Bifrost: cross-chain liquid staking derivatives on Polkadot
Thread993 words
Explains Bifrost as a derivative issuer: vTokens give cross-chain liquid staking across PoS chains via XCM, with auto-accruing rewards, plus slot auction derivatives vsToken and vsBond. Contrasts its design with Lido's per-chain contracts.
Key claims
Bifrost aims to aggregate over 80% of PoS chains' staking liquidity
vTokens exist for ETH, KSM, DOT, FIL, GLMR and MOVR
Polkadot 2.0 abandons parachain slot auctions
0/ LSDs have gained a lot of traction on @ethereum in the past few months💧
but it won't stop here as @BifrostFinance is set to unlock cross-chain liquidity for staked assets across PoS chains, using @Polkadot's cross-consensus messaging (XCM) 🌈
🧵 on why this is big (0/50)
1/ so let's dive into @BifrostFinance 🌈
basically, @BifrostFinance, which is built on @Polkadot's substrate framework, aims to standardize cross-chain interest-bearing derivatives for Polkadot relay chains, parachains, and heterogeneous chains bridged to the @Polkadot ecosystem
2/ by doing so, @BifrostFinance aims to aggregate over 80% of Proof-of-Stake (PoS) chains' staking liquidity via cross-chain derivatives, thereby lowering the staking threshold for users, increasing the multi-chain staking ratio, and cultivating a vibrant StakeFi ecosystem
3/ at its core, @BifrostFinance functions as a derivative issuer, providing liquidity for pledged assets by issuing shadow assets during the bonding period of the original assets
4/ these shadow assets, which are fully fungible tokens, can be freely used in various #DeFi protocols and seamlessly circulate across chains
5/ @BifrostFinance addresses key challenges faced by #PoS ecosystems, which includes resolving the paradox between staking rewards and decentralized finance (DeFi) yields
6/ staking derivatives issued by the @BifrostFinance protocol enable networks to reach a healthy balance between token staking/circulation and boost the security of #PoS chains by increasing the value at stake, while effectively managing cross-chain staking rewards
7/ but let's have at the different derivatives the protocol supports 👇
8/ as the ones familiar with the @Polkadot ecosystem probably know, getting a parachain slot (and hence shared security from the @Polkadot relay chain) comes with an economic cost...
9/ ...as projects have to bond $DOT (for the duration of the lease period) and participate in parachain auctions
⚠️ @Polkadot has recently announced #Polkadot 2.0, abandoning the parachain slot auction mechanism
for more info, check my thread below 👇
x.com/expctchaos/status/1677407166251274241
10/ however, to showcase the versatility of @BifrostFinance, I will quickly cover the mechanics behind @BifrostFinance's Slot Auction Liquidity Protocol (SALP)
11/ #SALP aimed to unlock the liquidity of contributions in @kusamanetwork and @Polkadot crowdloans through the issuance of derivatives, significantly boosting asset utilization and increasing $DOT / $KSM lock-ups by providing users with increased flexibility
12/ to do so, @BifrostFinance offers two distinct derivatives:
🪙 vsToken: voucher of a user's contribution to a parachain auction, which is tradable at any time and that, combined with vsBond, can be redeemed for the original assets at a 1:1 peg at the end of the lease period
13/ 📄 vsBond: represents the lease period of different parachains, serving as sort of receipt. It can be transacted through Bifrost's built-in vsBond market, thereby eliminating concerns about liquidity issues. Ultimately needed for 1:1 redemption of original assets
14/ but back to the liquid staking derivatives offered by @BifrostFinance 🌈
this suite of products includes several vTokens, each being a liquid staking derivative of a staked asset
15/ while I will cover vToken mechanics in-depth in this thread, the below Q&A article on Medium can serve as an additional resource to learn more about vTokens 👇
bifrost-finance.medium.com/newcomers-guide-to-vtokens-q-a-with-bifrost-65d749bf2a64
