By Sergey Vartanov Khachaturyan
Crypto lives and dies by its power laws. The vast majority of activity, whether it’s trading volume, TVL, or profits, often comes from a small, concentrated and highly active group of users. Lose those users, and you lose the flywheel. Growth stagnates, liquidity dries up, and the chain dies. The stakes are high, especially in a space full of new chains coming out regularly and mindshare fading faster than a Twitter trend. There isn't a fully fleshed-out playbook for success. The only way forward is to build a fundamentally novel rather than an incremental improvement. It might crash and burn, but it could form the new standard if executed correctly.
This is precisely what Berachain is looking to achieve - an EVM-compatible L1 built on the Cosmos SDK. By introducing Proof of Liquidity [PoL], Berachain has put a unique twist on blockchain security, turning liquidity from a passive resource into the active core of its ecosystem. It’s a “playground for infinite economic games”, in which capital doesn’t just sit idle, it powers every aspect of the network, from security to governance to application growth. It is an ambitious vision, but if built out correctly, it could position itself as the product many users want.
The story of how Berachain came around traces back to 2021 as ‘Smoking Bears’, an NFT project that leaned into meme culture and irreverent vibes, which is pretty crazy to think back to. But behind the scenes, the team wasn’t content with staying in the cultural corner of crypto. They took a ‘black pill’ [Smokey’s words, not mine] with their thesis that infrastructure had become mainly a meme, a static layer disconnected from the real value drivers: applications and liquidity.
Smokey, the founder of Berachain, puts it best, “Proof of Liquidity is the first primitive aligning incentives between liquidity and security at the protocol level. Berachain has a unique opportunity to become the protocol with the greatest total accessible liquidity of any chain in existence.”
In most Proof of Stake systems, rewards flow top-down, i.e. validators stake tokens, secure the network and get paid for doing so. Meanwhile, liquidity sits idle, locked up and gathering dust. Berachain takes a different path and puts liquidity at the centre of its network design. To earn governance tokens and emissions rewards, Bera Governance Token [BGT], users must actively provide liquidity to the network’s protocols. This liquidity is directed through gauges, dynamic reward mechanisms managed by validators, who decide where rewards flow. Applications can petition to become part of this reward structure, effectively incentivising validators to direct emissions toward their protocols.
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This system creates a unique interplay. Validators become economic curators, allocating rewards to applications and liquidity pools that contribute the most value to the network. Applications, in turn, are incentivised to bootstrap their liquidity by partnering with validators rather than relying on high-dilution liquidity mining programs. A protocol can, for example, allocate its native tokens to a validator, who then directs BGT emissions to the protocol’s liquidity pools. Instead of burning through its token supply, the protocol gains liquidity while users and validators earn rewards, potentially enabling a win-win-win dynamic that reshapes how applications can grow.
The implications on paper are massive. You can look at Berachain as a liquidity machine. Validators distribute rewards across DEXs, perpetual vaults, and stables lending platforms, all baked into the chain at launch. Over time, as more developers deploy on its complete EVM environment, the range of applications will only expand. The thinking behind this is to avoid becoming another static chain but rather create a system where incentives flow continuously, fuelling growth at every layer.
With all of this said, liquidity incentives are not new. Blockchains have been handing out native token rewards to bootstrap protocols for years. However, on most chains, these processes are highly manual, often centralised, and heavily reliant on BD efforts making deals behind closed doors. On Berachain, incentive mechanisms are programmatic and permissionless, allowing any application to tap into native rewards without needing pre-approval or unique partnerships. This creates an environment where active applications can bootstrap liquidity directly from the network without diluting their token supply or relying on opaque allocation processes.
