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  • Proof-of-Liquidity (PoL)
    • Consensus Mechanism
    • PoL Participants
      • Liquidity Providers (LPs)
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  • Role of Liquidity Providers
  • Key Responsibilities of LPs:
  • Incentives for LPs:
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  1. Proof-of-Liquidity (PoL)
  2. PoL Participants

Liquidity Providers (LPs)

Role of Liquidity Providers

Unlike traditional consensus mechanisms like Proof-of-Stake (PoS) or Proof-of-Work (PoW), which rely on staking tokens or computational power, PoL uses liquidity staked in DeFi pools to secure the network. This consensus model aligns blockchain security with DeFi activity, making the network more capital-efficient while securing BeraBridge’s cross-chain operations.

BeraBridge relies on the liquidity provided by participants to verify and secure transactions, particularly during asset transfers across different blockchains. By staking liquidity, participants not only ensure the network’s integrity but also earn rewards from both the DeFi ecosystem and the cross-chain transaction fees.

Key Responsibilities of LPs:

  • Providing Liquidity: LPs supply liquidity in the form of token pairs (e.g., ETH + $BBRG) to the bridge pools. This liquidity is used to facilitate swaps between Ethereum and BeraChain, enabling cross-chain transfers.

  • Staking Liquidity Tokens: LPs receive liquidity tokens in exchange for their assets, and these tokens are staked to help secure BeraBridge. In return, LPs earn rewards for their contributions.

  • Earning Fees and Rewards: In addition to the fees earned through providing liquidity, LPs receive PoL staking rewards, which are generated from network fees, transaction fees on BeraBridge, and validator rewards. These rewards are distributed in proportion to the liquidity provided.

Incentives for LPs:

  • Dual Rewards: LPs earn rewards from two sources:

    • DeFi Rewards: Interest, trading fees, or yield generated from DeFi activities within the liquidity pools.

    • PoL Staking Rewards: Validators’ staking rewards, which are distributed to LPs based on their contribution to the PoL framework.

  • Network Participation: By staking liquidity, LPs become active participants in securing BeraChain’s consensus mechanism, giving them a direct influence on the network's stability and security.

  • DeFi Liquidity Growth: LPs benefit from increased capital efficiency, as their staked liquidity serves both the blockchain’s consensus and the broader DeFi ecosystem. This unique integration maximizes the utility of their assets.

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Last updated 6 months ago