Berachain's PoL Consensus Mechanism Upgrade: From Liquidity-Driven to Sustainable Returns

In the current competition landscape of public chains, most Layer 1 projects still adopt the traditional PoS (Proof of Stake) model: by issuing new tokens, they are distributed to validators and delegators according to the staking ratio. This simple "pure inflation" token issuance logic, while intuitive, lacks refined economic guidance, which can easily lead to incentive misalignment and low capital efficiency.

However, Berachain has chosen an unusual path. Its innovative PoL (Liquidity Proof) Consensus Mechanism directly links block rewards to on-chain liquidity from the very beginning of its design, creating a unique ecological growth model. Recently, Berachain officially launched the PoL v2 version, which not only optimizes the economic model but also represents an important step towards institutional-level and sustainable yields.

The Core Concept of PoL: Transforming Consensus Incentives into Liquidity Competition

The core idea of PoL can be simply summarized as: whoever can provide more liquidity will be able to receive more network rewards and influence.

In the Berachain ecosystem, there are two key native assets:

• BGT: The central token for governance and incentive distribution.
• BERA: As a gas token on the chain.

The system operation involves three main participants: validators, protocol parties, and liquidity providers (LP).

• Protocol parties need to obtain BGT incentives by providing stablecoins, protocol tokens, and other means to validators.
• Validators will prioritize protocols with higher yields when allocating BGT, thus creating a competition for liquidity.
• When LP supports these protocols, they can earn additional BGT rewards in addition to regular earnings.

This mechanism has produced several significant effects:

• Long-term games are formed between agreements, continuously increasing LP returns and attracting more liquidity.
• Validators will actively optimize liquidity allocation to enhance their "Boost" value.
• The liquidity, security, and economic incentives of the entire network form a virtuous cycle.

PoL v1 has proven the powerful effect of this model in driving traffic in the on-chain ecosystem, but it has also exposed the issue of BERA's insufficient position in the economic cycle.

Shortcomings of PoL v1: Absence of BERA's Role

Under the v1 model, BGT serves as an active economic medium within the ecosystem, featuring both inflationary issuance and a clear distribution mechanism and revenue scenarios. In contrast, the functionality of BERA is relatively singular:

• Used for validator staking
• Used to pay Gas fees

Ordinary users can hardly obtain native yields directly from holding BERA unless they engage in complex LP farming of third-party DeFi protocols. This not only raises the participation threshold but also limits the capital utilization efficiency of BERA as a core PoS asset.

A more realistic challenge is that, against the backdrop of tightening global regulations, PoS assets like BERA, which lack compliance-friendly revenue models, find it difficult to be adopted by institutions or integrated into the traditional financial system.

Core Improvements of PoL v2: BERA Incentive Module

The biggest highlight of version v2 is the introduction of a native staking yield mechanism for BERA.

Users can now directly stake BERA or WBERA on Berahub to obtain the certificate token sWBERA (similar to the stETH of a well-known staking platform). This certificate can be further used in the DeFi ecosystem, enabling multiple uses of funds.

The sources of income have also undergone key transformations:

• The protocol incentives received by validators in the PoL mechanism, 33% will be repurchased as WBERA.
• These WBERA are distributed proportionally to BERA stakers.
• The yield is not purely inflationary, but rather a transformation of real protocol revenue.

This model is equivalent to redirecting part of the revenue originally flowing to validators into the BERA staking system, transforming BERA from a "network operating cost token" into a "true on-chain revenue certificate."

Real Returns and Capital Efficiency: The Sustainability of v2

The yield model of PoL v2 has two notable characteristics:

Real Cash Flow Support

1. The revenue comes from the incentives paid by the protocol for competing for BGT, which are sourced from the protocol's treasury rather than being created out of thin air through inflation.
2. Realize through "Auctioning Token Issuance Rights" and then redistribute to stakers.
3. Under the same inflation conditions, Berachain's capital repatriation efficiency is higher than that of traditional PoS chains.

Capital Efficiency Improvement

• sWBERA can be used as LST to capture yields again in the ecosystem.
• Users do not need to participate in complex LP or delegation processes; the staking path is simpler and safer.
• The current annualized yield for on-chain staking is as high as approximately 103%, significantly better than the 60%-90% offered by certain centralized exchanges' earning features.

Institutional Perspective: From Crypto Incentives to Compliant Yield Products

Another value of PoL v2 lies in its natural adaptation to the logic of institutional participation:

• The sources of income are clear and auditable, and can be directly incorporated into the compliant financial reporting system.
• The flow of funds is transparent and does not rely on speculation in the secondary market.
• The yield model can be encapsulated in a custodial environment as structured financial instruments, digital asset bonds, etc.

This is highly aligned with the regulatory direction proposed by a recent bill: the yields of on-chain assets should be subject to audit, linked to real economic activities, and capable of custodial distribution. In the future, BERA has the potential to become part of institutional digital asset portfolios, and even form standardized products for on-chain "Digital Asset Treasury."

Conclusion: v2 is the accelerator of the growth flywheel

PoL v1 addresses the issue of incentive and liquidity matching, allowing Berachain to form a liquidity-driven consensus network. PoL v2 further resolves the problem of the core asset BERA's lack of yield, upgrading it from a network operating cost token to an on-chain real yield certificate, and it has become institution-friendly.

This will not only accelerate the capital circulation within the ecosystem but may also open up channels for Berachain to extend into traditional finance and institutional investments. In other words, PoL v2 is not just an upgrade of the token economy, but a key step for Berachain to move from a "on-chain liquidity engine" to "on-chain yield infrastructure."