Whitepaper
Abstract
This paper proposes a cross-chain solution, beraBTC, based on the Berachain public blockchain to address the development needs of the Bitcoin Layer 2 ecosystem. By establishing a decentralized cross-chain bridge mechanism, the solution enables a 1:1 anchored circulation of BTC assets within the Berachain ecosystem and introduces a dual-token economic model to enhance system stability. Research findings indicate that this approach effectively activates ecosystem liquidity but necessitates vigilance regarding potential risks such as smart contract security vulnerabilities.
beraBTC is a Bitcoin derivative system that allows users to mint Wrapped Bitcoin using EVM chain assets, offering on-chain governance and decentralized settlement functionalities. Bitcoin has become the most valuable asset in the Web3 industry and globally; however, decentralized financial activities involving Bitcoin on EVM chains remain in their infancy, lagging behind traditional financial markets. Despite the existence of multiple similar products in the market, none have effectively solved the entry barrier for EVM users into BTC-Fi. The beraBTC system, with its unique issuance mechanism, opens the gateway to BTC-Fi for more EVM users while utilizing the Proof of Liquidity (PoL) mechanism to generate DeFi returns and provide high-quality Total Value Locked (TVL) for the PoL ecosystem.
Chapter 1: Ecosystem Overview
1.1 The EVM Multi-Chain Ecosystem
EVM is the core technology of Ethereum, elevating blockchain from version 1.0 to 2.0 and marking a significant milestone in industry development. However, EVM is not exclusive to Ethereum; similar to how Zero-Knowledge (ZK) technology has been adopted by multiple blockchains, more blockchain networks using EVM as their smart contract execution mechanism are expected to emerge, collectively forming a vast EVM multi-chain ecosystem. In this ecosystem, developers do not need to repeatedly develop foundational functionalities, as existing mature technical frameworks can be migrated across chains at a low cost, significantly accelerating ecosystem growth.
1.2 BTC-Fi
Bitcoin has achieved global consensus, a recognition that continues to strengthen over time. As a successful social experiment, Bitcoin's success model is irreplicable by other assets. Bitcoin reserves enormous financial value, and when DeFi products integrate BTC assets, the total locked value (TVL) can reach staggering levels. However, Bitcoin's network economic incentives are solely directed toward miners and do not positively incentivize financial applications such as BTC-Fi. This lack of incentives is a key reason for the slow development of BTC-Fi.
1.3 Proof of Liquidity
The core advantage of Berachain's Proof of Liquidity (PoL) mechanism lies in its dual-token system ($BERA and $BGT), which decouples security from liquidity while establishing a three-way incentive loop between protocols, validators, and users. Validators compete for protocol rewards through optimized reward allocation, while users contribute liquidity to earn governance tokens and participate in ecosystem development. This dynamic equilibrium fosters a positive feedback loop between liquidity provision and token value reinforcement, while high staking thresholds and elastic emission mechanisms effectively mitigate Sybil attacks, ensuring a balance between capital efficiency and network security.
Chapter 2: Introduction to beraBTC
2.1 Features
beraBTC is the first Bitcoin derivative protocol built on Berachain's Proof-of-Liquidity (PoL) model, enabling Bitcoin asset liquidity proof within the EVM multi-chain ecosystem through an innovative three-layer value model. As a decentralized Wrapped Bitcoin protocol, its core design integrates an over-collateralization mechanism with on-chain governance securitization functionality.
2.1.1 EVM Multi-Chain Compatibility ⟠
The smart contract layer of beraBTC is fully compatible with the EVM architecture, supporting:
Cross-Chain Asset Minting: Users can mint beraBTC by over-collateralizing with Honey or other assets on any EVM chain.
Seamless Contract Migration: Wrapper contracts based on the standard ERC-XXX protocol can be deployed across all EVM-compatible chains.
Real-Time Price Oracle: Integrated with Berachain’s native oracle network, enabling sub-second BTC price updates.
This compatibility advantage allows beraBTC to be rapidly deployed across Berachain and other EVM-compatible chains, forming a multi-chain liquidity network.
2.1.2 Liquidity Proof Economic Model
beraBTC redefines the economic incentive mechanism of traditional wrapped asset protocols:
Minting Incentives: Users receive BTT rewards for minting beraBTC using non-stablecoin assets.
