Berachain's PoL v2 Upgrade: Building On-Chain Yield Infrastructure

In the increasingly competitive landscape of public chains, most Layer 1 projects still adhere to the traditional PoS (Proof of Stake) incentive model, which distributes newly issued tokens to validators and delegators based on their staking ratio. Although this simple "pure inflation" token issuance logic is easy to implement, it often lacks refined economic guidance, which can lead to misaligned incentives and inefficiencies in capital.

In this context, Berachain proposed an innovative PoL (Proof of Liquidity) consensus mechanism that directly binds block rewards to on-chain liquidity from the very beginning, creating a unique ecological growth model. Recently, Berachain officially launched the PoL v2 version, which is not only an optimization of the economic model but also an important step towards institutional-level, sustainable revenue pathways.

The Core Concept of PoL: Transforming Consensus Incentives into Liquidity Competition

The core idea of PoL can be summarized as follows: whoever can bring more liquidity to the network can gain more network rewards and influence.

In the Berachain ecosystem, there are two key native assets:

1. BGT: The central token for governance and incentive distribution.
2. BERA: As an on-chain Gas token.

The ecological operation involves three core participants: validators, protocol parties, and liquidity providers (LP).

• The protocol needs to "bribe" validators (by providing stablecoins, protocol tokens, etc.) to obtain BGT incentives.
• Validators prioritize protocols with higher yields when allocating BGT, resulting in liquidity competition.
• LP can earn additional BGT incentives along with regular returns when supporting these protocols.

This mechanism design has brought several positive effects:

• Long-term game formation between protocols, continuously increasing LP yields to attract more liquidity.
• Validators will actively optimize liquidity allocation to enhance the "Boost" value.
• The liquidity, security, and economic incentives of the entire network form a positive feedback loop.

Although PoL v1 has proven the powerful effect of this model in on-chain ecosystem traffic generation, it has also exposed the issue of BERA's insufficient status in the economic cycle.

Limitations of PoL v1: Absence of BERA's Role

Under the v1 model, BGT serves as an active economic medium in the ecosystem, with both inflationary issuance and a clear distribution mechanism and profit scenarios. In contrast, the functionality of BERA is relatively singular:

• Used for validator staking
• Used to pay Gas fees

Ordinary users can hardly obtain native yields directly from holding BERA, unless they participate in complex LP farming of third-party DeFi protocols. This not only raises the participation threshold but also limits the capital utilization rate of BERA as a core PoS asset.

A more realistic challenge is that, against the backdrop of increasingly stringent global regulations, PoS assets like BERA, which lack compliance-friendly revenue models, find it difficult to be adopted by institutions or incorporated into the traditional financial system.

Core Improvements of PoL v2: BERA Incentive Module

The biggest highlight of v2 is the introduction of a native staking yield mechanism for BERA.

Users can now directly stake BERA or WBERA in the ecosystem to obtain the voucher token sWBERA (similar to staking vouchers on other platforms). This voucher can continue to be used in the ecosystem's DeFi, achieving multiple utilizations of funds.

The source of income has also undergone key transformation:

• The protocol bribes received by validators in the PoL mechanism will be 33% repurchased as WBERA.
• These WBERA are proportionally distributed to BERA stakers.
• The income is not pure inflation, but rather a conversion of real protocol revenue.

This model is equivalent to redirecting part of the revenue originally flowing to validators into the BERA staking system, transforming BERA from a "network operating cost token" into an "on-chain real yield certificate."

Real Returns and Capital Efficiency: The Sustainability of v2

The PoL v2 yield model has two notable characteristics:

1. Real cash flow support

   • The revenue comes from the bribes paid by the protocol to compete for BGT, which are sourced from the protocol's treasury rather than being created out of thin air through inflation.
   • Realize value through "auctioning the right to issue tokens", and then redistribute to stakers.
   • Under the same inflation conditions, Berachain's capital return efficiency is higher than that of traditional PoS chains.

2. Capital efficiency improvement

   • sWBERA can be used as a liquid staking token to capture yields again within the ecosystem.
   • Users do not need to participate in complex LP or delegation processes; the staking path is simpler and more secure.
   • The current on-chain staking annualized yield has reached approximately 103%, significantly better than the 60%-90% offered by centralized exchanges' earning features.

Institutional Perspective: From Crypto Incentives to Compliance Yield Products

Another value of PoL v2 is that it is naturally adapted to the logic of institutional participation:

• The source of income is clear and auditable, and can be directly incorporated into the compliance financial reporting system.
• The flow of funds is transparent and does not rely on speculation in the secondary market.
• The yield model can be encapsulated in a custodial environment as structured financial instruments, digital asset bonds, etc.

This is highly in line with the direction proposed in recent regulatory proposals: the returns on on-chain assets should be auditable, linked to real economic activities, and capable of custodial distribution. In the future, BERA has a complete opportunity to become part of institutional digital asset portfolios, and even form standardized products for on-chain "digital asset treasury."

Conclusion: v2 as an Accelerator for Growth Flywheel

PoL v1 solved the problem of incentive and liquidity matching, allowing Berachain to form a liquidity-driven consensus network. PoL v2 further addressed the issue of core asset BERA's lack of yield, upgrading it from a network operating cost token to an on-chain real yield certificate, and it possesses institutional-friendly attributes.

This upgrade will not only accelerate the capital circulation within the ecosystem but may also open the door for Berachain to traditional finance and institutional investment. In other words, PoL v2 is not just an upgrade of the token economy, but a key step for Berachain's transformation from an "on-chain liquidity engine" to an "on-chain yield infrastructure."