Bifrost: liquidity solution for the Dotsama ecosystem
In the DeFi space, where DEXes focuses on decentralized swaps, there might arise a problem with a lack of liquidity, which causes a higher slippage resulting in a worse price for a trader. Especially on Polkadot, where approx 50% of DOT tokens are staked with a 28-day unbonding period and the other 10% are bonded in crowdloans. This means that approx 40% of the circulating supply is liquid and can be used in DeFi.
Yet, there is a solution called liquid staking. And Bifrost is one of the projects, that opens the locked funds. Not just from staking, but also from crowdloan participation. Higher liquidity results in increased trading efficiency, which is a goal of every crypto trader.
Content:
2. vStaking: Liquid staking solution
3. vCrowdloan: Parachain slot auction liquidity release
4. vsBond: a token represents the equity of redemption
5. Farming of Bifrost derivatives
6. Swap: Decentralized swaps and liquidity providing
7. Collator staking of BNC for ~13% APY
8. Wallet enabling cross-chain transfers
9. Final word
1. Bifrost and liquid staking
Proof of Stake gives users an opportunity to bond their tokens and receive rewards for securing the network. Most popular PoS cryptocurrencies such as Polkadot, Kusama, Cosmos, Algorand or Cardano can offer up to 15% APY, which is a lot in comparison to what yield you can get in the traditional financial system with your fiat money.
The downside of staking is an unbonding period, for example, 28-days in Polkadot, for which users can’t handle their funds and use them for other purposes or opportunities.
However, staking is not the only way which can earn you interest. In the DeFi space, you can lend your tokens in lending platforms, provide liquidity to DEXes, use yield farming or compete in prediction markets. These services often provide a better yield than the one you would have from the staking.
But there arises a dilemma of investment opportunity cost. Users can be indecisive on when to provide security for the network and get the yield for staking, or using tokens for some of the above-mentioned alternatives, where the locked tokens don’t serve the network’s security.
Bifrost, the web3 derivatives protocol based on Substrate, which runs as a parachain both on Polkadot and Kusama, solves all the mentioned issues. Because Bifrost aims to unlock liquidity of the staked assets and the assets locked in crowdloans within the entire Dotsama ecosystem.
Bifrost: liquidity for the entire Polkadot ecosystem
Bifrost is a project aiming to provide staking liquidity for all PoS projects, which will run as a parachain on top of the Polkadot. By staking with Bifrost, users will bond their tokens and receive newly minted vTokens in return. For example, when you bond your DOT, you will receive a vDOT, a staking derivatives voucher token, which you can further trade.
List of features that Bifrost offers
- vStaking: Liquid staking solution for DOT, KSM and ETH
- vCrowdloan: Parachain slot auction liquidity release
- vsBond: a token represents the equity of redemption
- farming of Bifrost derivates
- decentralized swaps and liquidity providing based on Zenlink DEX pallet
- collator staking of BNC token for ~13% APY
- wallet enabling cross-chain transfers
Let’s explore all of these features one by one.
2. vStaking: Liquid staking solution
The concept of vStaking is quite simple. Users bond their PoS tokens to Bifrost and will then receive newly minted derivative tokens that can be traded for other types of tokens.
For example, if you stake 100 DOT with Bifrost, you will receive 100 vDOT in return. These vDOT tokens are DOT derivatives whose value increases over time by the staking rewards. vDOT tokens can be then traded on the Bifrost DEX, which serves as a gateway to the rest of the Polkadot ecosystem and its DeFi capabilities.
And while Ethereum moved to PoS, it's now possible to mint your vETH tokens from the original ETH thanks to the EVM bridge. You can now earn ~4.2% APR for your staked ETH and guess what, you don’t need to own 32 ETH, but the minimum for staking ETH (and receiving vETH at the same time) is just 0,1 ETH!
3. vCrowdloan: Parachain slot auction liquidity release
Since there’s a limited amount of parachain slots on Polkadot, there has to be a way to compete for them. Therefore, Polkadot provides an auction system where users can bid for their favorite projects. The auction can either fail (and all bonded tokens are returned to their owners immediately) or succeed. When the project wins in the auction, all the tokens bonded into the auction are locked for the time of a slot lease. As compensation for an opportunity cost, because users could use the DOT tokens for staking or lending instead, they receive native tokens of the supported project such as HDX in HydraDX or ACA in Acala.
