You've probably heard about earning $BGT on Berachain through its unique Proof-of-Liquidity system. But what exactly are these "Reward Vaults" everyone's talking about? Think of them as special storage for rewards. The earning of $BGT is available only via Reward Vaults. Let's simplify it all.
Key Takeaways
- $BGT Only Through Reward Vaults: Berachain's unique system lets you earn $BGT solely through these special vaults.
- Action = Receipt Token = $BGT: Provide liquidity on dApps, get a receipt token, and stake it in a vault to earn.
- Validators Fuel the Rewards: Validators direct their earned $BGT to vaults, influenced by dApp incentives.
- Community Approval Needed: New vaults and incentive tokens require a $BGT governance vote.
- Reward Vaults Power PoL: They're the engine of Berachain's Proof-of-Liquidity, rewarding participation.
Reward Vaults: Your Gateway to $BGT Rewards
Reward vaults are core to how the Proof-of-Liquidity system works on Berachain, creating a hard-bound relationship between earning $BGT and providing value to the network through its liquidity. It also allows flexibility for the different projects that are building on top of Berachain, dApps, in providing incentives for users. A dApp can create one or many reward vaults, each is then linked with various ways you can earn rewards. So, they can reward users for a wide range of actions with $BGT tokens.
How Do Reward Vaults Work?
Essentially, a Reward Vault is a smart contract on Berachain responsible for holding and distributing $BGT rewards. These vaults are directly associated with Berachain's Proof-of-Liquidity model and serve as the only means of receiving that coveted token, $BGT.
Here's a simple way to understand it:
- Take Action, Get a Receipt Token: You engage in activities on Berachain dApps, such as providing liquidity on BeraSwap (BEX) or borrowing on BEND. In return, the dApp issues you a receipt token, which represents your contribution (e.g., your share of a liquidity pool).
- Stake Your Receipt Token: You then stake this receipt token in the corresponding Reward Vault on BGT Station, where you can monitor and manage all your Vaults.
- Earn $BGT: Validators that secure the network redirect part of the $BGT they earn to these vaults. This receipt token you staked is a claim on your portion of that reward, proportionate to your contribution.
The Incentive Marketplace: More Rewards for You
Berachain adds another layer of earning rewards by introducing a feature called the Incentive Marketplace. It is a system whereby different projects on Berachain are going to bid for validators' attention, who have control over where the flow of $BGT rewards should go.
How this works:
- dApps Need Liquidity: Projects like BeraSwap (the exchange) or BEND (the lending platform) need users to provide liquidity so they can function properly.
- Validators Direct $BGT Rewards: Validators, who secure the network, earn $BGT and get to decide which Reward Vaults receive it.
- dApps Offer Extra Rewards: To incentivize validators, and thus more liquidity providers, dApps can offer extra rewards, termed "incentives." Typically, these incentives are paid in the dApp's own project token.
- Setting the Rate: Each dApp can set an "incentive rate" for their Reward Vault. They might offer, for example, 5 of their own project tokens for each 1 $BGT that a validator forwards to their vault.
- Validators Seek the Best Returns: Validators would logically like to send their $BGT to vaults offering the best incentives, since that maximizes both their and their delegators rewards.
- Validators get additional rewards: Validators can take some commission from these rewards and distribute the rest to users who have delegated their $BGT to them.
This creates a dynamic "marketplace" where dApps compete for validator attention by offering attractive incentives. In the end, this benefits you as a liquidity provider because it can lead to higher rewards in addition to the $BGT you're already earning. You support validators who send rewards to dApps you use and provide liquidity to.
Community-Governed Vaults
While anyone can create a Reward Vault, they must be "whitelisted" through a community governance vote using $BGT. This ensures that only legitimate and valuable projects receive $BGT emissions from validators. Similarly, any extra incentive tokens offered by dApps also need community approval. It gives power to the $BGT holders, as they can determine how the Berachain ecosystem is shaped.
The Reward Vaults are your key to earning on Berachain. Understanding how the mechanism works, you will then be able to participate strategically in the Proof of Liquidity system: support the projects in which you believe and maximize your earnings accordingly. Ready to dive in? Go ahead and explore different dApps on Berachain, find yourself a fitting Reward Vault, and start earning $BGT today!
The information provided by DAIC, including but not limited to research, analysis, data, or other content, is offered solely for informational purposes and does not constitute investment advice, financial advice, trading advice, or any other type of advice. DAIC does not recommend the purchase, sale, or holding of any cryptocurrency or other investment.
