On May 1, Solana officials tweeted out another crash of its mainnet Beta. Judging from the 6 crashes in January 2022, public chains under the PoH mechanism still need more time to conquer the market. Among the many consensus mechanisms in today’s blockchain, PoW and PoS consensus mechanisms are still mainstream. The PoS public chain occupies most of the market due to its advantages of shorter consensus time and lowers user threshold than PoW. Polkadot is a very typical and highly recognized PoS public chain among them.
Specifically, Polkadot adopts the NPoS consensus mechanism, “Nominated Proof of Stake”, a consensus mechanism different from PoW workload proof and PoS proof of stake. The blockchain network under the NPoS consensus mechanism relies on validators to run full nodes and participate in consensus to maintain the security and stability of the entire network. Ensure the stability and security of the public chain by setting the roles of nominators and validators. At the same time, it also draws on the proportional representation system proposed by Swedish mathematicians to make the network sufficiently decentralized.
Nominated Proof of Stake (NPoS) avoids the horse-trust effect and oligopoly brought by Proof of Stake (PoS). A suitable incentive mechanism makes nominators choose more trustworthy nodes, which maintains the security of the whole network to gain more revenue. The proportional representation system distributes the total votes of nominators to each node as evenly as possible. The final result is the decentralization of the Polkadot network and its high-security performance.
With DeFi Summer kicking off in 2020, the DeFi circuit has surged, quickly sweeping through a host of public chains like Ethereum and capturing many users and projects with high returns. With the introduction of ETH 2.0, the conflict between Staking and DeFi is hard to ignore. The high yield has attracted more and more users from Staking to DeFi, and one of the most direct impacts on the PoS public chain is security and stability.
Staking derivatives are created to release the liquidity of staked Token by providing Token liquidity so that the Token can continue to circulate in the market. Thus, the PoS chain needs enough Staking assets for security and stability and meets the asset liquidity required by users who want to participate in high-yield DeFi projects. It ideally provides a two-pronged approach. The timing, the technology it brings, and the innovation in the application have left the industry and users in awe.
As one of the first term projects to receive a Web3 Foundation Grant and join the Substrate Builders Program, Bifrost’s original parachain bidding for derivatives has attracted significant attention in the Staking Derivatives track of the Polkadot ecosystem. Since its launch on October 21, 2021, Kusama Parachain has minted $137M in derivatives, provided $11.04M in liquidity, held 81,297 addresses on the chain, and completed 333,921 signed transactions. The upcoming SLP protocol is the best solution for releasing liquidity based on the experience of many users and technical practice.
SLP is Bifrost’s Staking Liquidity Protocol, which provides high yield liquidity for the Staked Token. SLP protocol aims to solve the liquidity problem of many staked Token, maximize the utilization of Staking assets in PoS blockchain, release liquidity, bring higher rewards to users, bring more vitality to the ecosystem, and provide more resources stable and sufficient Staking assets for PoS public chain. Through the SLP protocol, Bifrost hopes to activate 80% of the PoS blockchain’s capital utilization, enhance consensus security, and promote the activity of Staking governance Token.
Bifrost is more focused on Token liquidity and reward than other PoS liquidity solutions. The trading platform directly shelves the vToken series of Token. It is worth mentioning that the SLP protocol has been officially launched on May 5th, starting from KSM staking and gradually advancing to more PoS Token staking.
As a parachain, Kusama, in line with Polkadot, adopts NPoS (Nominated Proof-of-Stake) consensus mechanism, which means any user holding KSM can choose to participate in the security verification Kusama network as a validator and nominator. The user’s staked KSM will be locked during the process to ensure the network’s security, so the staked Token is locked for network voting governance and cannot be transferred. Users are also unable to exit Staking immediately. They need a period of unbundling to gain total liquidity of unstaked assets, reducing liquidity and preventing full use of asset values, predominantly native Tokens.
The SLP protocol allows users to swap their KSM for vKSM. vKSM are KSM bonds generated through the SLP protocol, as understood from the perspective of centralized financial product bonds. vKSM are a combination of automatic staking principal and future staking rewards and can be redeemed using vKSM. As each user stakes for a different period, the accumulated automatic staking reward per KSM varies. vKSM is designed to be a Fungible Token that can be split to meet the needs of multiple users better.
The product allows users to stake KSM for liquid vToken, (vKSM). vKSM will continue to receive automatic staking rewards and can continue to be used in Bifrost and Kusama-based DeFi for additional rewards. In short, vKSM can be used as a KSM for all trading actions.
