Overview of Bifrost

Bifrost is a decentralized financial hub and liquidity staking platform in the Polkadot ecosystem. Since Bifrost is a parachain in the Polkadot ecosystem, it is essential to understand the Polkadot ecosystem before diving into the Bifrost project.

Polkadot: A Project Towards Multi-Chain Development

Polkadot is a Layer 0 blockchain that primarily provides security and scalability infrastructure for Layer 1. The Polkadot ecosystem is a multi-chain structure that achieves shared security and interoperability between chains through modularity, relay chains, and parachains.

Unlike dApps that operate on public blockchains, each specialized application can construct its specific blockchain in the Polkadot ecosystem. Therefore, all Layer 1 blockchains attached to Polkadot are called parachains.

Parachains are application-specific data structures that are globally consistent and adopt the blockchain format, but they are not strictly required to be blockchains. The relay chain is Polkadot’s central chain, which does not support smart contracts and primarily coordinates the entire system, including parachains.

The relay chain’s validators can verify parachains. Since they run in parallel with the relay chain, they are called parachains. Bifrost is one such parachain application within the Polkadot ecosystem, mainly aiming to solve the liquidity issue of staked assets.

What is Bifrost?

Bifrost is a Liquid Stake application chain tailored for all blockchains within the Polkadot ecosystem. It leverages decentralized cross-chain interoperability, allowing users to flexibly obtain staking rewards and DeFi yields across multiple chains, thereby improving liquidity and security.

Bifrost can be understood as an issuer of derivative products, providing liquidity for all staked assets by issuing corresponding shadow assets during the collateral period of the original assets. These shadow assets are fungible tokens that can circulate through different DEXs, mining pools, protocols, and cross-chain environments.

Bifrost: An Omni-Chain LSD Protocol to Unlock Staked Liquidity

As the adoption of PoS consensus mechanisms by public blockchains becomes increasingly widespread, staking rewards generated through PoS mechanisms now exceed $2.5 billion annually. The interaction and overlap between DeFi and staking mechanisms generate infinite composability, and Bifrost aims to solve the issues that exist within such a PoS ecosystem:

• Competition between staking rewards and DeFi yields
• Mutual exclusivity between token liquidity and system security
• Loss of staking rewards when participating in cross-chain activities

To address these issues, Bifrost’s solution is vToken (liquid staking voucher token), which allows users to convert PoS tokens into vTokens, thereby simultaneously obtaining staking liquidity and staking rewards, with no barriers in cross-chain scenarios.

What is the LSD Protocol?

Liquid Staking Derivatives, abbreviated as LSD, are a type of liquidity staking derivative. Their main function is to allow DeFi to convert staked tokens into derivatives for trading.

In traditional finance, if you terminate a bank deposit early, you might just lose some interest. However, in blockchain finance, once cryptocurrencies are staked, they are truly locked, usually requiring 7-28 days for redemption. You cannot unstake them before the set staking period ends.

In general, derivatives trading is conducted on centralized exchanges (CEXs). However, derivatives trading (contracts and futures) and staking on CEXs are two separate operations, and the same funds cannot be used for both activities simultaneously. Furthermore, after the Ethereum upgrade, nodes are required to stake a large amount of ETH to validate transactions on the Ethereum network. If this could be turned into a derivative, it would represent a significant influx of hot money into the market.

LSD Solves DeFi Liquidity Problems

In the cryptocurrency field, token prices are determined through market making. Traditional trading platforms like CEX rely on market makers, takers, and order books for trading. In contrast, DeFi platforms like Uniswap and other DEXs operate using automated market maker (AMM) protocols. AMM prices are calculated by smart contracts rather than controlled by order books.

These AMM protocols use liquidity providers to inject assets into liquidity pools, facilitating transactions between buyers and sellers. Becoming a liquidity provider (LP) allows one to receive LP tokens, sometimes called liquidity pool tokens.

