Liquidity-Focused Berachain Opens Layer-1 Testnet to Public

Upcoming layer 1 blockchain Berachain opened its testnet to the public Thursday, a debut for its “proof of liquidity” consensus mechanism that garnered $42 million in funding last year.

Berachain is a meme-fueled project built in the Cosmos ecosystem. Its creators are largely pseudonymous crypto developers who identify themselves online with pictures of cartoon bears – some smoking weed.

That didn’t stop the likes of Polychain Capital from investing in their vision for a new kind of blockchain. Under the hood, it’s powered by a fresh take on the popular “proof of stake” model for securing blockchains called “proof of liquidity,” or PoL.

Under PoL, ecosystem players help secure the Berachain network by providing liquidity to the trading infrastructure built on top of it. Infrastructure can mean many things: an automated market maker, a crypto game, a lending protocol – basically anything that needs a pool of user-supplied tokens to facilitate transactions via smart contracts.

It’s common in decentralized finance (DeFi) for these protocols to reward their liquidity providers (LPers) with a token. That’s the plan for Berachain, too. Any protocol that’s passed a Berachain governance vote will get BGT to give to their LPers.

These BGT tokens are the governance tokens for Berachain, meaning its holders have power over the network. Notably, the tokens are also illiquid; you can’t buy or sell them. The only way to get them is by earning them as a reward, Berachain cofounder Smokey the Bera told CoinDesk.

“Berachain is the first chain that’s built to drive value to protocols,” Smokey said in a Telegram message.

The token’s creators plan for it to have some economic value. Any BGT holder will be able to burn their assets in exchange for the equivalent amount of BERA tokens, which will be tradeable. Or, they can delegate their BGT to others in exchange for the Berachain stablecoin called HONEY, which Smokey said will be backed by USDC.

This setup doesn’t ensure Berachain will be entirely immune from economic whales. While “you can’t just buy the staking token,” big bag holders could still buy lots of BERA, provide it as liquidity to trading protocols and receive outsize BGT, and the power they hold, Smokey said.

Still, it’s a much more active version of “proof of stake” than simply lending one’s tokens to a validator. Under Berachain, the protocols themselves receive the liquidity of all the users seeking economic returns.

The liquidity bootstrapping allows Berachain “to accomplish more with less initial resources,” Smokey said. That could be an important distinction given the number of new layer 1 blockchains rolling out and being announced.

Berachain is positioning itself to appeal to the Ethereum crowd as well as Cosmos builders, Smokey said. It’s already been in a private testnet for about a month and has more than 30 native teams, plus dozens more protocols from other ecosystems that are preparing to roll out versions of their project on Berachain.