16/ the @BifrostFinance protocol is fully non-custodial solution and allows users to stake their assets directly through the protocol to receive a corresponding vToken in return
17/ currently, the supported assets and their corresponding vTokens are:
🔸 Ethereum (ETH) -> vETH
🔸 Kusama (KSM) -> vKSM
🔸 Polkadot (DOT) -> vDOT
🔸 Filecoin (FIL) -> vFIL
🔸 Moonbeam (GLMR) -> vGLMR
🔸 Moonriver (MOVR) -> vMOVR
18/ these vTokens come with a set of important benefits 👇
19/ 🔒 Securing the Underlying Networks
by unlocking liquidity of staked assets & improving user flexibility, @BifrostFinance increases the amount of tokens staked on the supported PoS chains, thereby contributing significantly to the underlying networks' security
20/ 📈 Liquidity and Capital Efficiency:
the original asset has no liquidity during the staking period, but vToken derivatives can be easily transferred or traded. This liquidity transformation adds flexibility to staked assets and only a minimal amount is required for staking
21/ 💰 Automatic Staking Rewards Capture:
each vToken appreciates in value with staking rewards automatically. This automatic yield accrual eliminates the need for manual reward claims, making the process more user-friendly & efficient
22/ ⚙️ No Technical Background Needed:
the process of minting assets to their respective vTokens requires no technical knowledge on the user side. This simplifies the staking process, making #DeFi more accessible to a broad user base
23/ 👨🌾 Extra Yield Opportunities:
every vToken can be used in various #DeFi apps for liquidity provision, farming on #DEXs, and borrowing and lending use cases. This extends the yield generation possibilities of the staked assets beyond their native staking rewards
24/ 🌐 Cross-chain Capabilities:
vTokens can seamlessly move across a variety of heterogenous networks such as @ethereum, @Polkadot, @kusamanetwork, @MoonbeamNetwork, @AstarNetwork & more, expanding vTokens utility across a vibrant multi-chain DeFi ecosystem
25/ 🛡 Protocol Security
@BifrostFinance's pallets & smart contratcs were audited by several audits firms (Slowmist, Certik) & proved codebase robustness since 2020. Moreover, security is inherited from Polkadot/Kusama itself, while XCM is the most secure way to transfer tokens
26/ for more info on XCMP security, check out this Medium article 👇
bifrost-finance.medium.com/how-bifrost-supports-vmovr-vglmr-based-on-xcm-cef597b9a02c
27/ and if you want to understand more about how XCM v3 further improves @BifrostFinance's security, have a look here 👇
bifrost-finance.medium.com/how-the-upcoming-xcm-v3-upgrade-improves-bifrost-protocol-security-and-interoperability-eef3a4366bf5
28/ but let's dive a bit deeper in the concept of the architectural design of vTokens as there are some important differences to other liquid staking protocols
29/ most liquidity staking protocol are built on the original chain. @LidoFinance’s $ETH liquidity staking protocol for example is an Ethereum contract implemented in Solidity, while #Lido’s $SOL liquidity staking protocol is a Solana contract implemented in Rust
30/ hence, the native chain for @LidoFinance's $ETH staking derivative, ($stETH) is Ethereum and the derivative is an ERC-20 token. #Lido’s $SOL staking derivative on the other hand is Solana, while the derivative itself is implemented as a SPL token (which fragments liquidity)
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What came next · since 08 Aug 2023
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This breakdown analyzes the project without making a call on the token, so price moves since publication are shown as market context.
Since then
Zero has written 7 more pieces on Bifrost Finance since this one.
- Bifrost vToken Voting: governing Polkadot with liquid staked vDOTOn Bifrost
- Bifrost liquid staking data: TVS by asset and SALP locked valueOn Bifrost
- Bifrost September 2023 recap: vDOT volume, TVL and vToken votingOn Bifrost Finance
- Bifrost omnichain liquid staking: SLP pallet and headquarters plus branch modelOn Bifrost Finance
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