Blockchains and the topic of user experience

It can be difficult to get to the bottom of why users prefer some blockchains over others. At their core most blockchains are structurally and functionally similar - they’re digital ledgers that operate in a permissionless, peer-to-peer manner for the transacting of tokenized currencies for any number of uses. Most of the blockchains we know are either Proof-of-Work, Proof-of-Stake or something in between like Proof-of-History. 

Even with these similarities, blockchains see their usage vary and frequently adjust to evolving market conditions. Ethereum and Solana are quite different from each other but see similar activity metrics despite their stark differences in architecture - what’s really driving this behavior?

Some individuals might prefer to trade meme coins on Solana for low cost while another might prefer to lock up a portion of their income each week via Maker on Ethereum; these actions are not up to the blockchain, as a chain’s architecture does not determine what it’s users will do, only how they might go about doing it. Developers and users are the ones who vote with their attention or funds to facilitate a positive experience on a blockchain. If you don’t have anyone to build it, no one will come. 

There isn’t a single blockchain where a user can get everything they want accomplished - just browse Twitter and count how many blockchain architecture debates you see each day. There are still a number of hurdles preventing full cross-chain connectivity in a seamless fashion, along with mismatches between protocols being deployed on one chain but not on another. If the crypto industry wants to onboard a multiple of its current user base, action needs to be taken to ensure users are getting the full experience when they bridge to a new chain.

Even if you're already familiar with Berachain’s architecture and PoL, this report will paint a clearer picture of what PoL will look like in production and how it influences the design choice of applications on Berachain. Additionally, the benefits of PoL at the protocol level will be explored, as there’s no set path for how developers and users might take advantage of this consensus and incentive mechanism in the wild. Berachain and its ecosystem are looking to change this and to open up an entirely new set of opportunities for what it means to interact with blockchains. 

A quick look at a small fraction of the Berachain ecosystem

Let’s look at some of these teams building with PoL at the forefront of their applications and how the choices they made in designing their applications was driven by PoL.

Exponents

Exponents is a protocol with great ambitions to create oracle-free derivatives for every on-chain asset, become the largest issuer of these positions and craft an incentive-based market for on-chain trading. 

Derivatives are complex financial instruments that let its holders gain leverage through financial engineering. Crypto’s preferred derivative has been perpetual futures (or perps for short), financial instruments that let holders speculate on asset prices without an expiration date. You may be more familiar with options, which are structurally different from perps and more dependent on time frames given the presence of expiries. 

Perps took off in crypto due to their seemingly simple nature for retail traders and utility for more professional traders. Most of the perps volume seen in crypto comes from centralized exchanges due to just how difficult it can be to implement derivatives on-chain due to oracles and their inability to provide the same quality of experience as exchanges do. Prices must be given by these oracles and markets are forced to keep up with the pace of oracles, a pace that isn’t often fast enough or subpar by comparison.

Let’s examine how Exponents is attempting to fix this issue and why they’ve decided to pursue these goals on Berachain. 

Exponents saw the dominance of primary markets (issuers) in the traditional financial world and the lack of an equivalent across decentralized finance. These issuers interact with secondary markets like exchanges and collect fees in return for their services. Exponents saw potential in a different type of derivative - power perpetuals - and the ability for these financial instruments to catch on if the proper infrastructure was built.

Power perpetuals are a unique derivative that enable users to gain options-like exposure without the burden of expiries or strikes, freeing up the ability to own a position without tedious micromanagement common in options or perpetual futures. Power perpetuals have seen their adoption stunted due to high liquidity constraints and the permissioned nature of market creation. Through its use of synthetic liquidity and fungible positions, Exponents wants to change the narrative and create the go-to venue for trading of these instruments, which are referred to as Exponents. 

Utilizing inverse bonding curves and an in-protocol AMM, the protocol can determine its pricing mechanism and possess greater control over these Exponents. Inverse bonding curves are mainly used for arbitrage purposes, as assets devalue as they’re bought and gain value when sold. The system relies on a properly defined balance of LPs and competitive arbitrage, where minting fees of new positions reward one half while the other benefits from higher liquidity velocity throughout the system. 

Every Exponent is a tokenized derivative of some user-specified asset (e.g. BERA) that is fungible and fully collateralized by the underlying asset. The inverse bonding curve sees the tokenization or minting of new Exponents, but their fungible nature means they can be traded on secondary markets (e.g. Kodiak). Through the inverse bonding curve’s process of valuing and devaluing an asset and its being traded on a secondary market, a delicate balance or mark price can be achieved without the use of an oracle. The team found that through arbitrage these Exponents can actually find a market  value and assume trading just as any other derivative could. 

