Berachain is an EVM-equivalent high-performance L1 public chain that uses proof of liquidity (PoL) as a consensus mechanism.

When talking about Berachain, we must introduce the PoL mechanism in depth.

In order to better understand PoL, let us first review the consensus history of PoW and PoS, and understand what problems PoW and PoS have? Why do we need PoL?

The Bitcoin blockchain is based on the PoW mechanism (Proof-of-Work), that is, proof of workload.

The PoW mechanism requires nodes to consume computing resources (energy) to solve complex mathematical problems and verify new blocks, thereby obtaining BTC rewards-this process is also called mining.

But the shortcomings of the PoW mechanism are also obvious: mining requires a lot of computing resources and electricity, which may have an impact on the environment; mining requires professional hardware equipment, which will increase the cost of entry or aggravate the centralization of miners.

In order to solve the problem of PoW, the PoS (Proof-of-Stake) consensus mechanism was proposed.

The most typical case is the Ethereum blockchain, which transitioned from the PoW mechanism to the PoS mechanism in 2022.

The PoS network requires nodes to use native tokens as stakes to participate in verification. If the node validator behaves maliciously, the staked native tokens will be cut.

In PoS, validators are not determined by the number of their staked tokens (superimposed randomness) to propose new blocks through computing power competition. The selected validators are responsible for verifying new blocks and then receiving ETH rewards.

Of course, the PoS mechanism also has its own problems:

• 1/ In order to protect the security of the PoS network (such as 51% attack), a large number of native tokens must be staked, but this leads to a reduction in the tokens that can be invested in the chain ecosystem.

• 2/ The PoS mechanism only rewards nodes that perform verification services, and does not care about Dapps/users. Obviously, Dapps and users are also core participants in a chain, but they cannot benefit from the PoS verification mechanism.

The PoL mechanism is built on top of PoS to solve its inherent defects.

PoL (Proof-of-Liquidity) is a liquidity proof mechanism designed to reward liquidity providers.

Users who provide liquidity on Berachain can earn governance tokens BGT and delegate them to validators to participate in network governance and receive token rewards.

Validators receive BGT block rewards based on the number of BGTs they are delegated to. They need to send most of their BGTs to the Dapp's reward treasury to earn native token incentives provided by the Dapp.

These BGTs will eventually flow to users who provide liquidity in the Dapp reward treasury.

Then, users delegate the BGTs they receive to validators...voila, a flywheel is formed.