Auto-BGT

Kodiak Islands were designed specifically to be compatible with PoL. As such, in order to optimize yield for both liquidity providers (LPs) and BGT delegates of validators that include the corresponding Kodiak Island in their cutting board, Kodiak is introducing a project-specific opt-in mechanism. This will dynamically adjust the allocation of LP fees, directing them toward reward vault incentives instead of distributing them directly to LPs. In fact, up to 100% of LP fees can be redirected to reward vaults.

Why does this make sense? By design, PoL incentivizes protocols to direct rewards toward validators, encouraging them to allocate BGT emissions to whitelisted reward vaults rather than directly rewarding LPs. The rationale is simple: the value of BGT emissions secured from validators should exceed the value of incentives given to validators.

As a result, when applicable, LPs stand to gain higher overall yields when their traditional fees are redirected into reward vault incentives. This also sets off a flywheel effect—LPs who earn BGT through these incentives can then delegate their BGT to validators that include their relevant Kodiak Islands, further boosting their earnings by reclaiming a share of the LP fees initially redirected. With this mechanism, PoL benefits from sustainable reward vault incentives, proportional to the value generated by the ecosystem.

Auto-BGT Requirements

To enable Auto-BGT for a Kodiak Island, the following conditions must be met:

• The pool must be a "managed" Kodiak Island (no V2, no "permissionless" islands).

• The pool must be BGT whitelisted with an actively used reward vault that is earning BGT emissions.

• The pool’s fee tier must be 0.3% or higher.

• Two of the reward vault’s incentive tokens (out of the three maximum) must match the two assets in the underlying pool.

How LP Fee Redirection Works

When Auto-BGT is active, the Liquidity Provider portion of the fees are redirected to the corresponding Reward Vault Contract Address. During the current pilot phase, these distributions are semi-automated and occur once per week, with full automation on the way.

Currently (as of May 2025), up to 90% of the Liquidity Provider portion of the fees are redirected to the Reward Vault. This share is configured the same for all pools participating in the Auto-BGT program, and is set at a high rate as $1 in incentives translates to much more than $1 in BGT earned, making this positive-sum for LPs staked in Reward Vaults.

How to Add Incentives

Once the LP fees are redirected to the Reward Vault, it is the responsibility of the Reward Manager to decide the rate and pace at which to add incentives.

Each Reward Vault has a Reward Manager for every incentive token, who can review and Approve incoming third-party incentives under the specific Reward Vault's “Pending” section on Berachain Hub.

⚠️ The Incentive Rate must be set before adding incentives. When executing the “Approve” transaction from the "Pending" section, the selected amount of tokens will be added as incentives using the current incentive rate. If you wish to apply a different rate, be sure to adjust the incentive rate prior to approval.

⚠️ Consistently adding the incentives to the reward vault and ensuring BGT is actually emitted to LPs is a requirement for continued participation in the Auto-BGT program