A Brief Analysis of Berachain v2: What Upgrades Have Been Made to the Original PoL Mechanism?

Berachain itself is a distinctive Layer1 blockchain project, with its most recognizable innovation being the adoption of the PoL (Proof of Liquidity) block reward distribution mechanism. This mechanism transforms the chain’s block rewards into an internal economic protocol that drives ecosystem growth, directly distributing the vast majority of rewards to users and liquidity providers within the ecosystem, thereby driving application growth and on-chain liquidity accumulation.

In this model, all ecosystem assets participating in staking directly provide on-chain liquidity support for Berachain. The rewards generated by PoL liquidity mining come from the chain’s native incentive mechanism, with the network aiming to build a more capital-efficient and incentive-driven underlying structure.

Berachain recently upgraded its PoL consensus mechanism and officially released the brand-new V2 version. The main focus of this upgrade is the introduction of a new token economic model, further endowing the $BERA token with clearer revenue rights and value support.

1. Let’s first talk about the PoL consensus mechanism

In fact, the operating logic of PoL is both simple and interesting. It integrates the PoS consensus mechanism, liquidity mining, and the veCRV liquidity game model introduced by Curve, creating a new paradigm for on-chain governance and incentive distribution.

Currently, Berachain has designed two core native on-chain assets:

• BGT: Serves as the native governance token and the leading asset for incentive distribution;

• BERA: Serves as the staking asset for validators and also undertakes the function of on-chain gas fees.

Meanwhile, the main participants in the PoL model include: on-chain protocols on Berachain, validators in the network, and liquidity providers (LPs).

In this mechanism, any protocol or DApp wishing to receive BGT incentives must first apply to join the PoL reward vault whitelist pool and provide sufficiently attractive bribes to attract the allocation of BGT from validators. Validators on Berachain are the block producers in the network (to become a validator, one must stake BERA tokens). When a validator successfully produces a block, the system provides them with BGT token rewards, including two parts:

• One part is the basic block production reward for the validator,

• The other part is called the “variable reward,” where the system allocates different amounts of BGT tokens to validators based on their “Boost” value (calculated as the percentage of BGT delegated to the validator out of the total BGT delegated to all validators). The higher the “Boost” value, the more BGT token rewards are given, but after reaching a peak, the rewards decay to ensure fair distribution of BGT.

After successfully producing a block and receiving rewards, validators will distribute the majority of this variable reward, according to their own strategies, to the approved whitelist PoL pools via the BeraChef contract. In fact, for validators, when they allocate variable BGT rewards to Reward Vaults, they also receive incentives at a rate set by the vault owner, such as HONEY, USDC, or yields provided by the vault.

Generally, protocols that can provide higher yields to LPs can bring better returns to validators, so validators tend to allocate more BGT rewards to PoL pools that offer higher protocol incentives.

After a protocol’s PoL pool receives BGT rewards, it distributes them to LP users. Therefore, you will see that by becoming an LP in some projects’ PoL pools on Berachain, in addition to receiving regular farming rewards (such as fee sharing, the protocol’s own governance token rewards, etc.), you will also natively receive BGT token incentives from the protocol’s underlying layer, resulting in usually very high APYs.

For BGT stakers, they can delegate BGT tokens to validators to help increase the validator’s “Boost” value. In return, validators periodically distribute the above-mentioned protocol bribes to their supporting BGT delegators according to a set ratio.

Therefore, under the PoL model:

First, protocols compete for better liquidity, usually forming long-term games to continuously attract liquidity through yields. This “yield arms race” provides Berachain with a stronger liquidity foundation.

Second, validators are also competing, aiming to attract more BGT holders to support them in order to obtain better “Boost” values and potential returns. Thus, validators are constantly helping the network optimize liquidity.

Third, those who can provide more liquidity will gain more influence and economic returns, continuously forming a growth flywheel that integrates liquidity, security, and incentive distribution.

2. What does POL v2 bring?

In fact, in Berachain v1, the BGT token, which serves both governance and incentive functions, has been deeply integrated into Berachain’s economic cycle. As an inflationary incentive asset, BGT has clear native use cases at the chain’s underlying layer and possesses sustainable yield capabilities.

In contrast, the other core token, BERA, had a relatively weak economic role in v1. Apart from serving as gas fees and as the staking asset for validators, users could hardly obtain on-chain returns from BERA natively. Therefore, most BERA holders could only rely on third-party DeFi protocols, such as participating in PoL pools supporting BERA or its wrapped assets for LP farming to indirectly earn yields. However, these paths often have high thresholds, are cumbersome to operate, and offer a poor user experience.

Similarly, under the increasingly strict global compliance environment, BERA, like other native PoS assets on chains, faces similar issues: a lack of compliance-friendly yield models, making it difficult for institutional users to adopt or integrate into traditional financial systems, thus limiting market expansion.

