Understanding Berachain’s Governance Model
Berachain, a newly launched high-performance EVM-compatible Layer 1 blockchain, is pioneering a novel economic model known as Proof-of-Liquidity (PoL). Unlike traditional Proof-of-Stake (PoS) systems, PoL introduces a dual-token structure that separates governance and economic incentives.
The governance token, BGT (Berachain Governance Token), plays a key role in the Berachain ecosystem. However, one of its defining features is that it is non-transferable. Unlike most governance tokens, BGT cannot be traded, sold, or used as collateral. Instead, it can only be:
Staked to influence validator emissions
Exchanged 1:1 for Berachain’s gas token, BERA
Once converted to BERA, it cannot be converted back into BGT. This creates a one-way flow of governance influence, making BGT a scarce resource within the ecosystem over time.
With these mechanics in place, Berachain users seeking liquidity for their BGT holdings have faced a fundamental limitation: how can they leverage BGT’s governance power while maintaining financial flexibility?
Introducing stBGT: Stride’s Liquid Wrapper for Berachain’s BGT
Stride, a leading liquid staking provider, has launched stBGT, a liquid wrapper for BGT. Unlike traditional liquid staking tokens, which accrue staking rewards over time, stBGT is not a yield-bearing asset by default. Instead, it provides much-needed liquidity and utility for BGT holders.
By wrapping BGT into stBGT, users can:
Stake stBGT in a specialized staking contract
Trade stBGT on decentralized exchanges
Use stBGT as collateral in DeFi protocols
Provide liquidity in the stBGT/BERA pool for additional incentives
Despite its added flexibility, stBGT can still be converted back into BERA at a 1:1 ratio at any time, ensuring that users do not lose access to their underlying assets.
How to Obtain stBGT
There are two primary ways for Berachain users to acquire stBGT:
Buying stBGT on a Decentralized Exchange (DEX):
Since stBGT is transferable, it can be bought directly from liquidity pools on Berachain’s DeFi ecosystem, such as BEX.
This allows users to access liquid BGT without needing to interact with Berachain’s native staking mechanisms.
Earning stBGT by Providing Liquidity
Users who supply liquidity to Berachain dApps normally earn BGT as a reward.
Instead of staking their LP tokens in a standard BGT vault, users can deposit them in Stride’s specialized vaults.
In return, they receive stBGT instead of BGT, granting them liquidity while maintaining access to governance rewards.
stBGT’s Use Cases
1. Staking for Rewards
Although stBGT does not automatically accrue staking rewards, users can stake it in Stride’s stBGT staking contract to earn additional yield. All BGT staking rewards collected by Stride are directed to this contract, allowing stBGT holders to benefit from Berachain’s governance mechanics while maintaining liquidity.
2. Providing Liquidity in the stBGT/BERA Pool
To encourage deep liquidity, Stride has launched an incentivized stBGT/BERA pool on BEX. Liquidity providers can:
Deposit stBGT and BERA into the pool
Stake their LP tokens in a Stride vault to earn additional rewards
Participate in Berachain’s PoL emissions, earning BGT while maintaining liquidity
3. Using stBGT as Collateral
With strong liquidity in the stBGT/BERA pool, stBGT is expected to be integrated into Berachain’s lending and borrowing markets. Several DeFi protocols are already working on incorporating stBGT as a collateralized asset, allowing users to take out loans against their governance token holdings.
4. Trading and Market Participation
For users who wish to gain exposure to Berachain’s governance economy without directly providing liquidity, stBGT serves as a tradeable asset. Its flexibility makes it a more accessible alternative to BGT, which remains locked within Berachain’s governance framework.
The Implications of stBGT on Berachain
Berachain’s one-way conversion model (BGT → BERA, but not the reverse) ensures that over time, BGT will become increasingly scarce. As users exchange their BGT for BERA to participate in the broader ecosystem, the supply of available governance tokens will shrink.
This has significant implications for the long-term distribution of Berachain’s native assets:
BERA will be more abundant than BGT
BGT will become a scarce governance resource
Liquid wrappers like stBGT will be even rarer than BGT
Since the only way to obtain stBGT is through Stride’s designated liquidity vaults, its supply is inherently constrained. This means that over time, stBGT may trade at a premium relative to BGT, as it offers governance exposure while maintaining liquidity.
Final Thoughts
As the ecosystem matures, the interplay between BGT, BERA, and stBGT will shape how governance power is distributed and utilized. With lending markets, liquidity incentives, and staking mechanisms in place, stBGT could play a crucial role in Berachain’s long-term economic model.
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