By minting these derivatives, facilitating their trade and transfer throughout the ecosystem and enabling users to create leveraged positions for any asset, Exponents has a massive but exciting amount of work ahead of them. Distilled to its very basics, Exponents allows other protocols within the Berachain ecosystem to incentivize the opening of new positions through a new type of yield farming. Just as Uniswap enabled liquidity for any spot asset, Exponents is hoping to achieve the same for any type of derivative - a system perfectly fit given the collaborative approach being taken with PoL. For more information on protocol updates and helpful explainers you can check out Exponents’ Twitter or visit their website. 

Beradrome

Describing itself as a coordination system for Berachain ecosystem incentives, Beradrome utilizes a tri-token model to implement its own spin on BGT demand. Powered by the Beradrome Bonding Curve, this protocol is designed to function as a collaborative system where various stakeholders can interact depending on their own unique set of needs. Beradrome’s three tokens are BERO, hiBERO and oBERO - each of which was uniquely crafted to cater to a different stakeholder in Berachain’s ecosystem, with utility varying based on an individual’s risk profile and needs from Beradrome. 

The Beradrome protocol relies on its bonding curve to facilitate three major user behaviors: interest free borrowing, single-sided liquidity provision and the exercise of call options. The Beradrome Bonding Curve consists of the BERO token, all of which reside in the bonding curve until users swap their BGT for it. With this dynamic, BERO essentially becomes backed by 1 BGT each time a user takes this action. The bonding curve then algorithmically adjusts its market price and floor price by splitting the BGT received into these two distinct buckets. 

The floor price (or floor reserve) of this curve marks the unchanging price of BERO that holders of oBERO - a call option wrapper token - can exercise at. The other bucket is Beradrome’s market reserve, which dynamically adjusts based on BERO demand and serves to ensure BERO remains at or above its floor price and trades 1:1 with BGT. For those that wish to earn more from their BERO, there’s hiBERO - Beradrome’s governance / utility token. Users can lock their BERO (with a seven day withdrawal period should they choose to unlock) in return for accrued swap fees, governance power and the ability to borrow against their positions. 

With more BGT under their belt, users can then take advantage of another core feature of Beradrome, the ability to plug any yield-bearing asset back into bespoke gauges on the Beradrome Bonding Curve. Holders of hiBERO are able to direct more votes to these gauges, distributing oBERO rewards to gauge LPs. It was mentioned that oBERO can be redeemed for BERO, but holders have the option to permanently burn oBERO in order to gain indefinite voting power which also helps to boost their oBERO rewards.

Hopefully that wasn’t too hard. 

Beradrome is an extremely exciting protocol thanks to its innovative design and the obvious fit it will hold in the Berachain ecosystem. While they’re still building out new features, preparing for launch and exploring integrations with the rest of the ecosystem, you can read more about Beradrome’s in this tweet detailing their flywheel ambitions. Whether you’re looking for protocol-specific voting power, enhanced yield or more ways to put your BGT to work, Beradrome has you covered. 

Kodiak

Building out their vision of a native liquidity hub for Berachain, Kodiak is another Build-a-Bera cohort member that’s been developing an innovative DEX based on the foundations of concentrated liquidity and automated LP management for Berachain users. While Kodiak’s central focus is building a composable DEX with superior user experience, their product offerings are differentiated and represent crucial parts of the Kodiak stack. 

Kodiak Islands offer set-and-forget strategies for LPs, making it easier to earn BGT rewards and utilize other apps through the ecosystem. Kodiak Islands are supported by Sweetened Islands, situated on an integrated incentive layer to take advantage of PoL and sustainable liquidity incentivization. Kodiak has also created a no-code token deployment product - the Panda Factory - designed to facilitate permissionless deployment of new tokens with the help of Kodiak’s full-range AMM. Together these products form Kodiak, a full-stack DeFi application that takes from innovations like concentrated liquidity and an in-protocol product suite to deliver a complete experience to its users.

With the implementation of a no-code token deployment factory, Kodiak can capture three distinct ends of the DeFi spectrum: sophisticated users who wish to build complex concentrated liquidity positions, those that wish to LP and let Kodiak do the work for them, and more active users that might wish to provide liquidity for more volatile coin pairs deployed through Kodiak’s Panda Factory. 

