Transition from POS to POL

While the POS model ensures that validators have skin in the game, it fails to align their interests with the protocol to achieve common goals.

At least at the consensus level, there is a clear lack of coordination or deeper involvement in:

• The protocol that ensures the network functions

• Validators ensure that the protocol drives the economic activity of the network

This lack of collaboration in the consensus mechanism also raises questions about the role of users.  

This is where Berachain’s POL consensus comes into play.

POL consensus is based on POS and introduces an incentive system at the consensus level, strategically designing the interests of all network participants (validators, applications, and users).  

The use of incentives is well established in the cryptocurrency space, with notable examples such as Curve, Convex, and Redacted demonstrating their power in aligning interests and scaling products.  

However, Berachain is the first to integrate a bribery system directly into the consensus model, ensuring that collaboration between network participants is ingrained into the network infrastructure.

What POL actually means

Under this model, Berachain is building a network where liquidity and security scale in proportion to the growth of the network, fostering community coordination from the outset.

The POL system incentivizes all participants, with a particular emphasis on validators, whose active participation is critical to the success of the network.

To understand the incentive balance achieved through POL, it is necessary to first introduce Berachain's token model:

• BGT: The Bera Governance Token (BGT) is a fundamental component of the POL model. It is non-transferable and can only be obtained by participating in POL. BGT is not just a simple governance token used for voting, it represents the most important share of POL rewards: Users delegate BGT to validators, and new BGT is only issued as a reward for validators proposing valid blocks, which they then distribute to applications based on the bribes received. Users can only obtain BGT by adding liquidity to LPs with BGT issuance - once received, they can decide whether to use it or burn it as BERA.

• BERA : Berachain’s gas token, transferable and must be staked by network participants to become active validators.

• HONEY : Berachain’s native USD-pegged collateralized stablecoin that can be minted by depositing different whitelisted collateral into the vault.

Berachain flywheel

Berachain’s “Modular Liquidity” transforms the ecosystem from a zero-sum game to a collaborative environment, creating a flywheel effect for the entire ecosystem:

• Validators interact directly with users to maximize the BGT delegated to them. Users delegate their BGT to validators, and the more BGT they have, the more rewards they receive. Validators earn fees from these rewards.

• Applications are collaborating to get larger BGT rewards for their pools to encourage users to add liquidity rather than compete

• Users can choose from different options after depositing funds into a pool, and funds will fluctuate over time. Their rewards will depend on their share of the total assets staked in the pool and the amount of BGT rewards issued to the meter by validators.

Ultimately, validators decide the distribution of BGT issuance across pools and protocols, and their strategies may vary.

The protocol can also attract more BGT rewards by incentivizing validators with native token rewards (i.e. bribes). Let's look at a practical example:

• A validator points his BGT to the protocol's LPs.

• Let's say you are FrancescoProject and you own FRAcoin. You want to have a strong LP on FRAcoin/Bera.

• To do this, you will decide to bribe the validator with X amount of FRAcoin, and the validator will then send his BGT to the FRAcoin/Bera LP.

• Users want to earn BGT, so they add liquidity to the LP 

This model requires close coordination between validators, applications, and users to incentivize all parties. Here is how Berachain participants participate in the flywheel.

1. Validators: Validators redistribute BGT according to their reward rightsRewards, proportional to the amount of BGT delegated to them. Validators’ rewards also include bribes from ecosystem applications + rewards from block capture value (fees on total rewards, e.g. BERA from gas, HONEY from transaction fees, etc.). In addition to securing the network, validators must:
   

• Maximize BGT delegation

• Direct BGT incentives

2. Users vote with their wallets: They deposit liquidity into whitelisted pools and receive LP tokens. They can stake these tokens in specific metrics to earn BGT, and then delegate BGT to validators.

1. Ecosystem Projects: Anyone can take advantage of Berachain native issuance as a source of revenue. Applications can send bribes to delegates, creating a positive feedback loop that incentivizes liquidity in specific metrics and distributes more rewards to those applications (e.g., users will see this and choose to deposit more liquidity into the metric, thereby earning BGT and more rewards relative to other metrics).