Governance Securitization: BTT tokens grant holders the right to share in protocol revenue distribution.
Risk Hedging: Liquidation penalties are injected into an insurance fund, with BTT holders having priority claims.
Chapter 3 Economic System
3.1 Token Issuance Mechanism
3.1.1 beraBTC Minting Mechanism
beraBTC is pegged to the price of Wrapped BTC.
The Wrapped BTC model adopted by beraBTC ensures asset security through over-collateralization with Honey, achieving a decentralized custody service.
3.1.2 BTT Incentive Mechanism
User Incentives: The protocol rewards actions that contribute to ecosystem growth. Users who mint beraBTC using Honey or other non-stablecoin assets receive BTT rewards.
Governance & Upgrades: Users who participate in ve-token bribing or propose new PoL mechanism upgrades on Berachain will be rewarded with BTT.
Ecosystem Integration: External projects that invest in beraBTC and generate returns will receive BTT rewards.
In summary, actions that foster the growth of the beraBTC ecosystem will be incentivized with BTT rewards. As these activities accumulate, they will enhance the overall ecosystem value, ultimately benefiting BTT holders and creating a positive feedback loop.
3.2 Token Allocation Dynamics Model
3.2.1 Total Supply and Emission Curve
Total Supply: 10,000,000,000 BTT (fixed cap)
Base Emission Cycle: 48 months (4 years)
Emission Control: Circulating supply is governed by a hyperbolic decay function.
Phase 0: Ecosystem Bootstrapping (T+0 ~ 12 months)
Community Developers
11%
Linear release over 24 months after a 12-month cliff
Release starts upon successful code audit
Batoshi Venture
11%
Quarterly release (2.75% per quarter)
Linked to TVL growth milestones
Core Team
6%
Linear release over 24 months
50% of remaining tokens are frozen if the protocol is compromised
Early Contributors
5%
Linear release over 18 months after a 6-month cliff
Release speed depends on contribution rating
Design Principle: Differentiated release terms balance incentive strength with long-term commitment.
Phase 1: Protocol Growth Stage (T+13 ~ 48 months)
Release Schedule
Minting Rewards
Weekly minting volume > 100 USDT equivalent
Released in real-time
Accelerated release mode is triggered upon exceeding targets
PoL Rewards
Validator cycle settlement
Monthly release
Correlated with governance participation
Innovation Fund
Quarterly proposal approval
Quarterly release
Unused allocation rolls over to the next period
External Revenue Distribution
Within 30 days after investment yield confirmation
Event-driven
Distribution is paused if annualized ROI falls below 8%
3.2.2 Anti-Dilution Protection Mechanism
Dynamic Burn Adjustment: If the circulating supply growth rate exceeds TVL growth by more than 20%, an excess buyback and burn mechanism is activated.
Allocation Rebalancing: Every six months, token allocation weights are adjusted based on the Hodrick-Prescott filter model.
Emergency Freeze Clause: In extreme market conditions (30-day volatility > 80%), token distribution is temporarily suspended.
This model ensures:
A strong correlation between token emissions and protocol growth.
Alignment of incentives between early contributors and long-term participants.
A supply curve resistant to market manipulation.
3.3 DAO Treasury Engine Architecture
The protocol implements a multi-dimensional revenue capture mechanism to ensure the DAO treasury maintains sustainable self-growth, building a diversified asset reserve resistant to inflation and market risks.
Liquidity Protocol Revenue: Income generated from protocol-level liquidity activities.
Management Fee Revenue: Includes fees from beraBTC minting, redemption, and liquidation processes.
Proof-of-Liquidity (PoL) Yield Rights: A portion of each PoL cycle’s emissions is reserved as a protocol development fund.
Strategic Capital Gains: Batoshi Venture allocates a portion of its investment returns to the foundation’s treasury.