Kodiak believes in the benefits of PoL and its ability to grow liquidity and network security simultaneously - they’re the only DEX incubated by Build-a-Bera and have massive work ahead of them to help make these ambitions a reality. Kodiak’s vision involves a new era for protocols - especially decentralized exchanges - where unnecessary token emissions become a thing of the past thanks to native BGT incentive mechanisms. 

Kodiak can focus on building out their liquidity base, expanding across different verticals and making their product the best it can possibly be for users. Liquidity mining programs of the past have often dragged on for far too long, leaving protocols stuck in a position where they’re forced to constantly emit tokens and dilute the supply. Thanks to BGT and the dynamics of PoL, Kodiak won’t have to go through this issue and can instead prioritize delivering BGT rewards to users and maintaining a healthy amount of liquidity. 

A sustainable DeFi ecosystem needs a DEX, but it needs deep liquidity more - Kodiak is doing both. Kodiak has recently partnered with Infrared to bring two additional BGT-driven flywheels to the PoL ecosystem, centered around community and treasury development. Kodiak will facilitate bribes to Infrared gauges and deposit its Island LP tokens, resulting in boosted BGT rewards for users. At the same time, this activity will provide Kodiak with LP fees, iBGT and IRED that will serve to bolster their treasury in the process - closing the loop and creating a perfect, PoL-enabled flywheel.

Yeet

Describing itself as the “premier ponzi” of Berachain, Yeet is a very unique protocol that’s created a game that appeals to all types of users, no matter what your net worth might be. At its core it’s very simple: users “yeet” their BERA into a pool and the last users to “yeet” into the pool wins the BERA, a massive game of on-chain chicken. Each yeet must be greater than or equal to 1% of the pool, but users can farm YEET tokens along the way. YEET can also be bought on the open market or farmed through LPing the YEET/BERA pool and staking the LP tokens through Yeet’s app. 

Yeet’s core functionality involves a time clock that runs until the game is finished and a smart contract where BERA is yeeted into - each yeet resets the timer, extending the game until the very last yeet has been yeeted. Each subsequent deposit can only reset the clock by twenty minutes, with resets being disabled once the clock has hit the final twenty minute mark. Are you still following? 

Yeet might sound like a simple, unrealistic and ultimately short-sighted game - but that’s what they want you to think. 7% of every yeet (to yeet is to deposit BERA) is given to YEET stakers, meaning that in a PoL environment, Yeet is a protocol that delivers real yield. The term real is usually used to describe the difference between receiving a protocol’s native token earned through emissions versus receiving something of more value like a stablecoin. With Yeet, its users can actually earn BERA and take this wherever they wish across the Berachain ecosystem and work their way towards BGT, more BERA or even HONEY. 

There’s really no telling how the game of Yeet will be played until the first yeet has been yeeted. The presence of real yield makes this appealing for more passive users, but the game theory in winning it all and yeeting the last yeet might make this game more competitive than anything else in the Berachain ecosystem, even if it’s only for a short period of time. For more information on how, where and when to yeet your BERA, you can browse Yeet’s Twitter or read some of their blog posts here. 

Analyzing the appeal of PoL at the protocol level

All of these protocols have built their products with PoL in mind. We’ve seen applications designed for PoS or PoW use cases, though there’s never been a concerted effort amongst many protocols of one ecosystem to work around the architecture in this way. Protocols need to be aware of a consensus mechanism, but it doesn’t necessarily influence what they do after their deployment to a blockchain. 

To better understand how this might work in practice, I'll run through a hypothetical scenario of a user's on-chain behavior under the PoL umbrella. Users might navigate to a DEX like Kodiak and swap HONEY for BERA. They could then deposit this into one of Kodiak's flywheel vaults, earning BGT in the process. Through this set-and-forget passive LP process they might accumulate BGT, open up Beradrome and start engaging in governance.

From here maybe they wish to remove liquidity from Kodiak, deposit into the Beradrome Bonding Curve and earn BERO. Should they want more yield and more optionality, this BERO could be staked for hiBERO. Over time they'd accumulate more oBERO through rewards which could be exercised for BERO and traded 1:1 for BGT.

After all is said and done they might decide to try out Exponents and open up a leveraged position on BERA - their amount of collateral for this isn't relevant, but let's say it's a modest position that's reasonably safe from liquidation. From here the world is theirs, and depending on future integrations, users might be able to safely borrow against this and use these rewards throughout the ecosystem however they choose.

