Proof of Liquidity (PoL) and Fair Token Offering (FTO): A Symbiotic Relationship

Liquidity has been the backbone of DeFi (decentralized finance) since its inception. However, securing liquidity through locked capital is detrimental to DeFi in the long term. This realization acted as a catalyst behind the inception of Berachain's Proof-of-Liquidity (PoL).

Berachain, a Layer-1 blockchain designed for decentralized finance (DeFi), has introduced Proof-of-Liquidity (PoL) as a novel consensus mechanism to enhance liquidity and address the shortcomings of Proof-of-Stake (PoS).

While PoS utilizes a single token for both delegation and gas purposes, PoL introduces separate tokens for these functions. In the case of Berachain, $BGT serves as the governance token and $BERA is the native gas token. This separation ensures optimal network security and ample liquidity.

To earn $BGT, users must provide liquidity to BEX pools. This امر ensures that the pool has sufficient liquidity, making trade settlements and on-chain transactions more efficient.

Furthermore, PoL enables cross-exchange market making. With fragmented liquidity being a major challenge in DeFi, PoL allows larger exchanges to become the primary market makers for emerging exchanges. This facilitates the creation of an interconnected trading ecosystem within Berachain.

However, PoL also presents some challenges. Users participating in PoL are required to lock their assets, which may lead to a liquidity crisis if a substantial number of users decide to unlock their assets and sell in the market soon after TGE to book profits.

To address this challenge, Honeypot Finance's Fair Token Offering (FTO) model, which is built on Berachain, is designed to reduce sell pressure at the time of or after TGEs.

Similar to Berachain’s PoL, FTO aims to build liquidity through supplier volume rather than locked volume.

The FTO model ensures that 100% of the tokens are in the pool at the time of the launch, preventing market manipulation. Instead of buying the actual token, investors buy LP (liquidity provider) tokens at the time of launch, creating liquid markets from day one.

Both the protocol and participants are treated equally, and the allocation of LP tokens is split 50-50 between them, eliminating the chances of an unfair advantage for either party.

Additionally, protocols are allowed to sell the LP tokens to raise funding for operational purposes, without impacting the token price in any way.

Most importantly, FTO unlocks additional usage for $BGT by integrating it into Honeypot’s Flywheel model. Here’s how:

Users holding $HPOT, $Bera, or $Honey can invest in the $HPOT-$Honey-$Bera liquidity pool to earn $BGT. Notably, they need to hold only one of these three tokens to be eligible to earn $BGT.

Together, $BGT and $HPOT power a lucrative income flywheel model, which leads to:

Every time a user unlocks their tokens to remove liquidity, they lose their ability to generate income through $BGT emissions. Eventually, they can burn their $BGT holdings to acquire $BERA. The FTO model encourages more users to provide liquidity as it minimizes loss probability with users getting 50% of their invested tokens back in the LP form.

Once Honeypot gains prominence and helps emerging protocols attract liquidity through its Dreampad, the need for staking $BGT could rise substantially to power the network as well as the liquidity pool. Technically, FTO is bound to promote PoL, while tackling the issue of fragmented liquidity with efficient capital utilization.

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