Berachain - Proof of Liquidity
This section outlines our integration of Proof of Liquidity on Berachain, the mechanics behind it and the opportunities it provides for position design.
What is Proof of Liquidity (PoL)?
Proof of Liquidity (PoL) is an innovative consensus mechanism implemented on Berachain. It is designed to enhance on-chain security by aligning the incentives of all participants and increasing the amount of liquidity deployed within decentralized applications (dApps). Inspired by Proof-of-Stake (PoS), PoL introduces an additional governance token, the Berachain Governance Token ($BGT), which separates the responsibilities of gas and security tokens from governance and rewards tokens.
Gas Token: $BERA
Governance Token: $BGT (soulbound and non-transferable)
Participants in PoL earn rewards by providing liquidity to the chain, which is then staked in governed reward vaults. These vaults are integral to the functioning and security of Berachain’s ecosystem.
Dolomite’s Dynamic Collateral
Dynamic Collateral refers to assets that can perform multiple functions while being used as collateral. For instance, staking, voting, and delegation are supported even when assets are locked in a lending position. Dolomite’s integration of dynamic collateral ensures users retain control over their assets’ utility while unlocking additional yield opportunities.
Dynamic Collateral enables:
Staking assets while using them as collateral.
Borrowing against staked assets to amplify yields.
Unlocking liquidity without sacrificing participation in staking and governance.
How Dolomite Supports Proof of Liquidity
Dolomite’s integration with Berachain’s PoL system allows users to maximize the value of their assets through staking, borrowing, and earning rewards seamlessly. Key features include:
1. Reward Vault Staking
Users can deposit PoL-eligible assets through Dolomite’s interface.
Deposits are automatically moved to a PoL Reward Vault managed by the selected PoL provider.
Users secure the Berachain network, earn PoL rewards, and utilize the underlying collateral value in borrow positions.
2. PoL Tokens
PoL Tokens represent staked positions in the Berachain PoL system. These tokens:
Appear in Dolomite Balances.
Can be used as collateral for borrow positions.
3. PoL Providers
Dolomite offers flexibility in choosing a PoL provider. Initial providers include:
a. BGT Station
Users earn $BGT rewards, which can be delegated to validators for additional incentives.
$BGT can also be moved into borrow positions as collateral.
b. Infrared
Provides $iBGT rewards (a liquid version of $BGT).
$iBGT can be staked into $siBGT to accrue validator rewards.
$siBGT can be used as dynamic collateral for borrowing.
c. BGT Market
Enables decentralized Dutch auctions for $BGT.
Offers proxy-delegation of $BGT to validators.
Allows 1:1 redemption of $BGT to $BERA.
4. D Tokens
Dolomite’s D Tokens are ERC-4626-compliant vault wrappers that enable seamless integration with other DeFi protocols. These tokens:
Represent balances in Dolomite accounts (e.g., dUSDC, dETH).
Can be deposited directly into PoL providers for rewards.
5. Leveraged Farming
Dolomite allows users to:
Deposit PoL-eligible assets.
Convert them into PoL Tokens.
Use PoL Tokens as collateral to borrow additional assets.
Loop the process up to 5-7x leverage for higher yields.
6. Automatic E-Mode
Automatic E-Mode dynamically adjusts Loan-to-Value (LTV) ratios based on correlated price exposure. This feature enables higher leverage while ensuring risk is managed appropriately.
Benefits of Dolomite’s PoL Integration
Dolomite’s integration with Berachain’s PoL system offers numerous advantages:
Enhanced Capital Efficiency: Users can stake and borrow against assets simultaneously.
Flexible Provider Selection: Multiple PoL providers allow customization.
Dynamic Collateral: Unlocks the full potential of staked assets.
User-Friendly Interfaces: Simplifies complex financial strategies.
High Yield Opportunities: Maximizes rewards through leveraged farming and validator incentives.
Conclusion
Dolomite’s integration with Berachain’s Proof of Liquidity redefines the DeFi experience by merging staking, borrowing, and governance into a seamless, efficient ecosystem. Users can now contribute to network security, optimize their yield, and unlock the full potential of their assets with intuitive tools and advanced features. This transformative approach positions Dolomite as a leader in capital efficiency and innovation within the DeFi space.
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