3.4 Economic Flywheel Design
Three-Stage Acceleration Model of the Economic Flywheel
The protocol establishes a reinforcement loop between capital efficiency and token value, creating a growth engine with anti-depreciation characteristics:
3.4.1 Phase One: Liquidity Injection
Users stake assets to mint beraBTC
→ Increases protocol TVL (Total Value Locked)
→ Enhances Batoshi Venture’s investment capabilities
→ Generates excess returns (α)
Once TVL reaches a critical level:
3.4.2 Phase Two: Value Capture and Conversion
Protocol revenue growth
→ 20% of excess returns are allocated to the foundation for marketing, liquidation insurance, and periodic BTT buyback and burn (deflationary mechanism)
→ The base yield and 80% of excess returns are distributed to beraBTC users, reinvested to expand capital reserves (compounding effect)
3.4.3 Phase Three: Network Effects Expansion
BTT value appreciation
→ Attracts arbitrage capital to participate in minting
→ Expands beraBTC supply
→ Enhances the diversity of Berachain ecosystem assets
→ Incubates new DeFi application scenarios
This model effectively applies Soros’ Reflexivity Theory to the DeFi domain, ensuring that the protocol achieves:
Positive capital accumulation (ΔTVL/Δt > 0)
Sustained token value capture (ΔBTT Price/ΔTVL > 0)
Orderly growth in ecosystem complexity (ΔdApps/Δt ∝ TVL)
Chapter 4: BatoshiDAO Governance Framework
4.1 BeraDAO Value Capture Paradigm
This protocol innovatively integrates traditional asset management theories into decentralized asset protocols, establishing a "Pegged Asset+" composite value model. Compared to traditional wrapped asset protocols (e.g., WBTC), which rely solely on price-pegging mechanisms, beraBTC leverages Batoshi DAO to implement a three-tier value generation model:
4.1.1 Layer 1: BeraBTC (Fundamental Value)
BeraBTC is minted through over-collateralization with Honey, maintaining a price peg to BTC and inheriting Bitcoin’s core function as a store of value.
4.1.2 Layer 2: Batoshi Venture (Protocol Value Accretion)
Batoshi Venture functions as the strategic capital allocation entity, converting idle custodial assets into productive capital. By employing risk-adjusted return strategies, it generates excess returns (α) while ensuring principal security. This value creation layer allows beraBTC holders to benefit from capital appreciation, which traditional wrapped assets cannot offer.
Batoshi Venture Seat Selection Criteria
1. Qualification Layer
Minimum Staking Requirement: 1,000,000 BTT (dynamically adjusted, targeting 0.1% of circulating supply).
Governance Proposal Requirement: Must submit an investment strategy framework and an initial investment proposal.
Reputation Threshold: DAO contribution score ≥ 70, with no malicious voting records in the past four cycles.
2. Voting Layer
Dual Weighting Mechanism:
Anti-Whale Mechanism: No single address can hold more than 20% of total votes.
3. Seat Allocation
A new seat allocation cycle occurs quarterly:
Professional Seats
2
Automatically granted to top DeFi protocols by TVL ranking.
Community Seats
2
Assigned to the top two candidates via direct BTT voting.
Strategic Seat
1
Nominated and elected by existing seat members.
4. Circuit Breaker Mechanism
Mandatory Rotation: If a seat generates negative returns for two consecutive cycles, it is forcibly rotated out.
Decentralization Protection: No single entity can hold more than one seat.
Emergency Trust Vote: beraBTC holders can initiate a vote of no confidence in case of critical issues.
4.1.3 Layer 3: BTT (Governance Premium)
The BTT token securitizes the value accrual layer’s revenue rights, establishing a unique "Dual-Token Feedback Loop."
Economic Principles Behind the Mechanism
Internalizing Externalities: Asset management yields, traditionally monopolized by custodial institutions, are transformed into a public good through smart contracts, shifting centralized profits to community-based revenue.
Intertemporal Incentive Compatibility: The BTT rewards granted to minters incorporate discounted expectations of future earnings, ensuring consistency in time preferences.
Reinforcing Network Effects: Protocol revenue growth → BTT value appreciation → Enhanced minting incentives → Capital pool expansion, forming a positive feedback loop.
This model enables beraBTC to maintain price stability while introducing a governance-backed securitization mechanism via BTT, creating a new value accumulation paradigm for decentralized financial assets—one that fundamentally differentiates it from traditional wrapped asset protocols.
4.2 BTT Value Empowerment System
4.2.1 Decentralized Governance Engine
A tiered governance framework ensures precise decision-making control:
Parameter Governance Layer: Adjusts key risk parameters such as collateralization ratios and liquidation penalties (quarterly voting).
Strategic Decision Layer: Approves/rejects Batoshi Venture investment plans (proposal submission requires a bond deposit).
