How does Berachain work? A look at its three-token model

Berachain operates as an Ethereum Virtual Machine (EVM)-compatible Layer 1 blockchain built on the Cosmos SDK, combining the best of both worlds to deliver a scalable, interoperable, and developer-friendly platform. At its core, Berachain leverages EVM compatibility to allow developers to seamlessly port Ethereum-based decentralized applications (dApps) and smart contracts onto its network. This ensures a smooth transition for developers while maintaining access to Ethereum’s robust tooling and ecosystem.

How does Berachain work?

Berachain uses a three token model as follows:

• BERA: The primary token used for gas fees and transactions.

• BGT: The governance token used for staking and participating in the network's consensus. BGT cannot be bought on exchanges and can only be earned by participating in network security. Engage directly in the governance of BGT, leverage BGT Station for innovative bribe mechanisms, enhancing participation.

• HONEY: A stablecoin that's integral to the Berachain ecosystem. Utilize HONEY for seamless trading, ensuring value consistency.

What are the benefits of Berachain’s three-token model?

Berachain’s tri-token model may be an advantage over blockchains like Ethereum — where the same cryptocurrency is used for gas fees and staking.

The more ETH is staked, the lower the total supply of ETH available and the higher the cost of ETH. This means that paying gas fees on transactions is more expensive!

Berachain was designed specifically to solve this problem. Because BERA and BGT are separate tokens, staked cryptocurrency does not impact the total supply of cryptocurrency available for transactions.

With Berachain’s unique tri-token model, users can stake cryptocurrency and contribute to the security of the network without raising gas fees!

Proof of Liquidity Consensus Model

To better understand Proof of Stake and Proof of Liquidity, let’s break down the difference between the two consensus mechanisms.

• Proof of Stake (PoS)

  : Proof of stake chains like Ethereum allow validators to earn ETH by staking directly with the blockchain. Existing holders of ETH will continue to earn more ETH — which could lead to Ethereum becoming more centralized over time!

• Proof of Liquidity (PoL)

  : Proof of liquidity chains like Berachain allow participants to provide liquidity. In return, liquidity providers are rewarded with BGT. This setup allows more liquidity for the Berachain ecosystem and less centralization risk!

In the future, decentralized applications built on Berachain will be able to create liquidity pools to contribute to network security. That means independent developers have the opportunity to receive funds from validators and chare apps across the Berachain ecosystem.