Berachain (BERA): Cosmos-Specific EVM-Compatible Liquidity Redefined

Berachain is an Ethereum-compatible Layer-1 blockchain built using the Cosmos SDK. Of great significance, Berachain furnishes a mutually-beneficial relationship with the greater Cosmos Hub and its universe of IBC-connected appchains.

To complement these connections and its Cosmos SDK framework, Berachain leverages Polaris, an EVM-compatible virtual machine framework for the development of smart contracts atop the CometBFT consensus engine. Polaris is meant to address the inefficiencies of previous EVM-compatible Cosmos virtual machine iterations such as Evmos’ Ethermint and others.

This design was created by ELI5 DeFi to represent the inner ethos of Berachain. (Image Credit Eli5_DΞFi via Berachain Twitter) This design was created by ELI5 DeFi to represent the inner ethos of Berachain. (Image Credit Eli5_DΞFi via Berachain Twitter)

At this time, most blockchains make use of Proof of Stake (PoS) architectures. Unfortunately, most PoS chains and their underlying ecosystem’s exhibit challenges related to poor security and fractionalized liquidity. Fractionalized liquidity typically occurs when liquidity is fragmented between several assets, meaning the liquidity within the system (often existing within liquidity pools on the network) dries up and becomes liquidity debt.

To combat these issues, Berachain introduces its novel Proof of Liquidity (PoL) consensus mechanism, designed to align multiple network incentives by producing a synergistic relationship between Berachain validators, users, and projects building on top of the greater Berachain network. In addition, Proof of Liquidity is built to enhance network security by providing liquidity to a suite of DeFi primitives that exist on top of the protocol itself; in particular a lending and borrowing platform, an AMM DEX, and a perpetual futures exchange.

Through the operation of PoL and Berachain’s tri-token system (consisting of BERA, BGT, and HONEY), liquidity continuously flows between all Berachain validators, users, and ecosystem participants via a specialized feedback mechanism that helps guide protocol governance and overall functionality. This flywheel effect is realized through the redemption of incentivized BGT for validator staking and the use of the protocl’s DeFi suite. There are also additional mechanisms in place that allow network contributors to earth HONEY and BERA.

Ingeniously, the Polaris VM allows for the development of Ethereum-focused applications on Ethereum, Cosmos, Celestia, and Berachain, while also exhibiting a modular design that enables development compatibility for nearly any blockchain in existence. For those unfamiliar, modularity is an innovative means of constructing blockchains that allows for the separation of the tech stack into multiple layers or modules, as was initially conceptualized by Celestia and others.

This design allows for the simplified development of nearly any architecture type (including various types of Layer 2’s scaling solutions, Layer 1 smart contract platforms, rollup frameworks, and others) and enhances protocol security and scalability, while also improving developer flexibility.

In many respects, Berachain’s strategic partnership with Celestia is focused on module-enabled tech sharing with other Celestia-integrated chains. This collaborative partnership cannot be understated because of the fact that Celestia is one of the industry's main leaders in the modularity and data availability (DA) niches.

To Berachain’s advantage, the Celestia ecosystem consists of a large range of projects in the rollup, interoperability, Layer 2, infrastructure, and settlement layer and bridging niches, with many connected to Arbitrium, Optimism, and Polygon development frameworks.

This bodes extremely well for Berachain’s ongoing adoption, especially because of the fact the platform is also Cosmos and Ethereum-compatible and the likelihood that numerous Cosmos and Celestia plays will connect to Polaris for utilities requiring Ethereum smart contract functionality.

Prior to the Berachain whitepaper being released in April 20202, this image was shared to the Berachain Twitter feed by one of its early team members. (Image Credit: Shark11 via Berachain Twitter) Prior to the Berachain whitepaper being released in April 20202, this image was shared to the Berachain Twitter feed by one of its early team members. (Image Credit: Shark11 via Berachain Twitter)

Berachain History and Background

The team behind Berachain found inspiration in the form of rebasing protocol OlympusDAO because of the traction it had gained at the time, culminating in their OHM token being valued at a price of $1,300 during the fall of 2021.

In 2021 Berachain began its blockchain journey following in the footsteps of Olympus DAO by developing the first-ever rebasing NFT collection. Introduced as Bong Bears, the offering constituted several types of bong-wielding meme-focused bear NFTs available for purchase on the OpenSea NFT marketplace. On OpenSea, the Bong Bears collection is described as “100 absolutely zooted NFT bears getting baked,” a moniker that surely resonated with its community as being humorous.

Soon after the Bong Bears release in August 2021, the team introduced numerous additional NFT collections (constituting 6 in total) including Bond Bears, Baby Bears, Bit Bears, Boo Bears, and Band Bears, all of which grew to become extremely expensive (e.g., 10 to 20 ether (ETH) per NFT), selling out entirely in time.