Berachain is composed of a myriad of flexible lego pieces - all of which are meant to be assembled into new structures, and boosted by the opportunity to integrate PoL while turbocharging rewards. There's no standardized approach for how to interact on Berachain - it's on users to forge their own path however they see fit.

Because PoL is designed to coordinate incentives between all parties, it follows that an ecosystem of protocols built on it would choose to take its ideals to heart and open a world of opportunities for its users that doesn't cut corners around composability.

From a protocol’s perspective PoL is infinitely more appealing than PoS. This report discusses the value loop in greater detail, though it’s quite simple: validators are aligned with protocols through their delegation of BGT, whereas PoS Ethereum does not see direct interaction between validators and the protocols on-chain. This isn’t an argument against PoS, though it could be viewed as an argument for more protocols to embrace PoL. 

Protocols building on Berachain are attempting to take from the previously battle tested ideas across multiple blockchains and ecosystems to bring the best of all worlds to Berachain. PoL isn’t just a consensus mechanism powering Berachain, it’s an entirely new philosophy of what blockchains can be.

Many of these protocols have taken ideas that are already familiar - derivatives and liquid staking - but turned them into building blocks for future developers to iterate on. Take a look around the design spaces across other ecosystems that prioritize collaboration and incentive-aligned development on existing applications - you probably won't find it. 

Protocols like Uniswap, Aave and Maker have grown to become extremely successful but exist as mostly isolated corporations in a vast sea of blockchains and users. From a developer or user’s perspective the appeal of Berachain doesn’t come from how much faster or cheaper the chain is to transact on, rather it’s derived from the native incentive for validators and ecosystem participants to directly support emissions being funneled towards the most profitable or highest yielding applications. Combining this with the entire ecosystem's efforts on developing innovative and new economic games on-chain presents an entirely new set of opportunities for users to unlock with Berachain.

All of these protocols mentioned above are taking a collaboration-first approach, with the underlying utility of PoL driving many of their design choices. Instead of focusing solely on what their singular protocol might enable or what level of value it might capture, there is a focus on value creation across the ecosystem that’s set to be more powerful than what a single protocol might accomplish. 

To this day there isn’t a singular notion of what a unified, decentralized financial system might look like. The traditional financial system is made up of many complicated, constantly moving parts that rarely prioritize revealing their function. One of the benefits of decentralized finance is the necessity of building in the open and letting other protocols know that you and your product are just as integral a piece of the puzzle as they are.

Wrapping things up

Berachain isn’t the first example of an integrated ecosystem, as nearly every blockchain has seen its protocols collaborate in one way or another. However, Berachain’s approach stands out due to its positioning as a blockchain that's embedded incentives to cooperate into the chain's architecture and a heightened degree of composability between native apps and third party network apps.

Whether you look at the Curve Wars, the success of Optimism’s Aerodrome and Velodrome flywheel or the massive attention boost Solana has achieved through its memecoin renaissance, the presence of collaborative DeFi meeting culture is everywhere you look. 

But there’s a catch - none of these blockchains were built with any of these concepts in mind and they’re not building new infrastructure for it either. The Curve Wars was not dependent on PoS or Ethereum, Solana’s architecture isn’t being updated to accommodate for more memecoin deployments and Optimism’s DeFi ecosystem is still operating in an environment of siloed L2 liquidity.

Yes, ecosystems develop organically and aren’t necessarily relevant to the design choices of a blockchain, but what if there was a team that flipped this belief on its head? Berachain is the first blockchain to build out its architecture while giving equal attention to how it might affect the ecosystem. With PoL driving nearly every step of the decision making process for teams building these innovative applications, the collaboration between Berachain’s developers, validators and users is not only present everywhere you look, it’s essential.

Exponents, Yeet, Kodiak and Beradrome are all targeting very different parts of the on-chain experience but share the same goals. Each of these teams wants to play a role in creating a system that’s so vastly superior to anything seen before on-chain that users can’t help themselves but remain within it and drawn to everything it has to offer. 

Berachain mainnet isn’t here yet, but you have the opportunity to bridge to testnet and get acquainted with how the chain works. While these protocols aren’t yet launched, there is a huge benefit to becoming more familiar with them and their missions whether it’s through following them on Twitter, engaging with their testnet deployments / private betas or becoming a member of their Discord servers. The collaboration of users on-chain is an important part of Berachain but a skyscraper can’t be built without the right foundation in place. 

Thank you for reading.