Bifrost provides an intermediate layer between staking and the application layer, so that the staking and application layer built on the underlying protocol change from a parallel relationship to a top and bottom compatible relationship, thereby solving the problem of staking and DeFi revenue competition.
Written by: Xiao Mao
The popularity of the DeFi market and expectations for the launch of the Ethereum 2.0 staking mechanism flood the crypto market in 2020. The rapid development of decentralized finance (DeFi) and staking (Staking) markets is driving the two mechanisms of DeFi and Staking to interact more and more in the blockchain landscape, and superposition has produced more and more composability. But the problem also followed.
In the Polkadot ecology, there is also such a project that is positioned as the DeFi basic protocol and aims to solve the liquidity of PoS mortgage tokens. Under this background, the project has attracted the attention of the market. Bifrost recently announced the completion of a seed round of $600,000. Investment institutions include NGC Ventures, SNZ Holding, Consensus Labs, Digital Renaissance, Youbi Capital, DFG, Longhash, etc. Bifrost said, “Investors participating in this round of financing are not lack of early Polkadot investors and staking business related institutions. It is expected that Bifrost will be able to provide Bifrost with parallel chain card slot auctions, staking liquidity business support and other assistance in the future.”
Currently Bifrost has conducted two rounds of testnets including the Asgard CC1 and CC2 pre-production networks. Bifrost stated that it will participate in the Polkadot network’s slot auctions in the future and become a Polkadot parachain to provide online real vToken exchange, and plans to The mainnet was launched in the fourth quarter of this year.
What is Bifrost?
Bifrost is a cross-chain network that provides liquidity for staking. It is developed based on Substrate and built on the Polkadot network. As a DeFi project in the Polkadot ecosystem, Bifrost users can exchange PoS currencies into vTokens through the Bifrost protocol at any time to obtain staking Earnings and liquidity.
The project announced that before completing the seed round of fundraising, it has obtained the Web3 Foundation Grant, is also a member of the Substrate Builders Program under Parity, and is also listed in the Web3 jointly established by the Web3 Foundation and Wanxiang Blockchain Lab. One of the 15 core members of Bootcamp incubator. Bifrost stated that it has received all-round support from the Web3 Foundation and Wanxiang Blockchain Lab in terms of technology, products, capital, legal affairs, and ecological cooperation.
What problem does Bifrost want to solve?
Staking and DeFi revenue competition issues
Due to the emergence of emerging DeFi products including liquid mining, DeFi products may bring users a super high annualized rate of return, but whether the prosperity built on the ETH PoW consensus can be under the ETH 2.0 or Polkadot PoS consensus Continuity is a problem. For users, when staking and DeFi lending can only choose one of them, which method is more profitable becomes the basis of choice. The PoS consensus network will compete with DeFi products from the underlying mechanism to compete for users. To solve the problem of staking and DeFi revenue competition, Bifrost is exploring the liberation of staking liquidity, aiming to allow users to obtain staking revenue, while releasing liquidity to obtain and optimize the revenue of more DeFi fields including DEX, liquidity mining, etc. .
PoS network liquidity and security are mutually exclusive
The PoS equity proof mechanism determines that the security of the network is maintained by the staking mechanism, which also means that the liquidity and security of the PoS network are in a mutually exclusive state. Under normal circumstances, increasing the liquidity of staking requires weighing network security, and the PoS mortgage token liquidity solution seeks to break this restriction, reduce the opportunity cost of users to participate in staking, and increase the overall staking rate of the PoS public chain.
Staking gains in cross-chain scenarios
With the launch of cross-chain projects such as Polkadot and Cosmos, users will participate in more and more cross-chain scenarios, and the current cross-chain exchange of tokens may cause users to lose the original token Staking rewards. Bifrost aims to build cross-chain features in parachains through vToken, so that staking benefits can also be obtained in cross-chain scenarios.
How is Bifrost achieved?
Bifrost provides an intermediate layer between staking and the application layer, so that the staking and application layer originally built on the underlying protocol change from a parallel relationship to a top and bottom compatible relationship, thereby solving the problem of staking and DeFi revenue competition.
The project designed a mechanism that allows users to exchange PoS tokens into Bifrost vToken through the Bifrost protocol at any time, and each PoS token will correspond to a different vToken, such as vDOT that bridges Polkadot tokens, and vETH that bridges Ethereum. To put it simply, users only need to hold vToken to get staking income. The project said that the nature of vToken includes:
- By providing the liquidity of vToken, the liquidity and security of the PoS network can be combined, thereby solving the mutual exclusion problem of PoS network liquidity and security.
- Through the cross-chain feature of vToken built in the parachain, staking income can also be obtained in cross-chain scenarios, thereby solving the problem of obtaining staking income in cross-chain scenarios.
How to understand and use vToken?
In simple terms, holding vToken is equivalent to owning the Staking income rights of the original PoS token. However, Bifrost said that this basic mechanism can give vToken more rights and usage scenarios.
First of all, the project indicates that users can obtain vTokens through direct exchange through wallets or exchanges that support the Bifrost protocol and purchase through DEX and CEX. After the user obtains the vToken, the currently developed or planned use scenarios include:
- Hedging the risk of staking lock-up, no need to wait for a few weeks of lock-up date, buy and sell at any time;
- Carry out DeFi collateral lending, and in the future, it will cooperate with Polkadot Ecosystem including Acala and other projects to support vToken for mortgage lending, and derive the mechanism of “Staking leverage”;
- Support the operation of tokens in other parachain DApps. For example, DApp games can support both original assets and vToken staking assets;
- vToken has the governance power of the original chain voting and realizes cross-chain staking income;
It is worth noting that Bifrost stated that compared to other PoS liquidity solutions, the project focuses on the liquidity of tokens and rewards. On the one hand, the trading platform can directly list the vToken series of tokens to provide better liquidity; on the other hand, because vToken can have the governance power of the original chain voting, the voting and bidding mechanism allows users to independently need nodes and can also let The token holders receive the staking premium income generated by the bidding, which may result in the staking income of the vToken series of tokens even higher than the original token.
Bifrost product roadmap
According to Bifrost’s roadmap, the project will release the Beta version of Bifrost DApp in the third quarter of this year. The AMM trading pool provided internally is also in the testing phase. At the same time, Bifrost plans to release the mainnet in the fourth quarter and prepare for the IPO (Parachain auction) related plans, ready to participate in the auction of Polkadot Parachain Slots.
