus mechanism.
1/9/2024 by hao
Berachain's concept can be likened to implementing a ve-model (vote-escrow) directly at the chain layer, fundamentally integrating economic alignment and governance into the blockchain’s core design. Just as protocols like Curve use ve-tokens to incentivize long-term commitment and direct governance, Berachain’s Proof-of-Liquidity (PoL) ties network security, user rewards, and governance power to liquidity provision at a protocol-wide scale. This chain-level ve-model ensures that all participants—users, protocols, and validators—are aligned from day one, creating a robust, self-sustaining ecosystem where economic activity and governance are inherently interconnected.
TL;DR by ChatGPT
Proof-of-Liquidity (PoL) is Berachain's innovative consensus mechanism that enhances network security by incentivizing liquidity provision within its ecosystem. Unlike traditional Proof-of-Stake (PoS) systems, PoL rewards users who actively supply liquidity to decentralized applications (dApps) on the chain. Participants earn non-transferable governance tokens, known as $BGT, which can be delegated to validators to boost their reward potential and influence over reward distributions. This approach fosters collaboration among validators, protocols, and users, aligning their interests to promote a more secure and liquid network.
In the Berachain ecosystem, several native dApps are integrated with PoL to facilitate user participation:
Through PoL, Berachain effectively aligns economic incentives across its network, encouraging active liquidity provision and collaboration among all participants to enhance overall security and efficiency.
By examining Berachain's blog post and the examples they highlighted, we can piece together the thought process that likely guided the team in designing Proof-of-Liquidity (PoL). While we can only speculate, these examples offer clues about how the team had in mind when building the its Proof-of-Liquidity (PoL) mechamism
The blockchain trilemma has said that tradeoffs must be made between security, decentralization and speed. This was the consensus prior to the growth of modular blockchain configurations, which have made it possible for blockchains to accommodate for all three without needing to overengineer complex design choices or limit the behaviors of its core user base. Now that developers are able to integrate functionality like shared sequencing layers, data availability laters or even the offloading of proving to dedicated zk proving markets, the game has changed dramatically.
There’s another type of trilemma that’s less discussed, but arguably far more relevant than ever before - a practical trilemma of sorts between users, developers and capital.
Interestingly, Berachain seems to have recognized that the technical challenges of building a blockchain were already well understood. This acknowledgment allowed the team to shift their focus toward designing a protocol that excels in incentive alignment, sustainability, and cultural relevance.
While Solana’s low transaction costs led it to become more popular for memecoins relative to Ethereum, there’s no evidence to support the idea that this was crafted meticulously by the core developer team - this type of activity can only form naturally, and it’s probably the best form of PR you can receive in crypto.
The blog post points out that Ethereum’s DeFi ecosystem and Solana’s meme-driven community growth are two standout successes in the blockchain world. Yet, what makes these examples particularly interesting is that neither seems to have been the result of deliberate, protocol-level design. DeFi on Ethereum emerged organically, creating immense economic value, while Solana’s grassroots meme culture captured the hearts of retail users almost by accident.
Berachain stands out as one of - if not the first - blockchains to build with all of this in mind from the beginning. …….
…… Berachain’s approach isn’t entirely novel or revolutionary on its own, but its deliberate effort to align everyone from the beginning and build out an infrastructure to accommodate for this is what’s so exciting.
Berachain appears to have analyzed these phenomena and tried to manufacture these successes. With PoL, Berachain attempts to replicate the strengths of both Ethereum’s DeFi economy and Solana’s cultural stickiness, but in a way that is engineered from the start to align incentives and participation. By embedding liquidity provision directly into consensus and fostering a user-friendly, engaging environment, PoL seems to consciously blend these lessons, creating a system where both economic activity and community culture drive the protocol’s success.
While Curve was heavily integrated across the DeFi ecosystem and was an extremely core piece of the system as we know it, extending veCRV incentives across the entire crypto ecosystem was never a feasible reality
Now is the time to develop open-loop incentive systems and take advantage of this new paradigm of communication.
Berachain’s mention of Curve in their blog post suggests they are drawing inspiration from veCRV’s success. It’s reasonable to speculate that PoL may feature some kind of voting mechanism tied to reward distribution, similar to Curve’s governance model.
Berachain’s blog post draws a parallel between the concept of enshrined ecosystems and Apple’s approach to vertical integration, where hardware, software, and services are seamlessly designed to work together. The team critiques the current state of blockchain ecosystems,
All too often, these follow the same trend of reskinned Uniswap and Aave forks.
This highlights the frustration with chains relying on generic, unoriginal primitives that fail to differentiate their ecosystems.
Instead, Berachain seems to have embraced the idea that enshrined DeFi primitives—built into the protocol from the ground up—offer a way to create a unique and aligned ecosystem. The blog explains,
Enshrined ecosystems are a way of aligning a community from day one, rather than having to wait until nine months later after a failed ecosystem fund has made your chain indistinguishable from any of its competitors.
By designing Bex (DEX), Bend (lending), and Berps (perpetual trading) to work natively with Proof-of-Liquidity, Berachain is likely aiming to replicate Apple’s model of tightly integrated products that enhance the overall user experience.
The blog further emphasizes Apple as the archetype, stating,
The phenomenon can be examined through the most widespread example of an enshrined ecosystem, this being Apple and MacOS.
Berachain’s enshrined primitives appear to serve a similar purpose: ensuring that the ecosystem operates cohesively, with each component reinforcing the others. Bex, Bend, and Berps are not just isolated applications—they are deeply tied to PoL, serving as key mechanisms for liquidity provision, reward generation, and governance participation.
The team likely recognized that building these primitives in-house, rather than relying on forks or third-party protocols, would allow them to tightly control how liquidity flows through the system. This approach ensures that every economic activity—whether it’s trading, lending, or perpetual futures—feeds directly into PoL’s core functionality, enhancing security and alignment across the ecosystem.
Infrared Finance is a pivotal infrastructure project within the Berachain ecosystem, designed to simplify and enhance user participation in Berachain's innovative Proof of Liquidity (PoL) consensus mechanism. By offering liquid staking solutions and user-friendly vaults, Infrared abstracts the complexities associated with PoL, enabling users to maximize their rewards with ease.
Key Features:
In the Berachain ecosystem, Infrared functions similarly to how Convex Finance operates in relation to Curve Finance. Just as Convex enhances user participation and reward optimization on Curve by providing simplified staking and boosted rewards, Infrared amplifies the benefits of PoL on Berachain. It achieves this by offering liquid staking products and vaults that make it easier for users to engage with and benefit from the network's consensus mechanism.
By abstracting the complexities of PoL and providing intuitive tools, Infrared plays a crucial role in driving user adoption and fostering a more robust and liquid ecosystem on Berachain. Its contributions are instrumental in aligning incentives and promoting active participation, thereby enhancing the overall health and sustainability of the Berachain network.
For more ecosystem projects, check out here
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