However, since some tokens can only be used on a single exchange, liquidity has always been an issue in the DeFi field. Therefore, LSDs aim not only to solve the liquidity problem of staked tokens but also to assist decentralized exchanges (DEX) and DeFi in providing derivative trading, thereby offering higher liquidity for DeFi.

The Landscape of Public Blockchains: From Single-Chain to Multi-Chain to Omni-Chain

The development of underlying blockchain networks is analogous to the early days of the mobile phone industry, when there was a proliferation of operating systems and numerous public blockchains competing for TVL (total value locked) and users. While Ethereum holds around 60% of the market share, the remaining half exhibits fragmented growth.

Total Value Locked All Chains. Data Source: Defillama.com

Applications can choose to deploy on a specific chain that aligns with their business needs or deploy on multiple chains. However, this has led to fragmentation within the Web3 ecosystem, resulting in a split in user experience and liquidity:

Fragmentation in User Experience: Users must navigate multiple steps and prepare a considerable gas fee.

Fragmentation in Liquidity: The same liquidity cannot exist simultaneously across multiple chains. Each time a DeFi protocol is added to a new chain, liquidity is reset, reducing overall efficiency.

As a result, a new all-chain application architecture is being explored. This model resembles a ‘headquarters + branch’ approach. The application’s primary deployment resides on a single chain, serving as the headquarters, and then provides modules for remote access to other chains. This enables interaction between end users, akin to branch locations.

Since they share a single entity, the headquarters and branches can also share their security costs. As the expansion grows, the cost for external attackers increases proportionally, enhancing the security of these headquarters and branches.

Why is Bifrost an Omni-Chain LSD Protocol?

The Bifrost project was specifically developed to unlock staking liquidity. It targets not just a single chain but multiple chains, enabling interaction and operation between them.

Bifrost mints vTokens that are inherently cross-chain assets. They utilize XCM technology to facilitate circulation across various DEXs, mining pools, protocols, and cross-chain environments.

What is Bifrost Native Coin (BNC)

Bifrost Native Coin (BNC) is the native token of the Bifrost blockchain network. Bifrost is a liquid staking application chain tailored for all blockchains within the Polkadot ecosystem. Developed based on the Substrate framework, it acts as a multi-chain connector, utilizing Cross-Consensus Messaging (XCM) to provide cross-chain liquidity staking services for multiple chains. Its primary goal is to address the liquidity and security issues within the Proof of Stake (PoS) consensus systems. By leveraging decentralized cross-chain interoperability, users can flexibly obtain staking rewards and DeFi yields across multiple chains, improving liquidity and security.

As adopting PoS consensus mechanisms becomes more widespread, the staking rewards generated through PoS mechanisms now exceed $2.5 billion annually. The interaction and overlap between DeFi and staking mechanisms generate infinite composability. Bifrost aims to solve issues within such an ecosystem, including competition between staking rewards and DeFi yields, mutual exclusivity between token liquidity and system security, and loss of staking rewards when participating in cross-chain activities.

(For specific problem descriptions, please refer to the project background of Biftost Finance Whitepaper)

Therefore, Bifrost provides standardized yield-generating derivative assets for Polkadot’s relay chain, parachains, and heterogeneous chains bridged by Polkadot. By issuing derivative assets (vTokens) and converting the mutual exclusivity between staking and application activities into a compatible relationship, it ensures both liquidity and security.

How Does Bifrost Work?

The Bifrost project can be divided into three parts: Bifrost Network, Bifrost Finance, and Bifrost Native Coin (BNC).

• Bifrost Network (Chain): This is the core of the entire Bifrost ecosystem. It is a public blockchain built on the Substrate framework and operates as a parachain within the Polkadot and Kusama networks.
• Bifrost Finance (Project): A sub-project on the Bifrost Network, it focuses on providing liquidity and cross-chain staking services, allowing users to participate in DeFi applications even during the staking period.
• Bifrost Native Coin (native token $BNC): The core token of the Bifrost Network, used primarily for transaction fees, governance, and as collateral for cross-chain assets.