The validator-centric model raises essential questions about incentives and activity. Validators in Berachain aren’t just responsible for securing the network; they’re also tasked with making critical economic decisions about where rewards flow. This dual role adds a layer of complexity that could deter participation, especially among smaller, less-resourced validators and could be challenging for solo stakers. Running a validator node is already demanding and requires technical know-how and capital. Adding the responsibility of economic curation, i.e. deciding how to allocate rewards across dozens of applications and pools, could make it even harder to onboard new validators or retain existing ones.
For validators, this isn’t just about running software; it’s more about understanding the nuances of Berachain’s economic landscape, engaging with applications, and making decisions that directly impact the network’s growth. While the most active validators may thrive in this system and get adequate rewards, smaller operators or solo stakers could struggle to keep up. This, in turn, could raise the risk of centralisation, where a smaller number of well-capitalised or highly active validators dominate the ecosystem. This isn’t a system for passive participants. The most active, engaged players will reap the greatest rewards.
Berachain’s scalability also presents a potential bottleneck. The chain isn’t aiming for ultra-high throughput. It’s not in the parallelisation race like Monad or Megaeth, which promises massive TPS capabilities through advanced parallel execution. Berachain’s current design supports around 700 TPS, with 500 TPS for swaps [from my understanding, but I could be wrong here], which is sufficient for most DeFi use cases but less competitive compared to chains optimised for speed and throughput. While Berachain’s focus on programmability and liquidity dynamics sets it apart, its lower throughput could limit its ability to support high-frequency trading platforms, large-scale NFT marketplaces similar to Blur, or other applications that require near-instant finality at a massive scale.
This trade-off between programmability and raw speed reflects Berachain’s broader philosophy. The network isn’t trying to be everything to everyone, in a way it’s carving out a niche as a liquidity-first ecosystem where capital efficiency and innovation take precedence over sheer transaction volume. For most DeFi applications, the chain’s anticipated performance should be more than adequate, I have to emphasise this. But as crypto continues to evolve, with parallelised chains setting new benchmarks for scalability, Berachain must prove that its unique approach to incentives and liquidity can offset its more modest throughput.
Despite highlighting the above, Berachain’s programmability introduces flexibility that could be a game-changer. Applications can work directly with validators to bootstrap liquidity, bypassing the need for high-dilution liquidity mining programs. Protocols can incentivise specific pools, trading pairs, or lending markets through targeted emissions, creating a system where rewards flow dynamically based on demand. Validators, in turn, gain new revenue streams by partnering with applications, creating a flywheel of collaboration that benefits the entire ecosystem.
At the heart of Berachain is its tri-token architecture, which may seem confusing and maybe even overengineered at first glance but is crucial to ensuring that liquidity, governance, and utility are deeply interconnected.
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The real magic of Berachain lies in how these elements work together to create a new kind of economic system. Validators don’t just secure the network; they directly shape its future by deciding where rewards flow. Users don’t just stake tokens; they strategically choose validators who align with their interests, whether bootstrapping liquidity for a specific application or maximising their rewards. Protocols don’t just deploy contracts; they actively engage with the validator set to secure emissions that fuel their growth. It’s an ecosystem with a vision of every participant having skin in the game and where the incentives are aligned to accelerate adoption and new products.
Berachain’s Beaconkit framework underpins all of this. Built on the Cosmos SDK, it offers full EVM compatibility, making it easy for Ethereum developers to deploy their applications without modifications. It supports dynamic validator sets, cross-chain interoperability through Cosmos IBC, and modular scalability for rollups and L2s. Although I don’t view Beaconkit as just a technical foundation, it’s a launchpad for Berachain’s vision of liquidity-first blockchains.
The power laws of crypto mean that ecosystems live or die by their ability to attract and retain the most active users. While I might be wrong here, from how the team has gained mindshare and evangelised their vision so far, I believe Berachain understands this better than most. Its PoL system rewards those users and makes them central to the network’s security and governance. Applications that thrive in Berachain’s ecosystem are those with high capital velocity, DEXs, perpetual protocols, and even marketplaces that require fast, deep liquidity dynamics.
