If you’ve been following Berachain and Proof of Liquidity, you might wonder how to start building a strategy farming BGT, Berachain’s governance token. Earning BGT is a matter of smart participation: providing liquidity, strategically aligning with validators, and understanding the value proposition of ecosystem protocols incentivizing validators. Berachain’s Proof of LIquidity creates an environment where active participation directly translates into rewards. This post will walk readers through understanding the basics of a strategy to maximize BGT earnings while contributing to the security and liquidity of the network.

How to earn BGT

Remember, BGT cannot be bought and isn’t transferable. The only way to earn BGT is by providing liquidity and then staking the LP token into a whitelisted gauge. In Berachain, a gauge refers to a smart contract that lets users stake a specific asset to earn BGT rewards. The amount of BGT rewards a user earns from gauges is a function of:

1. The user's share of total assets staked in the gauge
2. The amount of BGT rewards emitted to the gauge (we’ll cover this in the next section)

Anyone can create a proposal to add a new gauge and protocols/developers exercise creativity in how the end-user acquires a given staking token. A good way to determine where to provide liquidity is to work backward from the list of gauges: https://bartio.station.berachain.com/gauge.

Right now, we see three gauges, aka three ways for users to earn BGT. These default gauges (vaults) are from Berachain’s native dapps built into the chain, and new gauges will be added over time. By LP’ing into the HONEY-WBERA pool on BEX, borrowing HONEY on Bend, depositing HONEY into the Berps vault, and staking the representative token into their respective gauges. This list will constantly change as new gauges are added via the gauge whitelisting process conducted via BGT governance. Developers or protocols can submit a proposal to create a new gauge for a specific asset. If the proposal passes, the new gauge is created and added to the list of approved gauges. 

Let’s walk through an example of how a user would provide liquidity and stake using the WBERA-HONEY pool gauge. Now that a user knows this gauge is eligible, they must go to that specific app to provide liquidity and receive the LP token. 

In BEX, I can see that this pool currently receives a BGT APY of 48.34k%. Once a user adds liquidity, they’ll automatically receive an LP token that proves they provided liquidity to this specific pool. You’ll only actually start earning BGT once you stake the LP token. To stake this LP token, head back to the gauge section in the BGT station. Once a user clicks on the WBERA-HONEY gauge, they’ll see an option to deposit the LP token. 

Once users deposit their LP token, they’ll start earning BGT rewards, which they can claim anytime! Users repeat this process with Bend and Berps. The only difference is that in Bend, the step of staking the LP token is done for the user automatically. Once users earn BGT, they can claim it and delegate it to a validator. Keep this in mind as we move on to the next step in the flywheel. 

How BGT emissions are generated

Now that we know what gauges are and how to start earning BGT, it's essential to understand where this BGT is coming from to create a well-rounded strategy for Proof of Liquidity. Validators earn BGT when they build a block, and they distribute a portion of their BGT earnings to a set of gauges of their choice, configured via their “berachef,” a per-validator breakdown of where they’re directing BGT rewards. Users can view a validator’s berachef configuration in BGT Station under validators. 

Since validators can push BGT emissions to gauges of their choice, the strategic way to think about BGT delegation is to delegate to a validator pushing BGT to gauges you’ve already deposited into.  Remember that BGT award amount depends on the user's share of total assets staked in the gauge and the amount of BGT rewards emitted to the gauge– more BGT emitted to a gauge a user is staked in = more reward for the staker. On testnet, the default gauges are set at equivalent weighting, but once on-chain governance is activated, validators can decide the gauge weights. 

So far, this is our strategy for farming BGT: 

1. Provide liquidity to a gauge earning BGT
2. Delegate to a validator who is also directing BGT emissions to this gauge

Incentives 

Validators decide where they push their BGT emissions to, so there should be a way for protocols to convince or incentivize validators to push some BGT their way. We have a concept called “incentives,” the marketplace for validators' BGT emissions. In this marketplace, any protocol/dapp can put an offer out on the market in the form of ERC20 tokens and wait for any validator(s) to fill it. For example, a dapp could say, “I’m willing to pay 100 $CAMI tokens for every 1 BGT, and I’m offering a total of 1000 $CAMI.” These can be considered limit orders– the incentive remains open until it is completely filled. Validator A could fill 20% of the order and get 20% of the incentive, etc. Delegators are eligible to receive a portion of the incentive that validators accept– validators take a commission rate from the ERC20 tokens awarded, and the rest is distributed among delegators*.

Validators could evaluate which incentives to fill based on their risk strategy and conviction in the ERC20 offered in exchange. For example, a validator with a lower risk tolerance might only be willing to accept incentives in HONEY, Berachain’s stablecoin. On the other hand, other validators may be willing to accept new and volatile ERC20s in exchange for BGT. As a delegator, this is an important angle to consider as it impacts the amount and type of rewards users receive from incentives. The strategic way to think about this would be to delegate with a validator that takes an acceptable (low) commission cut, accepts incentives you’re interested in, and is aligned with the user's risk. 

This is our strategy for farming BGT: 

1. Provide liquidity to a gauge earning BGT
2. Delegate to a validator who is also directing BGT emissions to this gauge
3. AND delegate to a validator who take a reasonable commission when filling incentives, is aligned with my risk tolerance and overall thesis

We did it, Joe!

Proof of Liquidity is a system with different players seeking to maximize rewards. By understanding the intricacies of BGT emissions and the incentives marketplace, users can develop effective strategies to farm BGT and play an important role in making their capital productive. By providing liquidity, staking LP tokens in whitelisted gauges, and aligning with the right validators, participants can maximize their rewards and contribute to the network's security and liquidity. This system incentivizes active participation and strategic decision-making, creating an environment where stakers, validators, and protocols work together to drive the ecosystem's growth.

*this functionality is not currently available on testnet, but will be live at mainnet.