Unlike other chains, Bifrost is inherently profitable. The following sections will explain how Bifrost operates and achieves modularity, scalability, decentralization, standardization, security, and high returns.

Bifrost Network System Structure

Underlying Blockchain Architecture

As mentioned, the same funds cannot be used simultaneously for staking and derivatives trading because they are mutually exclusive in traditional design structures. Therefore, from the blockchain structure, Bifrost provides an intermediate abstraction layer between the staking and application layers. “Abstraction” is a software term that hides complex details from users, making it easier to use. This transforms the previously parallel and mutually exclusive relationship between staking behavior and application layer behavior on the public blockchain infrastructure into a compatible relationship, thereby solving the mutual exclusivity issue between staking and DeFi cross-chain activities.

Technical Structure

Substrate and XCM are the two core technologies that enable Bifrost’s cross-chain interoperability, enhancing the interconnectivity of liquid staking.

Substrate is used to build a modular framework for blockchains. Polkadot is a heterogeneous sharded network consisting of a relay chain and numerous parallel chains, each independent blockchains running parallel on Substrate. Chains built on Substrate can easily connect to other parallel chains.

XCM (Cross-Consensus Messaging), or full consensus messaging, is a language for conveying intent between consensus systems. Its purpose is to enable different consensus systems to communicate with each other. XCM originates from the Polkadot ecosystem and is a message format rather than a protocol. XCM’s cross-consensus messaging capability supports Stake Liquid Protocol (SLP) and Slot Auction Liquid Protocol (SALP), enhancing the interoperability of LSD derivatives with various parallel chains.

Bifrost leverages Substrate technology and the Cross-Consensus Messaging format (XCM) to provide faster, cheaper, and highly interoperable cross-chain liquid staking on nine blockchains (including Ethereum, Polkadot, Kusama, and Moonbeam).

Bifrost Finance

Bifrost is a pioneer in the realm of omni-chain LSD (Liquid Staking Derivatives), providing a standardized and decentralized approach to enhancing liquidity across multiple blockchains. Its applications primarily fall into two categories: staking and Polkadot slot auctions (liquidity crowd loans).

Source: bifrost.io

SLP - Staking Liquidity Protocol

Staking is a fundamental operation within Proof-of-Stake (PoS) consensus mechanisms. To maintain the blockchain’s operation and security, a significant amount of cryptocurrency must be staked on the chain. Staked tokens are locked up, and unstacking typically involves a waiting period of 7 to 28 days. While staking offers rewards, the staked tokens cannot be used for other operations during the staking period.

Bifrost’s protocol addresses this limitation by unlocking the liquidity of staked tokens while allowing users to continue earning staking rewards. Bifrost mints staked tokens into Liquid Staking Tokens (LSTs), also known as vTokens, which serve as vouchers for staking. Holding vTokens enables users to not only receive staking rewards but also utilize them in DeFi operations. This not only improves asset utilization but also presents additional earning opportunities.

Currently, Bifrost supports staking on nine blockchains, including Polkadot, Kusama, Ethereum, Filecoin, Moonbeam, Bifrost, Moonriver, Astar, and Manta. VDOT, vKSM, vGLMR, vMOVR, vBNC, and vASTAR are all LST assets within the Polkadot ecosystem.

Bifrost charges a 10% commission on the staking rewards generated from vTokens. However, in most cases, the yield of vTokens is higher than that of competitors.

Source: Unlocking the Potential 

vToken Redemption

Typically, when a user initiates a vToken redemption, the SLP module needs to apply to unstake the corresponding number of original tokens and return these original tokens to the user after the unlocking waiting period ends. Unlike the unlocking waiting periods on PoS chains (e.g., 28 days for Polkadot, 7 days for Kusama), Ethereum does not have a fixed unlocking waiting period, which depends on the number of ETH waiting to be unlocked in the queue. Similar to most LST protocols, Bifrost’s vTokens support users to achieve quick redemption through swaps. Additionally, vToken/Token Stable Pools are provided to mitigate the price impact of conversions.

vToken Interest Distribution

The interest distribution methods for different LST assets vary, primarily falling into three categories: Claim, Rebase, and Reward Bearing. Bifrost employs the Reward Bearing model.