Therefore, the most intuitive improvement brought by v2 to Berachain is the introduction of the BERA incentive module. Without significantly altering the existing economic ecosystem, it allows BERA to be better embedded into Berachain’s economic ecosystem and further empowers the ecosystem.

BERA Incentive Module

In v2, Berachain further introduces the BERA incentive module, allowing users to stake BERA tokens directly in a single-token staking manner via Berahub to obtain native yields from the chain ecosystem.

In fact, the BERA incentive module itself is similar to a staking method. If users natively stake BERA tokens, the system first converts them into wrapped tokens WBERA, then stakes them in the network, and returns a voucher token sWBERA. In addition, users can directly stake WBERA tokens, and the system will also return a voucher token sWBERA.

Similar to Lido’s stETH, the sWBERA token is like an LST, which can serve as a voucher asset and is also expected to capture additional yields in Berachain’s DeFi protocols, improving capital efficiency and achieving multiple uses for one asset.

In v1, BGT holders delegated BGT to validators to help increase their “Boost” value.

When users stake BERA tokens, they stake them directly into Berachain’s contract, with a user experience similar to single-token staking in PoS, rather than delegating to validators. However, it should be noted that redeeming sWBERA for BERA requires a 7-day unlocking period.

In terms of yield sources, in v1, the yield for BGT stakers came from the bribe income that validators received after providing incentives to specific PoL pools (additional incentives from vaults or related protocols), with most of it distributed to BGT stakers after deducting delegation fees. In v2, 33% of this bribe income is repurchased as WBERA and then distributed to BERA stakers (compounding), with the amount of staking income a user receives depending on their share of staked BERA tokens.

We can see that in v2, the threshold for users to earn income from BERA has been greatly reduced. Users can simply stake at the chain’s underlying layer, which is safer and more reliable, and no longer need to become LPs or use delegation-type staking via third-party protocols.

In terms of returns, the current yield for single-sided BERA staking can reach 103% (currently the highest single-token staking yield among Layer1s), which is a very impressive return. Although CEXs also offer BERA earning functions, the overall yield is about 60%–90%. Overall, staking directly on-chain, i.e., on Berahub, is more cost-effective (https://hub.berachain.com/stake/).

BERA Staking Yields Have Real Revenue Sources

In fact, native BERA staking does not rely on inflation to “mint and distribute tokens”; its mechanism is supported by real revenue.

This is actually easy to understand. In Berachain’s PoL model, protocols compete for BGT rewards by offering “bribes” to validators. These bribe funds mostly come from the protocol’s own treasury and are paid in stablecoins, mainstream assets, or protocol tokens. These funds are not paid directly to validators but are subject to a 33% fee by the system, which is then auctioned by the network into WBERA and finally distributed proportionally to users staking BERA.

In other words, although the chain does issue BERA rewards, this is not like other PoS networks that create inflation out of thin air. There are real funds backing this process, which is similar to the network selling the “right to issue tokens” and then distributing this monetized income to stakers.

In fact, Berachain’s article gives a good example:

If both ETH and BERA issue $100M of tokens annually:

ETH directly distributes $100M to stakers;

Berachain sells inflation through the bribe mechanism. If the efficiency is 80%, it will obtain an additional ~$80M in real revenue.

The result: with the same inflation, Berachain can achieve $180M in on-chain value recirculation, while ETH only has $100M.

Therefore, BERA’s staking yield is “protocol-level real revenue,” which is not only more sustainable but also gives its native staking scenario long-term value support.

Institutional Friendliness

Another point is the institutional friendliness mentioned by Berachain.

As previously mentioned, the Berachain PoL v2 model monetizes inflation into real protocol revenue, building a clear and well-defined on-chain real yield model for BERA that does not rely on third-party protocols or secondary market speculation, but comes entirely from real on-chain protocol bribe expenditures, which are converted into traceable incentive funds through auctions.

The yields produced by this model can be directly packaged, split, and distributed in a CEX custody environment, giving BERA staking the potential to be packaged by institutions as financial products, custody protocols, and structured yield tools. This effectively solves the pain point of being unable to directly reach institutional users.

On the other hand, I am reminded of the recently much-discussed “Clarity Act,” which establishes a clearer compliance framework for crypto assets. Therefore, the launch of PoL v2 is quite timely, as it binds yields to real economic behavior at the mechanism level. On-chain financial instruments should have clear income sources, a penetrable and auditable underlying structure, and, for holders, custodial and explainable asset attributes—one of the directions advocated by the Clarity Act.

If BERA launches a Digital Asset Treasury in the future, it will also provide institutions and even listed companies with a compliant, custodial, and sustainable cash flow on-chain yield path.

So overall, the launch of v2 is not only about accelerating the ecosystem’s flywheel but also has deeper and longer-term strategic significance for ecosystem development.