Berachain liquidity proof, a points mechanism to encourage long-term growth

By Camila Ramos

Compiled by: Xiaobai Navigation coderworld

Long Game

Liquidity is the lifeblood of on-chain activity. In past cycles, we have witnessed many short-term methods of acquiring liquidity, many of which revolve around points and grants. Sometimes, this liquidity is used effectively in the ecosystem, but most of the time, it is just to achieve certain centralization.exchange(CEX) listing indicators may stimulate a short-term wave of on-chain activities, which will eventually affectTokenPrice. This industry is largely dominated by mercenary actors and related incentive designs. Berachain believes that to build an ecosystem that stands the test of time, we must optimize for the long game from the beginning.

recentTokenGeneration Events (TGEs) highlight the asymmetric relationship between those who provide liquidity and the protocols that reward them, especially in the recent LRT launch. Protocols lock up liquidity, benefit from it, and decide how to reward liquidity providers (LPs). Some teams may take user frustration for granted as airdrop farmers, but other teams recognize that protocols use this deposit data to demonstrate the appeal of private fundraising and forming partnerships without actually finding ways for these users to be rewarded.

Aside from irritating users and undermining public sentiment (which tends to affect price action), one of the biggest problems with the current model is that after launch, hired users will simply withdraw their funds and move liquidity to the next farm. When a new protocol emerges, liquidity is sucked away from the existing ecosystem as users rush to extract new value, sometimes aptly described as “new coins are good, old coins are bad”. Few protocols are able to capture liquidity and users for the long term because of the high opportunity cost of locking up hired capital without earning rewards. Obviously, this is a great strategy for rapid user acquisition, but a terrible one for user retention.

So, how to finally solve this problem?

Berachain sees this as a two-part equation. First, giving users and liquidity providers as much flexibility and influence as possible, reducing the need for them to leave the protocol. Second, ensuring that the stack of users, applications, and validators is consistent and each party benefits from the effort and/or capital invested on the chain. This is where Proof of Liquidity comes in - Berachain's PoL makes liquidity liquid and realigns the flow of value in the network by rewarding the parties that contribute the most to the ecosystem in a systematic way.

Proof of Liquidity 101

流动性证明是一种通过BGT（Berachain的治理/发行代币）激励和奖励生产性资本的机制。以下是三大利益相关群体参与PoL的简要概述：

• Validator: They earn block rewards based on the amount of BGT delegated to them, and can earn tokens for the application by directing BGT issuance into the application’s reward treasury through “incentives”.

• app: BGT reward bounties can be set up on the validator market to incentivize validators to direct BGT issuance into their reward treasury, usually in return for the protocol's native token. Applications and validators work together to direct liquidity for the application's token or the application itself.

• user: Provide liquidity to qualified liquidity venues (pools, vaults, etc.) to accumulate BGT rewards and earn applicable LP fees. Users can also delegate BGT to validators to earn part of the incentives from applications issued by the validator.

As a user in liquidity proof, it is no longer just for the networkSafetyInstead of locking up capital, you provide capital to the ecosystem to earn block rewards (BGT), which can be further delegated toSafetyContributing validators. Validators are incentivized to maximize the BGT delegated to them, as their block construction rewards (and commissions) are proportional to BGT. Therefore, different strategies will emerge to optimize the attractiveness of delegation - this can be social (viaCommunityand/or incubation) or economic (incentivizing delegators through revenue sharing).

With a larger BGT delegation, validators can also work with more protocols through the bounty market mentioned above. This allows them to gain new revenue streams while helping new dApps on the chain bootstrap liquidity and user base. Users will seek out validators whose incentives are aligned with theirs. For example, if a user is invested in protocol X, they may be more willing toXiaobai NavigationIntentionally delegated to a validator who directs part of the issuance to the treasury or LP of the corresponding protocol.

Game theory of stakeholders

• Validator: Win by maximizing BGT delegation and service protocol liquidity rewards, and create profits through efficient cooperation with applications.

• app: By working with validators to bootstrap liquidity and directly incentivizing users to win with BGT issuance, capital efficiency is improved compared to standard liquidity mining programs.

• user: Win by providing liquidity to the applications they use and delegating BGT issuance to consistent validators, earning incentives and maximizing their return on investment.

Berachain is described as a “playground for infinite economic games”. The above alignment is intended to enable Berachain to also serve as a “playground for infinite economic games”, the same but different.

PoL is a better points system

Viktor Bunin stated on May 20, 2024 that “the fee cash flows earned by tokens through their respective protocols will be one of the biggest unlocks for the crypto ecosystem. The only reason most tokens don’t do this is because of the fear of being mislabeled as securities.”

Why are points valid in the short term?

• They provide an additional form of speculation before tokens (the primary form).

• They are often non-transferable and illiquid, making them difficult to price correctly.

• The protocol will determine the “cost” of these points ex post — in the form of token distribution — once value has been extracted from them through metric improvement and point mining.

on the other hand,

• Users have no control over how points are distributed.

• Points lack any form of intrinsic underlying value or ability to represent the underlying value of their corresponding tokens.

• The distribution cycle of points is often unknown or highly variable, making it impossible to effectively know the ownership of the "cake" at any time.

What if there was a way to systematically reward those who contribute the most to a protocol? Rather than participating in a one-sided game where the protocol holds all the cards, users participate in a transparent system where they can weigh the true opportunity cost of their capital.Berachain’s liquidity proof is a better points mechanism.

Proof of Liquidity is a mechanism that incentivizes sticky liquidity by systematically rewarding users who provide productive capital to the ecosystem. No single party can extract value for free. Any capital provided to the ecosystem is put to work, creating deeper liquidity, which results in better execution prices and outcomes for users and dApps. Proof of Liquidity is a dance where validators, applications, and users interact through BGT (the governance token issuance of the Berachain network) to align financial and social interests. To earn BGT, users provide liquidity to ecosystem applications. As a user, BGT entitles holders to receive a percentage of fees generated from native dapp usage, influence which reward vaults are incentivized through governance, and can delegate to validators to earn a portion of validator incentives.BGT allows users who contribute value to the system to decide who should receive the most rewards.

PoL is a more efficient way to distribute issuance/liquidity because itIs a recursive result of on-chain activity with actual user and product growth, not a result of a Sybil attackBGT is also adjustable in real time, controlled by users, dApps, and validators, all seeking to align their game theory optimal outcomes. New projects can be added as eligible to receive BGT issuance through governance, creating a constantly changing cycle of fluctuating incentives.

Berachain: Incentive alignment at the protocol level

Crypto is essentially a game of aligning incentives and finding ways to maximize capital. In other ecosystems, the relationship between users, validators, and applications is fragmented at best. At its core, Proof of Liquidity is about making it easier for applications to acquire users and liquidity, and providing validators with a differentiated revenue stream for working with these protocols.

Points are the most popular method for bootstrapping on-chain activity and growth, designed to assign value to some future token in exchange for providing certain actions or liquidity to the network. However, the distribution and value of points are entirely determined by a single centralized entity and are short-term in nature, leading to sudden liquidity vacuums and protocolSafetyThis leads to a snowball effect where there are no new users, no new applications, and validator participation shrinks. Ultimately, Berachain’s proof-of-liquidity paradigm shifts the focus from short-term gains to sustainable long-term growth. By creating an environment where value is distributed to contributors, participants are incentivized to play the long game.

The article comes from the Internet:Berachain liquidity proof, a points mechanism to encourage long-term growth

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