The Reward Bearing model incorporates the rewards into the interest-bearing asset. This distribution method breaks the 1:1 exchange rate between the interest-bearing asset and its underlying asset, changing the exchange rate dynamically as the rewards accumulate.

For example, suppose User A initially stakes 1 ETH and receives 1 vETH. After some time, due to staking rewards, 1 ETH becomes 1.05 ETH. In this case, 1 vETH can be redeemed for 1.05 ETH. As staking rewards accumulate, the number of ETH that a vETH can be redeemed for increases, and the exchange rate of vETH to ETH rises. If a slash occurs, the exchange rate decreases.

This exchange rate fluctuation implies that both the redemption rate and the minting rate are changing. When the protocol’s current redemption rate is such that 1 vETH can be redeemed for 1.05 ETH, the protocol must stake 1.05 ETH to obtain 1 vETH.

The Reward Bearing model transforms staking rewards and staking asset changes caused by slashes into exchange rate changes. Under this mechanism, LSTs represent the sum of principal and accumulated rewards from the start of staking to the current point.

SALP - Slot Auction Liquidity Protocol

Polkadot’s network architecture comprises a relay chain and parallel chains, connected through slots to share network security. Due to the limited number of slots, they must be obtained through auctions. Participating in auctions requires locking up tokens for one or two years, with no early unlocking possible.

The SALP protocol assists users in participating in Kusama and Polkadot’s crowdloan auctions, enabling them to unlock liquidity prematurely while participating in Polkadot slot auctions. SALP issues LSDs in the form of vsTokens (vsDOT/vsKSM) or vsBond derivatives as vouchers, representing users’ equity and redemption terms in a specific parallel chain. The original tokens are locked on the chain.

However, vsTokens can be traded at any time and redeemed for the underlying asset at the end of the lockup period, while vsBonds represent a specific parallel chain and lease term. SALP utilizes the bond market to merge specific vsTokens and vsBonds for a 1:1 redemption.

vsKSM Buyback and Destruction

Each SALP crowdloan requires users to manually redeem their underlying DOT (KSM). If they fail to do so, vsBonds will expire and incur a discount rate. Bifrost uses unredeemed underlying DOT (KSM) to buy back vsDOT (vsKSM) and destroy them to maintain the long-term health of vsDOT/DOT (vsKSM/KSM) prices. The buyback and destruction mechanism is as follows:

• 75% of unredeemed DOT (KSM) is repurchased as vsDOT (vsKSM)
• The remaining 25% of DOT (KSM) goes to the Bifrost treasury

Source: bifrost.io

Uses of Bifrost Native Coin (BNC)

Bifrost Native Coin (BNC) is the core token behind the Bifrost protocol. The coordination between governance token holders and protocol stakeholders is crucial for successful decentralized governance, and BNC is the tool to facilitate this coordination. BNC or veBNC can be used to participate in Bifrost’s OpenGov voting.

BNC has multiple uses within the Bifrost protocol, mainly including three aspects:

1. Transactions and Payments: Used for transactions and payment of fees on the Bifrost platform.
2. Staking and Yield Distribution: Used for staking to earn staking rewards and as a tool for yield distribution.
3. Governance and Voting: Holders can participate in the platform’s governance and decision-making processes, including proposal voting.

