Bifrost is a Polkadot parachain designed to support its PoS ecosystem that covers staking and liquidity.
Today, there are several projects on the decentralized finance (DeFi) space aiming to provide liquidity mining options. This has led to a competition among different DeFi products built on the Ethereum blockchain. While it can be considered an ideal situation for now, the question that remains is if they can still continue their gains on an updated version of the Ethereum chain or the Polkadot’s new consensus framework.
To solve this problem, Bifrost was created. Mainly, it solves two problems. First is network liquidity, and second, is an interoperable security model. The team behind Bifrost took advantage of the innovation powered by parachains to build an effective staking model that is supported by an improved Proof-of-Stake (PoS) ecosystem.
Bifrost is a member project of the Substrate Builder Program, funded by a Web3 Foundation grant. The team designed Bifrost to lower the staking threshold on top of a decentralized chain. And because of this framework, Bifrost has been able to provide liquidity to Staking without disrupting its governance structure.
Bifrost chose parachains even though smart contracts seemed a viable option. It is because while they can build support contracts on public chains, they cannot provide the liquidity that the Staking system needs. Through this approach, they hope to provide Staking mobility for PoS chains.
According to the team, the project is a response to the launch of ETH 2.0 and Polkadot. Foreseeing a growth in the total value locked on PoS projects, Bifrost was conceptualized around the goal of lowering the psychological threshold for users to stake in DeFi protocols.
What is Bifrost Finance?
Bifrost is a Polkadot parachain designed to support its PoS ecosystem that covers staking and liquidity. It functions as an intermediate protocol that links staking and application layers to support their interaction in providing PoS services as well as staking rewards.
Through Bifrost, users can swap their PoS tokens into their native token, the Bifrost vToken. Each PoS token represented by a vToken is linked to a Polkadot token via the protocol. This allows Bifrost to implement a cross-chain communication method that links the protocol to other PoS chains.
One feature that distinguishes Bifrost from other staking and liquidity providers is that it does not require users to lock their positions. Users also enjoy automatic compound interest and access to other PoS providers.
Users can also map into the Bifrost parachain to get mapped assets available on the protocol, such as vATOM, vDOT, and vEOS, among others. Holding these assets can secure staking rewards for users. The reward that they will receive is in proportion to the amount of the assets they have staked to back their mapped tokens.
- Cross-chain user – These are the users who hold vTokens, or other cross-chain PoS assets, and receive staking rewards. They can also be the users who participate in BNC mining and Polkadot parachains.
- Voting user – These are the BNC holders who participate in governance decisions, dequeue node, synchronization node, and Stake proxy node voting. They can also take part in selecting the assets that the platform can support. Voting users receive rewards for maintaining the health of the network.
- Validator Node – Initially, there are 30 nodes required to vote on the validity transaction information considered for block confirmations. Validators receive 10% of the voting income allocated to users.
- Stake Proxy Node – These are nodes assigned to support other PoS chains partnered with the Bifrost protocol. They accept the stake proxy relayed by transfer bridges connected to other chains. Stake proxy nodes could also be connected with other mining and liquidity pools, dApps, and wallets.
- vToken DEX – This is the exchange that provides liquidity for the vToken and matches staking and un-staking users.
- Development Community – These are the users who build applications like wallets and dApps, or introduce new features to the Bifrost protocol.
Off-Chain Worker is a subsystem running the Bifrost protocol. It allows the platform to perform long-running and non-deterministic tasks that usually prolong block confirmation events. They run off-chain but can conveniently tap on-chain information for deep calculations.
Bifrost implements the Polkadot-based consensus algorithm called the GRANDPA consensus. This model has two distinct consensus providers that are specifically designated for block production and block validation. GRANDPA consensus allows for quicker block production even when the network’s condition is bad.
Bifrost has its own mining framework that functions on a “One Asset, One Vote” system. This means that everyone is granted a mining weight that corresponds to their stake on different supported cryptocurrencies, such as ATOM, DOT, or EOS.
Three Pool Valuation Model
In PoS networks, there are three pools where assets are held securely. These are the capital pool, cash pool, and speculative pool. Bifrost’s model first secures liquidity to the capital pool, which they then merge with the speculative pool. This is what Bifrost calls the Bowmore-Tobin Model.
By following this model, the cost for users when withdrawing their funds is decreased, and the interest rate for their stake is increased. This model allows for a smaller cash balance requirement and, consequently, a higher stake proportion for each user.
In this model, the liquidity of Bifrost’s staking service is designed to respond to speculative demand, increasing the capacity of its staking pool in the end.
Bifrost Network Coin – BNC
Bifrost’s native token is the Bifrost Network Coin (BNC). It can be used as a medium of exchange, payment for gas fees, collateralization, and staking services.
Developing options for users to earn profit from their assets cannot be limited to only a few features of the blockchain. Bifrost showed that innovations in the aspect of liquidity mining is not limited to smart contracts, which have been popularized on Ethereum recently.
Looking at the progress of the project, it is fair to say that Bifrost has been successful in addressing the problem of crypto users when it comes to staking lock-up and consensus security. With Bifrost’s feature that lowers the threshold for staking, the outlook for its adoption appears to be positive in the coming months.