PoL Participants ​

One of the main shortcomings in Proof-of-Stake is that there is little incentive for different ecosystem players to collaborate. Validators have little reason to interact with protocols and end-users they are ultimately running infrastructure for, yet they receive the majority of economic incentives.

Proof-of-Liquidity (PoL), on the other hand, involves influence from all of the chain's participants. PoL requires different stakeholders to work in-sync to maximize liquidity on the chain in order and receive the greatest benefit.

The following diagram shows a breakdown of the different participants in the PoL ecosystem.

Validators ​

Validators coordinate with one another to reach consensus on the state of the blockchain. In exchange for earning network rewards, validators must put assets at stake and can be penalized for misbehavior. Staking $BERA tokens is required for becoming an active validator. Validators earn through two primary means:

1. Gas fees and priority fees
2. Collecting incentives provided by protocols for directing $BGT rewards to their gauges

Point 1 is straightforward, and is the same as in Ethereum PoS. Point 2 is where interesting PoL mechanics come into play.

Validator Incentives ​

As discussed in $BGT, emissions are distributed per block based on the $BGT delegation weight of the validator selected to propose the block. Each block's proposing validator has the right to distribute the block's $BGT rewards to any gauge they choose, and collect any associated incentives provided by protocols. There is an equal chance for any validator to propose a block.

Validators' $BGT delegation weight initially starts at 0, such that validators do not distribute $BGT to gauges when proposing blocks (initially). However, by demonstrating that they are seeking out the most profitable gauges to direct $BGT to, and by passing on a portion of these rewards to $BGT delegators, they can attract a greater delegation.

Ecosystem Alignment ​

Validators in PoL are more than just "validating" the network, they have the opportunity to partner with protocols to promote their liquidity on Berachain. Lastly, they must earn the favor of users (i.e. $BGT holders and farmers) in order to effectively distribute $BGT rewards to gauges and earn incentives.

$BGT Holders & Farmers ​

$BGT holders play a crucial role in the following:

1. Influencing ecosystem decisions through Governance
2. Influencing where Berachain's economic incentives are directed (by delegating to validators)

Earning $BGT ​

As a farmer seeking to earn $BGT, I would look for the most profitable gauges to farm, given my risk and asset exposure profile. This means that I would look for the gauges that are receiving the most $BGT emissions from validators meeting my criteria. For example, if I was only wanted stablecoin exposure, I may elect to earn $BGT by providing $HONEY liquidity to the Berps protocol.

Delegating $BGT ​

Now that I have $BGT, different factors may influence how I choose to delegate it:

• I may delegate $BGT to validators who are directing $BGT rewards to the gauges I am farming (to increase my earning rate).
• I may delegate $BGT to validators who maximize gauge incentive earning, and pass the maximum value back to their delegators.

Bera Foundation ​

The Foundation plays a role in operating default dApps (Bex, Bend, Berps) which produces fees that are distributed to $BGT holders (such that there is native demand for earning $BGT, independent of gauge incentives).

Liquidity in these default dApps also serve as default gauges for users to provide liquidity on and earn $BGT, until other protocols' gauges are plugged into PoL through governance.

Ecosystem Projects ​

PoL represents a novel way for protocols to bootstrap deposits, versus the traditional approach of incentivizing liquidity through liquidity mining. By plugging into PoL, protocols can promote liquidity by incentivizing $BGT rewards (from validators) to be directed to their gauges.

All of the chain's participants are aligned in increasing the overall value of the network, since all rewards coalesce around $BGT. If the value of $BGT incentives go up, projects' tokens (which are provided as incentives on gauges) may also corresponding increase in value with an increase in deposits.

Lastly, new ecosystem projects will have to become active participants and earn the favor of $BGT holders and delegates, in order to have their gauges be whitelisted into the PoL system.