> ## Documentation Index
> Fetch the complete documentation index at: https://docs.berachain.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Incentive Marketplace
> How protocols bid for validator BGT emissions.
Proof-of-Liquidity (PoL) enables protocols to encourage validators to direct their `$BGT` emissions to a protocol's Reward Vault using whitelisted Incentive tokens. In doing so, protocols attract users to their protocol with `$BGT` rewards.
## How incentives work
Validators can capture Incentives offered by Whitelisted Reward Vaults by directing their `$BGT` emissions towards those Reward Vaults, defined by a validator's Reward Allocation - the list of Reward Vaults a validator directs percentages of its `$BGT` emissions to.
### Incentive distribution flow
The distribution of Incentives follows this process:
1. A **User** Boosts (by associating their `$BGT` with a validator) to increase a validator's `$BGT` emissions they receive when proposing a block.
2. A **Validator** receives block rewards in the form of `$BGT` emissions, where the amount is influenced by Boost (see [`$BGT` Emissions Per Block](/general/proof-of-liquidity/block-rewards)), and directs emissions toward Whitelisted Reward Vaults chosen by the validator.
3. A **Protocol** can offer up to two different Incentive Tokens to encourage validators to direct `$BGT` emissions to their Reward Vault.
4. When the `$BGT` block reward emissions are distributed:
* The validator's operator address receives a commission (percentage of all the Incentive Tokens captured).
* The remaining Incentives, for those who boosted the validator, are sent to a contract and backend service that manages the distribution and claiming of these tokens. The backend API updates proofs of your entitlement to Incentive tokens every 24 hours. This eligibility never expires.
5. To claim your Incentive token rewards, you retrieve this proof and claim through the BGTIncentiveDistributor contract. All proof handling is done by interacting with [Berachain Hub](https://hub.berachain.com).
### Incentives and users
As an overview, Incentives involve 3 different parties:
| User | Description & Motivation |
| --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Booster | Any user that boosts a validator with `$BGT`. This increases a validator's `$BGT` emissions, allowing them to capture more Incentives from Reward Vaults. Boosters receive a portion of these Incentives. |
| Validator | A node in the Active Set that directs `$BGT` emissions to different Reward Vaults defined by their Reward Allocation distribution, captures Incentives from Reward Vaults, and takes a percentage (Commission Rate) of the Incentives captured. |
| Protocol | An entity, group, or organization that offers Incentive tokens for their respective Reward Vault with the goal of capturing `$BGT` emissions for their protocol and/or users. |
## Incentive mechanics
Behind Incentives, there are additional mechanics to consider beyond the high-level overview of how distribution works.
### Whitelisting incentive tokens
Only Whitelisted Reward Vaults can offer Incentives. A governance process must whitelist each Incentive Token, where the proposer needs to specify both the Token and a Token Manager.
A Reward Vault can have up to two unique Incentive Tokens whitelisted. Adding or replacing a token requires passing a governance proposal.
### Incentive token managers
Only Incentive Token Managers of a Reward Vault can offer Incentives. One wallet address is responsible for offering an Incentive Token. The same wallet address can be set as a Token Manager for multiple Incentive Tokens.
A Governance proposal will specify Token Managers when proposing an Incentive Token. Changing a Token or Token Manager requires passing a governance proposal.
### Offering incentives
A Reward Vault can offer up to two Incentive Tokens simultaneously. The offered amount cannot be withdrawn or revoked.
The Incentive Token Manager must define an **Incentive Rate** (the exchange rate of incentive tokens per individual BGT), which must be greater than the minimum approved in the Governance proposal. This rate determines how many incentive tokens are distributed for each BGT received by the vault, regardless of BGT emission timing.
Key aspects of incentive rates:
* **Exchange Rate Formula**: `incentiveTokens = bgtReceived × incentiveRate`
* **Rate Constraints**: Cannot decrease the rate until the supply of Incentive Tokens has been exhausted
* **Rate Updates**: Can increase the rate when depositing additional tokens
* **Independent of BGT Timing**: The exchange rate operates the same whether BGT is distributed over 3 days or 7 days
Key takeaways are that Token Managers:
* Can increase the Incentive Tokens by any number, keeping the same Incentive Rate.
* Can increase the Incentive Rate when they deposit additional Incentive Tokens.
* Can set a lower Incentive Rate only when the Incentive Tokens have been fully exhausted.
* Cannot decrease the Incentive Rate while an existing Incentive is active.
* Cannot reclaim or return the Incentive Tokens once they are added.
### Incentive commission and distribution
Each validator can set a percentage that they take as a commission of all Incentive Tokens received for directing `$BGT` emissions to different Reward Vaults offering Incentives. Every time `$BGT` block rewards are distributed, the validator will receive their commission rate of Incentive Tokens.
Validator commission cannot exceed **20%** (`MAX_COMMISSION_RATE = 0.2e4`). Any attempt to queue a higher value will revert, and stored values above the cap are clamped when read.
**Example:**
| Incentive Tokens | Incentive Rate |
| ---------------- | -------------- |
| 100 `$USDC` | 100 /`$BGT` |
Validator A has an Incentive Commission of `5%` and directs 1 `$BGT` of emissions toward the Reward Vault.
From `100 $USDC`, the validator would get `5 $USDC`, based on their commission, leaving `95 $USDC` for anyone who boosted the validator.
| Party | `$BGT` Boost To Val A | % of Total Boost | Total Incentive Token Rewards |
| ----------- | --------------------: | ---------------: | -----------------------------------: |
| Validator A | 20 `$BGT` | 25% | .05 × 100 + .25 × 95 = 28.75 `$USDC` |
| Manny | 40 `$BGT` | 50% | .5 × 95 = 47.50 `$USDC` |
| Cami | 10 `$BGT` | 12.5% | .125 × 95 = 11.875 `$USDC` |
| Jintao | 10 `$BGT` | 12.5% | .125 × 95 = 11.875 `$USDC` |
A validator can change their commission percentage by first queueing the rate to notify users of the upcoming change, waiting `16,382` blocks, and then anyone may activate the new rate for the validator.
Validator commission cannot exceed **20%** (`MAX_COMMISSION_RATE = 0.2e4`). Any attempt to queue a
higher value will revert, and stored values above the cap are clamped when read.
The **timing** of BGT emissions (which triggers incentive distribution) is controlled by the
Reward Vault's emission mode. While incentive token exchange rates are set by protocol token
managers, the distribution timing is managed separately. See [BGT Emission
Modes](/general/proof-of-liquidity/reward-vaults#bgt-emission-modes) for complete details on
duration-based and target rate modes.
## Incentive redirection
A portion of protocol incentives is automatically redirected during the incentive distribution process for BERA stakers:
* **Redirection Rate**: 33% of the incentive amount
* **Collection Process**: Automatically deducted when incentives are distributed
* **Distribution**: Redirected incentives are auctioned for WBERA and distributed to BERA stakers
* **Remaining Amount**: Validators receive the remaining 67% of incentives
This mechanism ensures that BERA stakers receive direct yield from PoL incentives while maintaining the competitive incentive marketplace.