As a parachain of Polkadot and Kusama, Bifrost shares the consensus security and community users provided by Polkadot and Kusama. Bifrost protocol can only offer staking liquidity for other PoS networks under objective conditions when the consensus security cost of Bifrost is not lower than the original PoS network. The infrastructure of Bifrost Native Coin (BNC) is mainly designed around the following four aspects:

1. Multi-Chain Support and Cross-Chain Interoperability: The Bifrost blockchain platform is a multi-chain ecosystem, primarily providing liquidity and interoperability between different blockchain networks. As the core token of this system, BNC supports operations across multiple parachains and relay chains, making it a highly liquid asset.
2. Derivatives and Liquidity Incentives: BNC is used to incentivize the creation and holding of various derivatives (such as vTokens and vsTokens) and to promote ecosystem activity by providing trading liquidity and executing transaction packaging. These incentives include rewards for derivative liquidity providers and support for Collator nodes.
3. Governance and Incentive Mechanisms: As the governance token of the Bifrost network, BNC holders can participate in on-chain governance, including council elections, technical committee elections, treasury grants, and referendums. These governance mechanisms ensure the Bifrost ecosystem’s decentralized operation and community participation.
4. Economic Model Design: Bifrost’s economic model design is based on the principles of decentralization and cost reduction, promoting the healthy development of the ecosystem through effective incentive mechanisms. BNC, as the main token in the network, is used for fee payments, governance participation, staking, and capturing staking rewards.

Bifrost Products and Ecosystem

The Bifrost ecosystem is composed of three main themes:

1. DeFi
2. Aggregator
3. NFT

DeFi

Biport: An all-in-one network wallet available for Android and Google Chrome download.

BiFi: Bifrost Finance is a lending platform that supports native ETH, USDC, BNB, MATIC, and USDT.

BiFiX: This is a decentralized mining and margin trading platform in the testing phase.

Owly: A decentralized daily margin trading platform on the Klaytn network. Their system, called Owl, offers users strategy cards, allowing them to participate in ready-made strategies.

Aggregator

ChainRunner Q connects the universal blockchain ecosystem, consolidating all services onto one platform, making it easy for users to access blockchain and all services. It integrates services from multiple networks, such as DeFi, providing users with a simple and easy way to use them on a single unified platform.

NFT

BMall: Bifrost NFT marketplace.

Source: Bifrost apps marketplace | Blockscout

Bifrost Team and Investors

Team Background

Bifrost was founded in 2017 by two professors and a founder with extensive experience in finance and computer science: Dohyun Pak, Jonghyup Lee, and Changhyun Yoo. They aimed to develop a multi-chain middleware platform that enables developers to work across various protocols.

Bifrost has launched several decentralized finance (DeFi) products, including BiFi, BiFi X, ChainRunner, and Biport. They are currently focused on leveraging BIFROST’s proprietary multi-chain technology to build a multi-chain ecosystem within the network.

In 2019, after raising $3.3 million in seed funding from some of South Korea’s largest equity firms, including Korea Investment Partners Co., Ltd., STIC Ventures, and other notable investors, BIFROST recently raised an additional $8.4 million.

Investors

The investors in Bifrost are as shown in the figure below:

Source: Rootdata

BNC Core & Economic Mechanisms

Bifrost’s economic model aims to fully decentralize, reduce usage costs, and mitigate the high slash risks associated with traditional staking mechanisms. It is designed to create tradeable fungible assets like vTokens and vsTokens. Unlike other blockchains, Bifrost is inherently profitable—the more PoS blockchains and staked assets it supports, the stronger its profitability. A portion of the profits will be used to buy back BNC.

Value Capture

The value of BNC is supported not only by the essential capabilities a blockchain must have, such as value storage, transaction capabilities, and the ability to deploy smart contract applications, but also by the profits gained from the supported PoS blockchains and staked assets. Bifrost will reserve a certain proportion of BNC to cover the costs of bidding for parachain slots or running as a parathread, making the value generated by the network easier for its users to capture and share.

Incentive Model

The BNC token is used to incentivize various activities, including minting and holding vTokens and vsTokens, providing transaction liquidity, and executing transaction packaging. Bifrost reserves a portion of BNC as an insurance fund against slashes to ensure the continuous healthy development of the Bifrost ecosystem. vToken minting mining is a key distribution mechanism for BNC, with 22.5% of the total BNC dedicated to rewarding users who mint vTokens.

