AI Summary
Show More
Quickly grasp the article's content and gauge market sentiment in just 30 seconds!
Due to the increasingly proven inefficiencies of proof of work (PoW) blockchains, a growing number of blockchains have adopted proof of stake (PoS) consensus mechanisms to secure their smart contract ecosystems through staking. With this growth, a rapidly burgeoning niche has emerged in decentralized finance (DeFi). Known as liquid staking derivatives (LSDs), they facilitate the staking of assets locked in PoS blockchains to provide liquidity and ensure optimal capital efficiency for asset holders.
The concept of LSD finance (LSDFi) has been taken a notch higher by the creation of heterogeneous cross-chain liquid staking platforms (such as Tenet and Stader Labs) that facilitate multi-chain staking of interest-bearing LSDs.
In this article we’ll explore Bifrost Finance, a cross-chain LSDFi protocol serving parachains operating on Polkadot, which is an interoperability-focused Layer 1 blockchain.
Let’s learn more about Bifrost.
Key Takeaways:
Bifrost is a pioneer cross-chain, liquid staking derivatives issuer focused on Polkadot’s ecosystems, including its parachains and relay chains.
The project has developed two innovative protocols, SLP and SALP, designed to facilitate omnichain liquidity and increased yields across DeFi.
Bifrost leverages Substrate technology and cross-consensus messaging (XCM) to enhance the interoperability of liquid staking.
Bifrost Finance is a web3 cross-chain derivatives protocol designed to provide standardized, decentralized cross-chain liquidity for LSDs, with a focus on Polkadot relay chains and parachains, and heterogeneous chains bridged by Polkadot.
As the pioneer LSDFi project on Polkadot, Bifrost leverages Substrate technology and the Cross Consensus Message Format (XCM) to offer faster, cheaper and highly interoperable cross-chain liquid staking across nine blockchains, including Ethereum, Polkadot,Kusama and Moonbeam.
Initially, Bifrost was launched on Kusama in October 2021, but it officially became a Polkadot parachain in June 2022 after a successful Polkadot Crowdloan auction that raised 403,658 DOT (worth around $2,022,327 at the time). Its mainnet has since migrated from Kusama to Polkadot, with BNC as the only native token for the project.
As a liquid staking parachain, Bifrost aims to aggregate liquidity from staked assets on PoS networks and convert them into interest-bearing derivatives, which helps increase capital efficiency for token holders.
Similar to popular LSD protocols such as Lido and Rocket Pool, Bifrost issues reward-bearing tokens (vTokens), which are swapped at a ratio of 1:1 to the underlying assets, and can be used to earn yields across compatible chains in the DeFi ecosystem.
To achieve this decentralized re-staking of PoS tokens, Bifrost has developed the Staking Liquidity Protocol (SLP) and Slot Auction Liquidity Protocol (SALP) to improve liquidity on Polkadot’s StakeFi ecosystem.
At the core of Bifrost’s operations is the Cross-Consensus Messaging (XCM) feature, which supports the Staking Liquid Protocol (SLP) and Slot Auction Liquid Protocol (SALP), enhancing the interoperability of the LSD derivatives with various parachains.
Using the SLP, Bifrost issues PoS token holders with vTokens, which have numerous use cases in the DeFi ecosystem. These include providing liquidity and acting as collateral, among other interest-bearing opportunities.
For example, by staking ETH, you’ll be issued vETH, or you can swap KSM tokens for vKSM, which you can then use for borrowing, lending or to re-stake for extra staking rewards. vTokens can also easily be transferred or sold, which allows you to earn as a liquidity provider since the vToken can be combined with a native token to add liquidity to a pool.
On the other hand, SALP uses two highly liquid derivative tokens, vsToken and vsBond, which offer Kusama and Polkadot investors more opportunities to earn even as they lock their tokens in a Crowdloan.
The Bifrost platform combines several different features to unlock diverse opportunities for its users through a number of innovative liquid staking mechanisms. After significant research, the Bifrost team settled on the idea of creating wrapped assets that simplify staking and unstaking, ensuring quick redeployment of underlying assets to leverage a wide range of income streams.
The key features of Bifrost’s StakeFi ecosystem are as follows.