Protocol Upgrade Layer: Smart contract iterations require dual-majority approval (>66% of both token holdings and Venture seats).
Innovative Mechanism: Introduces a "Governance Execution Delay" feature—critical proposals are locked for 72 hours post-approval to prevent flash governance attacks.
4.2.2 Deflationary Pressure Mechanism
A protocol cash flow-based dynamic buyback model is implemented:
Quarterly Buyback Volume =
0.2 × Protocol Revenue + 0.2 × Investment Returns + 0.25 × (BTT Circulating Supply × Price Deviation Index)
Funding Source: The DAO treasury establishes a dedicated buyback reserve.
Execution Strategy:
Accelerated buybacks are triggered when the BTT price falls below the 30-day moving average (target price).
Buybacks are paused when the price exceeds 150% of the target price, redirecting funds into reserve accumulation.
Token Disposal:
70% of repurchased BTT is permanently burned.
30% is injected into the governance incentive pool.
4.2.3 Governance Securitization Function
Governance power is tokenized through the veBTT model, enabling derivative governance rights:
Voting Power = Staked Amount ×*(min(Stake Duration, Max Lock Period) / Max Lock Period + 1)*
Delegation Mechanism: Allows users to delegate their voting power to professional governance entities.
Design Logic:
Users select their stake duration (from 1 week to 1 year).
Voting power increases linearly with lock-up duration.
Time decay mechanism: Voting power linearly decreases over time.
At the maximum lock-up period (1 year), users receive full 1:1 voting power.
Economic Impact: By linking governance participation with token lock-up periods, long-term holders are rewarded with surplus governance power and benefits.
4.2.4 Protocol Risk Hedging Tools
BTT holders automatically receive:
Priority access to liquidation profits.
Insurance fund claims (in extreme events, BTT holders can apply for compensation proportional to their holdings).
Exclusive subscription rights to future protocol products.
This structure elevates BTT beyond a traditional governance token, transforming it into a financial instrument that encapsulates protocol risk and rewards, pioneering the "Governance-as-a-Service" (GaaS) paradigm.
4.2.5 Investment Participation Securitization
By staking BTT, users gain decision-making rights and revenue-sharing privileges in Batoshi Venture’s investment activities:
Personal Yield Factor = Individual Staked BTT × sqrt(Weighted Average Stake Duration)
Personal Yield Share = (Personal Yield Factor / ∑ Personal Yield Factors) × BTT Surplus Returns
Innovative Mechanisms:
Dynamic Staking Weighting: Continuous participation inherits 50% of previous stake duration weighting.
Anti-Collusion Design: Staked amounts from related addresses are aggregated to prevent manipulation of yield weighting.
Liquidity Discount: Early unstaking incurs a 25% yield penalty.
Chapter 5: Conclusion and Outlook
Through an in-depth analysis of the beraBTC protocol, the following key conclusions have been drawn:
First, beraBTC successfully enhances Bitcoin’s liquidity within the Berachain ecosystem through an innovative three-layer value model. This model not only maintains a price peg to BTC but also enables additional value capturevia Batoshi Venture and the BTT governance token.
Second, the economic flywheel design establishes a positive feedback loop between capital efficiency and token value. By progressing through **three stages—liquidity injection, value capture & conversion, and network effects expansion—**the protocol ensures a sustainable growth trajectory.
Finally, BatoshiDAO’s multi-layered governance framework and BTT’s value empowerment mechanisms provide institutional safeguards for the protocol’s long-term stability and resilience.
Future Research Directions
To further enhance the protocol’s impact and efficiency, future studies should focus on:
Optimizing cross-chain interoperability, exploring mechanisms for value transfer across multiple blockchain ecosystems.
Dynamic adjustments to the governance model to ensure adaptive risk management under different market conditions.
Expanding DeFi use cases, leveraging beraBTC’s role as a core infrastructure within the Berachain ecosystem.
Final Thoughts
Overall, the beraBTC protocol presents an innovative paradigm for Bitcoin’s integration into EVM-compatible chains. Its economic model and governance mechanisms serve as valuable references for the industry. As the crypto market continues to evolve, beraBTC is well-positioned to play a crucial role in advancing the financialization of Bitcoin and unlocking new possibilities in decentralized finance.
References
Core Technical Documentation
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