Distribution Structure and Unlocking Period

The distribution goal of BNC is to make the Bifrost network more decentralized and to incentivize the liquidity market for staking derivatives like vTokens. Bifrost will reserve 50% of the tokens as incentives for the entire ecosystem, including vToken minting mining (incentives), PLO slot leasing, Collator node incentives, slash risk insurance, Oracle usage, and cross-chain costs. To ensure the development, launch, and growth of the Bifrost ecosystem, BNC allocations for different parts will have varying lock-up periods.

$BNC Token Allocation

Source: Cryptorank

The total supply of $BNC tokens is 80 million. Currently, 40% has been unlocked, with 60% yet to be tracked. The token distribution is as follows:

• Ecosystem: 80%
• Founders and Team: 20%
• Foundation: 10%
• Seed Round 1: 6%
• Seed Round 2: 4%
• Private Round: 3%
• Marketing and Community: 3%
• Minting Airdrop: 2%
• Strategic Round: 2%

$BNC Token Release

The initial circulating supply of $BNC at the Token Generation Event (TGE) is 7.2 million. The token release schedule is as follows:

Founders & Team - 20%, 16 million BNC

• 6-month lock-up period, linear release over 24 months, 4% per month

Seed Round 1 - 6%, 4.8 million BNC

• 25% at TGE
• 10-month linear release, 7.5% per month

Seed Round 2 - 4%, 3.2 million BNC

• 25% at TGE
• 10-month linear release, 7.5% per month

Private Round - 3%, 2.4 million BNC

• 30% at TGE
• 10-month linear release, 7% per month

Marketing & Community - 3%, 2.4 million BNC

• 100% at TGE, 52 Years-Cliff

Mint Drop - 2%, 1.6 million BNC

• 100% at TGE, 52 Years-Cliff
• “Mint Drop” is a series of initiatives by Bifrost to incentivize the minting of vTokens. The BNC incentives for Mint Drop have no vesting period.

Strategic Round - 2%, 1.6 million BNC

• 30% at TGE
• 10-month linear release, 7% per month

Untracked - 60%, 48 million BNC

• 50% for Ecosystem (40 million BNC), 10% for Foundation (8 million BNC)
• Data not available, tokens can be unlocked at any time

How Can Bifrost Be Used?

Since Bifrost is a parachain of Polkadot, you need to have a Polkadot wallet before using it. You can apply for a wallet at the Polkadot Wallet site (here). Below are five ways to use the Bifrost platform:

1. You have tokens and want to stake them.
2. You don’t have tokens and want to directly buy vTokens.
3. Use vTokens to participate in DeFi.
4. Transfer assets cross-chain within Polkadot parachains.
5. Participate in Polkadot slot auctions.

For detailed usage methods, please refer to the Daily Coin Research “Cross-Chain Ecosystem on Polkadot: All-Chain LSD Protocol | Introduction to Bifrost / BNC Coin”.

Advantages of Bifrost as an Omni-Chain LSD Protocol

Bifrost, as a pioneer in the omnichain staking space, has many advantages, including easy integration, unified liquidity, scalability, and the empowerment of XCM.

Compared to an omni-chain architecture, multi-chain deployments often face challenges like difficult integration and fragmented liquidity. Other LSD protocols like Lido, Rocket Pool, and Frax Finance also support minting LSDs on multiple chains. Still, they adopt a multi-chain deployment approach and thus cannot be considered omni-chain applications.

Conclusion

Bifrost Native Coin (BNC) serves as the core token of the Bifrost protocol, addressing liquidity and security challenges within PoS systems through its unique economic model and technical architecture. By providing an intermediate abstraction layer, parallel chain structure, and cross-chain interaction modules, Bifrost offers a robust staking asset liquidity solution for multiple PoS public blockchains. Additionally, BNC’s diverse utility and economic mechanism design ensures the system’s long-term stability and ecosystem development.