Slot Auction Liquidity Protocol (SALP) is available both for Polkadot and Kusama parachain slot auctions. It enables cross-chain crowdloan contribution via XCM. SALP protocol was officially launched on September 16, 2021, and since that it supported dozens of parachain in auctions to release the liquidity of contributions in crowdloans through the issuance of derivatives.
With Bifrost, users who support projects in crowdloans then receive not just the reward from the supported project (above-mentioned HDX or ACA tokens), but also liquid vsDOT tokens and vsBonds, which could be used for further trading. This is a win-win situation for both user and the parachain project.
4. vsBond: a token represents the equity of redemption
vsBond is a token that represents the lease period of different parachains. For example, “vsBond 20220516-KSM-BNC” is the name for vsBond with retirement date 20220516, which is held for the KSM-BNC project.
Bond market: one-click arbitrage opportunities
vsBond can execute transactions through Bifrost’s built-in vsBond market, without having to consider liquidity issues. vsBond market provides complete Bifrost Network arbitrage opportunities with one click.
5. Farming of Bifrost derivatives
Farming is an amazing opportunity how to earn some extra profit on your liquidity pool positions. Bifrost enables farming of the derivative tokens and also the regular bridged tokens, sometimes even in single pools.
Beyond the regular farming rewards, Bifrost often offers time-limited farming opportunities with exceptionally high rewards.
6. Swap: Decentralized swaps and liquidity providing
Bifrost, as a complex DeFi protocol, enables also decentralized swaps and liquidity providing. Bifrost DEX is based on Zenlink DEX Pallet, so the same crypto assets you can swap at Zenlink DEX.
Bifrost DEX enables 3 separate actions, that allow users to handle their crypto assets and derivates.
Swap
At Bifrost DEX, there is possible to swap not just regular crypto assets bridged via using XCM to Bifrost, tokens such as BCN, KSM, DOT, aUSD, KAR, MOVR, ZLK or RMRK. But also vStaking derivatives like vKSM and vDOT or even the vCrowdloan parachain auction derivatives vsKSM and vsDOT.
Liquidity
Provide various liquidity pools with your tokens and get a portion of the trading rewards. Similar to the swap function, you can provide liquidity not just by regular tokens, but also by derivatives such as vKSM, vDOT, vsKSM or vsDOT.
Convert
Convert your vsBond tokens from your previously supported crowdloans of your favorite project into vsKSM derivative tokens and vice versa. The conversion rate differs for each crowdloan derivative participation token.
7. Collator staking of BNC for ~13% APY
Bifrost enables the staking of the native BNC token. You can stake your BNC with a collator of your choice. Similarly to validators in the Polkadot network, collators in Bifrost are election nodes, that serve the network by collecting blocks in return for BNC incentives.
If you like our content, you can support our collator by delegating your BNC to Polkadotters collator for ~13%. The UX of the whole Bifrost app is very intuitive and straightforward.
8. Wallet enabling cross-chain transfers
Because Bifrost is kind of a DeFi hub that allows liquid staking, farming, liquidity providing, crowdloan support and similar functions, a wallet with cross-chain XCM transfers is essential to have.
Besides the tokens from the Kusama & Polkadot ecosystem such as KSM, aUSD, BNC, ZLK, MOVR, RMRK and so on, the Bifrost wallet contains also vKSM and LP tokens, which can be transferred simply to another account.
9. Final word
Bifrost is a Substrate-based protocol, which aims to unlock the liquidity of the staked funds for projects within the entire Polkadot ecosystem. It brings infrastructure, that enables a liquid staking solution for the underlying staked token in DeFi or in crowdloans thanks to the SALP protocol by creating vTokens, which are derivative tokens referring to the original staked token.
By having not just a parachain slot in Kusama, but now also in Polkadot, Bifrost is kind of an all-in-one place for all the possible DeFi operations for Dotsama. Be it staking, liquid staking, farming or decentralized swaps, with all of those, a user doesn't need to go anywhere else for handling the tokens or even supporting projects in crowdloans.
With that said, Bifrost with its UX and UI might be the one and only spot for a selected type of users in Dotsama and beyond (with liquid staking ETH), which users need to visit and use.
If you like this review, consider supporting us by nominating of your BNC tokens to our POLKADOTTERS collator in the Collator staking section of the Bifrost app.