In August 2022, Berachain held an event commemorating the 1-year anniversary of the Bong Bears NFT collection release. (Image Credit: Bong Bears NFT Announcement via Berachain Twitter) In August 2022, Berachain held an event commemorating the 1-year anniversary of the Bong Bears NFT collection release. (Image Credit: Bong Bears NFT Announcement via Berachain Twitter)

In April 2022, the team behind Bong Bears announced they had chosen to expand their vision for the brand by launching their own independent Layer 1 blockchain protocol (Berachain). Only then, could the vision for their offering become more than simply a joke-inspired meme focused on cartoonized bears.

In their eyes, it would be representative of an entire blockchain ecosystem focused on rewarding its participants in an equitable manner for their contributions, while simultaneously offering a multitude of extremely advanced tech innovations.

The Berachain project is made up of a team of pseudonymous co-founders known as Smokey the Bera, Dev Bear, Homme Bera, Papa Bear, and others. Most of the Berachain team hail from Toronto, Ontario, Canada; with other team members hailing from various geographical regions across the globe. For the most part however, the founding team’s real identities are unknown to the general public.

This may change in time, but for now, the founders of the project are synonymous with appearing at various blockchain- and crypto-focused events to discuss the Berachain project and all things blockchain in larger-than-life teddy bear head masks and the like.

At times, the project's founders have referred to Berachain as “Bera”, an intentionally misspelled moniker representing bear, supposedly conceptualized from the ethos of crypto’s “hodl” mantra (meaning hold, referring to the act of holding crypto long-term).

In April 2023, Berachain announced that it had raised 42 million via a series A funding round supported by Polychain Capital and venture capital firms da05, Hack VC, Tribe Capital, CitizenX, Shimla Capital, and Robot Ventures. At the time, the project had accrued a reported valuation of 420 million.

This funding raise was a significant milestone needed to develop the Berachain platform as one of the leading Cosmos and Celestia projects launching in 2024. (Image Credit: Funding Round Announcement via Berachain Twitter) This funding raise was a significant milestone needed to develop the Berachain platform as one of the leading Cosmos and Celestia projects launching in 2024. (Image Credit: Funding Round Announcement via Berachain Twitter)

Use Cases of the Berachain Platform 

Berachain has many utilities in the real world, many of which are related to the usability of the platform for DeFi.

As we touched on above, Berachain has a strong relationship with both Celestia and Cosmos and has positioned itself as an Ethereum-compatible chain through the Polaris VM. This means it has the potential to function as a network for the development of decentralized applications (dApps), protocols, smart contracts, and more, on a host of additional chains as the project matures.

At this time however, Berachain presents primarily as a DeFi-focused protocol. To this point, Berachain’s main DeFi offerings include:

  1. Berachain Exchange (BEX) - a decentralized exchange
  2. Berachain Lend (BEND) - a lending and borrowing platform
  3. BERPS - a perpetual swap futures marketplace
  4. Honey - a stablecoin exchange platform
  5. BGT Station - a BGT staking and governance dashboard

One of Berachain’s main offerings is the Berachain Exchange (BEX). (Image Credit: Overview Berachain BEX via Berachain Documentation) One of Berachain’s main offerings is the Berachain Exchange (BEX). (Image Credit: Overview Berachain BEX via Berachain Documentation)

The Berachain Exchange, or BEX, allows users to trade, swap, and make use of various liquidity pools (including House Pools and MetaPools) to earn incentivized token rewards. The importance of BEX cannot be understated and its presence will go a long way to ensure continued liquidity accrual and adoption of the ecosystem moving forward.

BEX is complemented by the Berachain Lend (BEND) platform, a lending and borrowing protocol that allows users to accrue BGT assets in exchange supplying liquidity to the platform.

Like all of Bera’s offerings, BEND operates directly on the Berachain blockchain.

To complement the BEX and BEND platforms, Berachain offers the BERPS derivatives trading protocol as a means to allow users to speculate and hedge leveraged trading positions with up to 100x leverage.

What’s more, Berachain also furnishes the HONEY stablecoin exchange framework, allowing users to exchange different types of stablecoins to and from Bera’s HONEY stablecoin. This is significant, primarily because a stablecoin is extremely important to ensure the long-term viability and success of any blockchain ecosystem.

Finally, the Berachain platform also offers its BGT Station governance dashboard that allows users to engage in bribes that incentivize BGT validator bonding and staking participation to refine governance systemization, improve security robustness, and increase liquidity accrual on the Berachain platform.

Like most DeFi applications, all protocols mentioned above that operate on Bera allow users to connect a non-custodial wallet, facilitating user interaction with the underlying blockchain and its many DeFi services.

In addition to its in-house DeFi primitives, Berachain can be used as a means for Berachain ecosystem projects to build their own decentralized exchanges (DEXs), borrowing and lending platforms (decentralized money markets), derivatives solutions, stablecoin infrastructures, token issuance platforms, and even for various peer-to-peer payment and settlement infrastructures.

