Proof-of-Liquidity Overview 📓

One of the main shortcomings of Proof-of-Stake is the lack of incentive for different ecosystem players to collaborate. Validators have little reason to interact with the protocols and end-users for whom they are ultimately running the infrastructure, yet they receive the majority of the economic incentives. On the other hand, projects launch on this infrastructure but retain the majority of the project tokens for themselves.

A healthier equilibrium can be achieved between projects, validators, and the chain when all actors share in the network's growth.

Proof-of-Liquidity (PoL) involves the participation and influence of all the chain's stakeholders. PoL requires different stakeholders to work in sync to maximize liquidity on the chain, ensuring they receive the greatest benefit.

The following sequence diagram represents the different steps that Proof-of-Liquidity (PoL) undergoes from the perspective of a validator and delegator.

1. A Prospective Validator will provide an initial gas token bond ($BERA) to secure the network and gain eligibility to produce blocks. All active validators have an equal chance to be selected to propose a block.
2. An Active Validator is chosen at random and proposes a new block.
3. For proposing a new block, the chain allots the Active Validator with the governance token ($BGT) for distribution
4. With the rewarded governance token, the Active Validator distributes to various Reward Vaults, decided by the validator in the Berachef contract (A list of addresses and distribution percentages to different Reward Vaults).
5. A Liquidity Provider may perform a liquidity action like depositing a certain token with a BEX pool. Ex: Providing $HONEY and $BERA to a liquidity pool
6. For providing liquidity, the Liquidity Provider receives a receipt token. Ex: $HONEY-WBERA.
7. The Liquidity Provider stakes the receipt token with the Reward Vault making them eligible to receive $BGT based on their contribution.
8. The $BGT that was distributed to the reward vault is now eligible to be claimed by the Liquidity Provider, making them a BGT Holder
9. A BGT Holder can now delegate their $BGT to an Active Validator, making that validator a Boosted Validator, and increases the rewards a validator is alloted to distribute when they propose a block

Aligning Protocols and Validators 🤝

Because validators are given the responsibility of distributing governance tokens to Reward Vaults, when chosen to propose a block, it introduces a new dynamic where rewards are essentially shared with the ecosystem protocols.

Validators will share a stronger relationship with protocols, as their reward weight is determined by the governance tokens delegated to them, creating a symbiotic relationship.

Protocols can also convince Validators to start directing rewards to them by offering Incentives in exchange for the $BGT rewards directed to their specific Reward Vaults.

Existing Reward Vault Implementations 🐻

The following are implementations of existing Reward Vaults:

1. BEX - Specific BEX Pools
2. Berps - Depositing $HONEY into Berps Honey Vault
3. Bend - Borrow $HONEY