Exploring validators, gauges, and BGT on Berachain
The PoL system of Berachain is innovative in the way it aligns the interests of validators, protocols, and end users. The foundational aspect is the redistribution of value from validators to end users, which in turn leads to end users delegating more tokens to validators, creating a virtuous cycle between the different participants in the ecosystem.
This article focuses on the relationship between end users and validators and the role of BGT in this flow of value.
Let’s dive in.
Section 1: Exploring the core components
Source: https://bartio.station.berachain.com/validators
There are currently 172 validators securing the Berachain network, with the top 3 validators by delegated BGT being The Honey Jar, Kodiak Finance, and Infrared.
There are also $21.3M worth of incentives (further explained below), and over the course of 1 year, 11.83 billion BGT will be issued as block rewards to validators (and in turn redirected to gauges), increasing the supply of BGT.
There are also 8 active Gauges (or Reward vaults) currently, which play a crucial role in the Berachain ecosystem as they are the only way in which any end user can earn $BGT. Gauges are smart contracts that validators redirect the BGT they earn from block production via a cutting board (covered more extensively here). Validators assign a weight to each gauge which dictates the proportion of BGT rewards issued. End users interact with gauges through defi activities in order to receive $BGT rewards. The overall flow and relationship between validators, gauges, rewards, and end users is covered in section 2.
The BGT that validators direct is initially earned through block production. All validators have an equal chance of being selected to propose blocks, but the rewards they earn from each block produced increases with the amount of BGT delegated to them.
Currently, there are 8 gauges that are eligible for rewards, each one capturing a proportion of total BGT rewards emitted through block production.
The detail of the current 8 gauges/vaults is represented below:
For example, the Honey-WBera vault (where end users have to LP those two tokens in order to capture BGT rewards) captures over 37% of total BGT emitted. Other notable vaults include Honey-WBTC vault on Bex and VDHoney vault (borrowing Honey) on Bend.
Gauges are the only way in which anyone can earn $BGT rewards, and therefore serve the important function of gating entry into the PoL ecosystem. For end users, participating in Defi activities involving the gauges allows them in turn to receive BGT as rewards. From the screenshot above, these end-user activities could include providing liquidity in the Honey-WBera pool on Bex or borrowing Honey from Bend.
For each validator, we can see what their “Most Weighted Gauge” is (i.e what asset vault they will direct the majority of the BGT they earn from block rewards). The top 3 validators direct 100% of their BGT to a single vault (The Honey Jar’s and Infrared’s BGT goes to the Honey-WBera gauge, whereas Kodiak Finance’s goes to the VDHoney gauge). However, validators can also direct BGT to more than one gauge, as is the case with BeraLand (who directs 20% of BGT to the Honey-WBERA gauge and 80% to the VDHoney gauge).
BGT rewards breakdown for BeraLand validator as of August 5th 2024
Each validator applies a commission rate which generates revenues for them, and users evaluating whether to stake with a certain validator can also see what APY each validator offers (the yearly return delegators can expect to earn by staking with that specific validator).
Another important concept in PoL is incentives, which are tokens directed from protocols to gauges and in turn passed on to validators, if they decide to direct their BGT emissions to that specific gauge. The incentives given to the validator are proportional to the amount of $BGT emitted to the gauge.
As the amount that validators can earn is determined directly by the amount of BGT that is delegated to them, they are incentivized to return the maximum value to their delegators to in turn increase the amount of BGT delegated, and capture more incentives.
The diagram below summarizes the flow of value when considering incentives:
Section 2: Roles and participation on PoL
The following diagram shows how the various components covered previously interact with one another to form the PoL model.
We can also consider how this diagram works in the case of the validator The Honey Jar, whose validator information can be found here.
Here is how the workflow functions:
The Honey Jar is selected as block proposer
The Honey Jar proposes a new block
The Honey Jar is rewarded approximately 1501 BGT per proposed block (information gathered from the “Gauge” page on BGT Station)
Note: validator BGT rewards are positively correlated with the amount of delegated BGT. The reward value above (1501 BGT) is only an average across validators, specific rewards for The Honey Jar might be higher or lower based on the % of BGT delegated to them
The Honey Jar redirects 150.02 BGT per block proposed to the vaults it has selected, as can be seen from the validator page. This validator only has 1 active vault and thus directs all the 150.02 BGT to this vault (Honey-WBera liquidity pool on Bex)
Liquidity Providers (end users) can deposit the specific assets (Honey-WBera) related to this gauge
Based on the proportion of their contribution (amount of LP tokens), they earn BGT rewards derived from this gauge that have been directed by validators.
Note: The Honey Jar is not the only validator redirecting rewards to the Honey-WBera gauge. As can be seen from this page, the Honey-WBera pool has over 142 validators (out of a total of 167 validators) redirecting BGT rewards to it. End users who provide LP to this pool earn a share of ALL the BGT rewards from the 142 validators redirected to this gauge
Once users hold BGT, they can decide to either:
Delegate their BGT to a validator of their choice, increasing validators reward weights, influencing how much BGT is distributed to their selected reward vaults. This creates a virtuous cycle between validators and end users
Burn their BGT at a 1:1 ratio for BERA
Use their BGT for on-chain governance/proposals
Section 3: Conclusion
This article looked at the interaction between end users, validators and protocols in the PoL system, and also covered some of the core components behind the system (gauges, BGT rewards, liquidity pools).
This objective was to shed some light onto how this system aligns the various participants, with the key aspect being the redistribution of value from validators to delegators, who in turn reward validators by delegating additional BGT to them. Protocols are also part of this system by providing incentives to validators to attract liquidity to their dapp.