The Staking Liquid Protocol (SLP) was the Bitfrost’s earliest liquid staking platform. SLP uses XCM to mint vTokens, which are wrapped staking assets that can be used to provide liquidity and earn rewards from PoS assets locked in various blockchains. SLP utilizes Polkadot’s Nominators Pool, which helps lower barriers to liquid staking that have vexed the LSDFi niche.
By depositing your staked assets in the Bifrost SLP Nominators Pool, you not only get to mint interest-bearing vTokens but you also benefit from a lower slash risk. This is because the SLP Protocol takes on the risk for all vToken holders and employs several countermeasures, including the rapid switch of validators should a slash occur.
The Slot Auction Liquid Protocol (SALP) was developed to facilitate the release of liquidity for locked assets on Kusama and Polkadot by those participating in the Crowdloan auction initiative. The flexible lockup of derivatives encourages users to lock their DOT and KSM assets in order to participate in Crowdloan auctions.
SALP issues LSDs in the form of vsToken (vsDOT/vsKSM) or vsBond derivatives, which represent a user’s equity and redemption parameters in a given parachain. vsTokens are fungible and represent a participant’s contribution to the auction, and can be sold at any time in exchange for the original token.
Meanwhile, the vsBond is a token that symbolizes the specific parachain and the amount of time that the user has leased their tokens to the auction. SALP then uses a bond market to pair a specific vsToken and a vsBond, based on their yield opportunities and redemption period, into a 1:1 redemption package.
Bitfrost’s System Staking helps increase yield rate by automatically staking cross-chain assets deposited in the Bifrost system staking parachain Pallet. This feature allows users who deposit assets in the parachain pallet to earn various staking rewards through the vTokens minted, and from the Bifrost Treasury.
Bifrost Native Coin (BNC) is the mainnet utility token of Bifrost, with an initial total supply of 80 million. BNC helps capture value and promote the healthy development of the Bifrost ecosystem through the following mechanisms:
Staking — BNC tokens are staked to help determine the gauge weight of vTokens, which dictates the minting incentives and staking rewards to be issued. Furthermore, some of the staking rewards generated are used to repurchase BNC tokens. You can also lock your BNC as slash collateral to become a participating node in Bifrost’s Validator staking pool.
Liquidity Commission — Transactions and transferring assets through Bifrost attract a commission, which is paid in BNC tokens and sent to the Bifrost Treasury.
Governance — Holding BNC tokens gives you voting rights to Bifrost’s network governance, allowing you to participate in functions such as the platform’s on-chain parliament and node election.
As of Aug 16, 2023, BNC’s price was $0.225, a 96.31% drop from its all-time high (ATH) of $6.14 on Nov 03, 2021, and a 193.18% increase from its all-time low (ATL) of $0.077 a year later, in November 2022. Price prediction experts aren’t overly bullish on BNC's future value
According to forecasters at PricePrediction, BNC will be trading at $0.74 in 2025, and could increase in price to $4.42 in 2030. Another platform, DigitalCoinPrice, shares similar sentiments and believes that BNC could hit $0.83 in 2025 and rise to a maximum price of $2.34 in 2020.
LSDFi is one of the fastest-growing niches in DeFi. As an entrant in this category, Bitfrost also provides cross-chain liquid staking, which ensures capital-efficient and high-yielding opportunities for PoS asset holders.
In addition, Bifrost has focused on Polkadot’s thriving ecosystem of parachains and relay chains, which have attracted a lot of developers, due to the advanced security and ease of building. Those who lock assets in this blockchain will better be able to utilize their funds through Bifrost’s liquid staking mechanisms.
Based on the bright future of LSDFi projects and the endless possibilities Polkadot presents, we believe that Bifrost is a good investment. That said, this shouldn’t be taken as financial advice, and we highly recommend you do your own research before investing.
As a pioneer of LSDFi on Polkadot, the Bifrost network has presented stakers on the blockchain with strategic value capture for their locked assets through cross-chain liquid staking, and its innovative SLP and SALP platforms provide users who lock their native tokens with the opportunity to earn additional rewards from vTokens, vsTokens and vsBonds across multiple chains.
#Bybit #TheCryptoArk