Proof of Liquidity (PoL) v2: A new paradigm of on-chain yield infrastructure

In the competition of public chains, most Layer 1 projects' incentive models still remain in the traditional PoS (Proof of Stake) paradigm: new tokens are issued and distributed to validators and delegators based on their staking ratios. This "pure inflation" token issuance logic, while simple, lacks refined economic guidance, making it prone to incentive misalignment and capital inefficiency.

A certain blockchain project has taken a different path at this point. Its PoL (Proof of Liquidity) consensus mechanism has directly linked block rewards to on-chain liquidity since its inception, creating a unique ecological growth flywheel. Recently, the project officially released PoL v2, and this upgrade not only optimizes the economic model but also advances towards institutional-level, sustainable revenue pathways.

The Core Logic of PoL: Transforming Consensus Incentives into Liquidity Competition

The core idea of PoL can be summarized as follows: whoever can bring more liquidity will gain more network rewards and influence.

In this ecosystem, there are two native assets that are key to the economic operation:

• BGT: The central token for governance and incentive distribution.
• BERA: on-chain Gas token.

There are three core participants in the operating mechanism: validators, protocol parties, and liquidity providers (LP).

• To receive BGT incentives, the protocol must "bribe" validators (by providing stablecoins, protocol tokens, etc.).
• Validators prioritize high-yield protocols when allocating BGT, leading to a liquidity competition.
• LP can earn additional BGT incentives, in addition to regular returns, when supporting these protocols.

This mechanism has several effects:

• A long-term game is formed between agreements, continuously increasing LP earnings to attract liquidity.
• Validators will actively optimize liquidity allocation to enhance their "Boost" value.
• The liquidity, security, and economic incentives of the entire network form a positive feedback loop.

PoL v1 has already demonstrated the powerful effect of this model in driving traffic within the on-chain ecosystem, but it has also exposed the issue of BERA's insufficient status in the economic cycle.

The Shortcomings of POL v1: BERA's "Missing" Role

In the v1 model, BGT serves as an active economic medium in the ecosystem, featuring both inflationary issuance and a clear distribution mechanism and revenue scenarios. In contrast, BERA's functionality is singular:

• Used for validator staking
• Used for paying Gas

Ordinary users can hardly obtain native yields directly from holding BERA unless they participate in complex LP farming through third-party DeFi protocols. This not only raises the participation threshold but also limits the capital utilization rate of BERA as a core PoS asset.

The more realistic challenge is that, against the backdrop of tightening global regulations, PoS assets like BERA, which lack compliance-friendly revenue models, find it difficult to be adopted by institutions or integrated into the traditional financial system.

Core Changes of PoL v2: BERA Incentive Module

The biggest highlight of v2 is the introduction of native staking rewards for BERA.

Users can now directly stake BERA or WBERA on the designated platform to obtain the voucher token sWBERA (similar to the stETH of a well-known staking platform). This voucher can continue to be used within the DeFi ecosystem, enabling multiple utilizations of funds.

The source of income has also undergone key renovations:

• 33% of the protocol bribes received by validators in the PoL mechanism will be repurchased as WBERA.
• These WBERA are proportionally distributed to BERA stakers.
• The earnings are not pure inflation, but rather the conversion of actual protocol income.

This model is equivalent to redirecting part of the originally expected earnings towards validators into the BERA staking system, transforming BERA from a "network operation cost token" into an "on-chain real yield certificate".

Real Yield and Capital Efficiency: Why v2 is More Sustainable

The revenue model of PoL v2 has two notable characteristics:

Real cash flow support

1. The revenue comes from the bribes paid by the protocol to compete for BGT, and these funds are from the protocol's treasury, rather than being created out of thin air through inflation.
2. Monetize through "auctioning token issuance rights" and redistribute to stakers.
3. Under the same inflation conditions, the capital return efficiency of this project is higher than that of traditional PoS chains.

Capital efficiency improvement

• sWBERA can be used as LST to capture yields again in the ecosystem.
• Users do not need to engage in complex LP or delegation processes; the staking path is simpler and safer.
• The current on-chain staking annualized yield is as high as about 103%, significantly better than the 60%-90% earning functions of centralized exchanges.

Institutional Perspective: From Crypto Incentives to Compliant Yield Products

The other value of PoL v2 lies in its natural compatibility with the logic of institutional participation:

• The sources of income are clear and auditable, and can be directly incorporated into the compliant financial reporting system.
• The flow of funds is transparent and does not rely on speculation in the secondary market.
• The yield model can be packaged in a custodial environment as structured financial products, digital asset bonds, etc.

This is highly in line with the regulatory direction proposed by the recent "Clarity Act": the returns on on-chain assets should be auditable, linked to real economic activities, and capable of custodial distribution. In the future, BERA has the potential to become part of institutional digital asset portfolios and even form standardized products for an on-chain "Digital Asset Treasury."

Conclusion: v2 is an accelerator for the growth flywheel

PoL v1 solves the problem of matching incentives and liquidity, allowing the blockchain project to form a liquidity-driven consensus network. PoL v2 further addresses the issue of the core asset BERA's lack of yield, upgrading it from a network operating cost token to an on-chain real yield certificate, and endowing it with institutional-friendly attributes.

This will not only accelerate the capital circulation within the ecosystem but may also open up pathways for the project to extend into traditional finance and institutional investment. In other words, PoL v2 is not just an upgrade of the token economy, but a key step for the blockchain project to move from "on-chain liquidity engine" to "on-chain yield infrastructure."