Because of the fact that Berachain is built in a highly decentralized manner, it seems unlikely that Berachain will be viewed as an enterprise, government, or institutional platform in the near-term. However, this could change as the project evolves, especially because of its strong standing within the modular-focused Celestia ecosystem.

Berachain Lend, or BEND, is one of Berachain’s main DeFi iterations designed to drive liquidity between the ecosystem's validators, users, and developers via its interconnected Proof of Liquidity economic and consensus model. (Image Credit: Bend Introduction via Berachain Bend Documentation) Berachain Lend, or BEND, is one of Berachain’s main DeFi iterations designed to drive liquidity between the ecosystem's validators, users, and developers via its interconnected Proof of Liquidity economic and consensus model. (Image Credit: Bend Introduction via Berachain Bend Documentation)

Potential future uses in these niches could include remittances and payments, supply chain management, decentralized identity (DID), FinTech, intellectual property, big data, cybersecurity, and asset issuance, among others.

Depending on its evolution long-term, Berachain could be used as a platform for these and other uses, but for now it's likely to continue its development of its DeFi suite with a strong focus on serving the needs of the larger Cosmos, Ethereum, and Celestia ecosystems.

Berachain Tokenomics

Berachain makes use of three main token types that work together to maintain the overall integrity and balance of the liquidity-focused Berachain ecosystem. These include:

  1. Berachain token (BERA): The BERA utility token is primarily used to pay transaction fees needed to send transactions on the network, while also supporting several additional uses related to its symbiotic relationship with HONEY and BGT. For example, users are able to redeem or burn 1 BGT in exchange for 1 BERA in a non-reversible process.
  2. Berachain Governance Token (BGT): The BGT governance token is designed to ensure the robustness of the Berachain platform by provisioning in-protocol liquidity via the Proof of Liquidity consensus mechanism in a similar manner to traditional PoS models. BGT plays a pivotal role in protocol governance and can be staked within network validators and earned in exchange for using Bera’s DeFi products and services. The token is non-purchasable at this time as a means to align protocol-user incentives long-term (i.e., it can only be obtained in exchange for on-chain network contributions).
  3. Honey stablecoin (HONEY): The HONEY stablecoin is the proprietary Berachain asset pegged 1:1 to the US dollar. HONEY is used primarily through the Berachain Exchange (BEX) and Berachain Lend (BEND) protocols and within the Honey dApp for the swapping and exchanging of assets, which is then used within various liquidity pools and for other means.

Berachain’s tri-token model helps create a synergistic effect built to facilitate the equitable exchange and distribution of value within the greater Berachain ecosystem. This model is especially related to Proof of Liquidity and helps allow the system to work in a balanced and liquidity-enriching manner.

As is evidenced above, all three tokens work together to create a reciprocal relationship between validators, users, liquidity providers, and the greater Berachain network by rewarding all ecosystem participants (in BGT, HONEY, and BERA) for their loyalty to the platform and its continued development.

Exploring the Berachain Governance System

Although the Berachain governance system is somewhat complex, it is designed to adopt the same on-chain proposal and voting mechanisms employed by the Cosmos SDK governance module, allowing token holders to vote on proposals on a 1 token to 1 vote basis.

On Berachain, governance proposals are meant to propose a host of functionalities to various network participants including validators, whitelisted liquidity pools, whitelisted tokens, and more.

Similarly to the Cosmos SDK governance module, this framework allows for proposals and voting to be carried out on-chain. Accessibility to recent proposals and the ability to create new proposals can be viewed and potentially implemented via BGT Station. The Berachain governance framework allows for the creation of four main proposal types. These include:

  1. Text Proposals - proposals that typically don't have automatic functionality at the time they are passed.
  2. Gauge Proposals - proposals that allow validators to choose new whitelisted liquidity providers to accept Berachain Governance Token (BGT) emissions.
  3. Collateral Proposals - proposals that allow new whitelisted tokens to be mapped to Honey and become available for BEX trading.
  4. Market Proposals - proposals that allow wrapped tokens (such as wrapped bitcoin (wBTC), or wrapped ether (wETH)) to be considered for listing on the Berachain Exchange.

Governance Voting

On Berachain, validators and delegators are able to vote on proposals (usually by staking BGT as voting weight) that coordinate platform upgrades, automatically change preset system parameters (including the block gas limit), and vote on amendments to the human-readable constitution that governs all Berachain policies.

The Berachain constitution allows for stakeholder cohesion on a multitude of issues such as software bugs and theft, resulting in faster and more transparent resolutions should issues arise.

Berachain governance also makes use of precompiled contracts (a unique type of smart contract that is incorporated directly into the EVM via Cosmos modules) to manage all Berachain governance actions. Within Berachain governance, these precompiles allow:

  • the creation, cancellation, and use of Get Methods for specific proposals
  • voting on the outcome of specific proposals

This functionality is especially useful when a specific protocol or DAO operating on Berachain must programmatically consider governance decisions related to Proof of Liquidity (e.g., for proposals that allow new liquidity providers to be given BGT emissions on the Berachain Exchange).

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