The system will give a real-time swap rate when the user stakes/redeems through the SLP protocol. SLP will issue automatic staking rewards to vKSM by adjusting the price of vKSM / KSM upwards. vKSM Rate = Staking Total KSM / vKSM Total Issuance. This Rate is the basis for many operations in the system. It will be executed automatically by the SLP Runtime module under the protocol with a high level of confidence and reliability.
While Kusama’s original chain Staking has a fixed 7-day redemption period, Bifrost SLP helps users realize the possibility of early vKSM redemption by matching the real-time vKSM minting quantity with the redemption quantity at the protocol layer in the form of a queue. In short, when the real-time vKSM minting volume is greater than the current redemption volume, the redemption request will be executed immediately. At the same time, the redemption process is flexible, as vTokens can be immediately canceled at any point in the redemption process to regain vKSM without incurring any fees. It helps to avoid the loss of liquidity during the redemption process, maximizes liquidity, and gives the user maximum control.
According to the Sequential Phragmén Method of node staking volume in Polkadot, when a single nominator stakes to multiple nodes, the KSM staking volume will be automatically calculated and allocated by the algorithm, resulting in the ideal yield for the user and not reach the expectation. The SLP protocol operates with more than 10 verified nodes through governance (subsequently increasing with the overall staking volume). It also adds multiple filters such as the number of nominees, commission ratio, and history of blocks out to maximize the return of this verifier portfolio while ensuring that none of the nodes have experienced forfeitures. Automatic screening rules will be added to the protocol in the future.
The PoS public chain represented by Polkadot has developed significantly in recent years. The ecology has become more and more prosperous, and the multiple tracks and multiple ways to play have attracted more and more users to join. It also means that the Staking derivatives track will continue its development advantages and meet more and more users’ advantages. The SLP protocol will also continue developing, optimizing, and iterating on the track.
From the user’s perspective, the yield of SLP is very impressive. Bifrost will provide additional incentives to users, especially during the initial launch period. The SLP, which went live yesterday, is waiting for investors to Ape in and enjoy the early bonuses. At the same time, the liquidity incentive will support users to continue to participate and enjoy the benefits, and the system will operate with a high subsidy.
Under the premise of high yield, the diverse available scenarios also bring more reward possibilities. Not only Kusama mentioned above, but vToken also has rich interoperability and combined application scenarios between major parachains. At the same time, it cooperates intensely with smart contracts and parachains to open up interoperability with EVM/WASM, and vToken will appear in more mature and prosperous ecosystems.
SLP’s highly liquid vKSM meets the low staking threshold and allows users to start KSM staking and still have complete control of their assets. It can also liquidate in the market with vKSM and continue to participate in DeFi. Its income opportunities are increased, yield is improved, and lock-up risk is greatly reduced.
At the same time, the SLP protocol can be combined with the DeFi track lending to create the “Staking Leverage”, which will bring more revenue possibilities to users. The cross-chain feature of Polkadot also supports vKSM to operate in DApps of other parachains. It means that it can not only focus on the DeFi stack, but also keep up with the trend of the circle and invest in other potential projects.
As the liquidity release solution launched by Bifrost after several years of leading in the Staking derivatives track, SLP protocol has a mature technical foundation and sufficient product practice. It aims to build a Polkadot ecology to solve the pain points of Staking under the PoS mechanism, bringing users a better experience, higher return, and complete liquidity freedom. It is a successful exploration of liquidity solutions and the best choice for users and public chains.
Bifrost is a Web3 derivatives protocol that provides decentralized cross-chain liquidity for staked assets. Leveraging the cross-consensus message (XCM) can provide cross-chain liquid staking services for multiple chains.
Bifrost’s mission is to provide standardized cross-chain interest-bearing derivatives for Polkadot relay chains, parachains, and heterogeneous chains bridged with Polkadot. Furthermore, by aggregating over 80% of PoS consensus chains’ staking liquidity through cross-chain derivatives, our protocol lowers users’ staking threshold, increases the multichain staking ratio, and improves the application of the ecosystem interest base by creating a three-way positive cycle for the StakeFi ecosystem by empowering users, multi-chains, and ecosystem applications.
Bifrost has raised over USD 2M from top-tier venture capital firms by NGC, SNZ, DFG, CMS, and other institutions. In addition to being an early receiver of a Web3 Foundation Grant, Bifrost is also a member of the Substrate Builders Program and the Web3 Bootcamp.