Bifrost Finance (BVC): A Cross Chain Liquidity Protocol Disrupting The EVM Ecosystem
Liquid staking is the current hype around the DeFi ecosystem on most blockchain as it offers the benefits of staking, arguably without the obligation of locking a token.
While this seems impossible during the first hype of DeFi, especially in the 2021 bull run, with innovations nowadays, investors can technically not lock their token up and still use them while earning passive rewards through a staking protocol.
This is done by utilising Liquid Staking Derivatives or Liquid Staking Tokens, which is a mechanism where an investor locks a token up to earn passive rewards but immediately given another token in the same amount of that locked token so that they can still use it regularly.
Most of the existing platforms for this kind of staking are typically only applicable on a single blockchain ecosystem, meaning there has not been many yet that introduces cross chain liquid staking.
But the nature of innovation around crypto has changed that because now there are platforms that provide cross chain liquid staking, so that investors can use a lot of token from different blockchain ecosystems in just one platform.
One of which is Bifrost Finance, which is a protocol that focuses on providing a way for different blockchains to communicate with each other for liquid staking purposes.
What Is Bifrost Finance?
Biforst Finance is a protocol built on the Polkadot Parachain using the Substrate SDK, that lets users stake different kinds of token and coin on its platform by implementing XCM for cross chain staking.
XCM is a messaging format and language that allows cross communication and cross consensus between blockchains that is implemented mainly on the Polkadot ecosystem.
With the help of the parachain mechanism, Bifrost acts as an omnichain or layer zero protocol for blockchains to communicate to provide cross chain liquid staking to their users.
Bifrost Finance, not to be confused with Bifrost Network, is its own chain and its own DApp, meaning that the Bifrost Finance DApp operates on the Biforst Finance Chain.
It is important to note that Bifrost Network and Bifrost chain are two completely different projects.
While both of them are blockchains, Bifrost Network is its own multipurpose layer one blockchain that does has nothing to do with Polkadot, while Bifrost chain is specifically built for Bifrost DApp to accommodate cross chain liquid staking and other cross chain DeFi products.
What differentiates Bifrost Finance and other liquid staking protocols in general is its implementation of Liquid Staking Derivative (LSD) Token and the simplification of Staking Liquidity Protocol (SLP) itself.
With most cross chain or even regular liquid staking protocols, typically a blockchain needs to communicate with different SLP endpoints even though all of it is used to communicate with the same liquid staking DApp.
Bifrost Finance simplifies this process by only implementing a single endpoint of SLP endpoint through the implementation of Bifrost chain as a layer zero protocol, so every data from every blockchain can be more synchronised and users have an easier experience when using the platform.
Also Bifrost Finance implements a mechanism where every token has its own LSD token with the help of vTokens. This is done so the liquidity of each token is more focused and not mixed up, minimising the risk for lack of transparency and potential mismanagement of funds on the back end side of things.
To simplify the infrastructure of Bifrost Finance, let’s consider the Bifrost DApp as the front end side of things that users use to communicate with the platform, and the Bifrost chain as the back end side of things for blockchains to communicate with the platform.
Users will only use the Bifrost DApp to transact and use all Bifrost’s DeFi products, while all the transactions are really happening on the Bifrost chain.
As of right now, there are currently eight blockchains connected to the Bifrost chain to supply their coins for liquid staking purposes.
Most popular ones are Ethereum, Polkadot, Kusama, Astar Network, and Moonbeam. Note that most of these blockchains are EVM or Ethereum Virtual Machine based blockchains.
That is because the current focus of Bifrost seems to be providing a cross chain liquid staking platform for EVM blockchains, considering most EVM blockchains use the same language and infrastructure, so it is easier for Bifrost to accommodate the cross chain communication.
But, it is said that Bifrost is also currently testing and working on an agreement so that more blockchains can use the platform, increasing Bifrost Finance platform’s transaction volume in the long run., potentially onboarding other blockchains that are non EVM in the future.
Bifrost Finance is currently being run by 14 core contributors, each of them having their own line of work and impressive backgrounds. The Co-Founder of the project is Lurpis Wang which has experience of over ten years in both the finance and tech field.
The project is currently backed by some of the well known companies and venture capitals. One of the most common is OKX Ventures. Bifrost is also a part of the Substrate builders program, which is similar to an incubator program for developers that uses substrate.
Bifrost has also been audited by five external auditors, one of which is Certik, the most trusted and well known auditors in the crypto space.
Difference Between Bifrost Chain and Bifrost DApp
To truly understand the difference between Bifrost chain and Bifrost DApp, below is a detailed explanation of the differences between the two and how they provide value to users.
Bifrost Chain
Bifrost chain as mentioned before acts as a layer zero or omni chain that connects multiple blockchain for the purpose of providing liquid staking coins and tokens for crypto investors.
The blockchain itself is a Parachain which acts similar to a layer one blockchain, but is focused for only processing transactions and not for building DApps on it aside from the Bifrost DApp itself.
Similar to other blockchains, the Bifrost chain also has validators on it. The consensus mechanism of the Bifrost chain is the same as the Polkadot Parachain consensus mechanism.
This similarity is pretty common on most parachains, because Polkadot provides a template for people that want to create their own protocol on their Parachain while using the same consensus mechanism as Polkadot.
The consensus mechanism is a Nominated Proof of Stake mechanism or NPoS, but there are some alterations on the nomination process on Bifrost Chain.
On the Bifrost chain, the NPoS mechanism is a bit different, because in regular NPoS, there is a verifiable random function that selects validators randomly, but that validator has a higher chance of being picked if their staked amount is higher than most.
With Bifrost, the mechanism is similar, but the whole network also gets to vote whether the validator is worthy or safe to validate the next transaction or block.
This is a part of their governance process to increase decentralisation while also preventing faulty validators from ruining the whole flow of the network.
Bifrost also implements a governance process for their coin holder, which is the BNC that has just been launched recently.
Users can vote and submit proposals through the governance App where all the details of the voting and proposal submissions are detailed on their whitepaper.
Bifrost DApp
On the Bifrost chain, lives the Bifrost DApp or the Bifrost Decentralised Application, which is used by users to earn rewards through Bifrost many DeFi services.
Bifrost DApp gives multiple DeFi services, mostly focused on liquid staking where users can lock their token for multiple purposes without actually locking their token because they are given a different token which acts as an LSD token with the same amount as the original locked token.
This LSD token in the Bifrost ecosystem is called vTokens, for example, when a user locked their ETH on Bifrost, they will receive vETH in the same amount as their original locked ETH.
To redeem the original ETH however, users need to still hold their vETH and unlock or swap them on the Bifrost platform.
To use this platform, users need to use either a Polkadot decentralised wallet or an EVM compatible decentralised wallet.
There are currently four options of wallets that users can choose from, which are SubWallet, Enkrypt, Talisman, and Polkadot.js.
The simple option if users use a lot of EVM and Polkadot related products is the Talisman wallet, as it accommodates accounts on Ethereum as well as Polkadot.
But, if users want to use the Ethereum blockchain when transacting on this DApp, users can choose the MetaMask wallet or WalletConnect to connect them with more options.
Note that there are two options of blockchains which are Polkadot and Ethereum. This is because the Bifrost DApp smart contract was created and still runs on both of those blockchain, so even though all the transaction runs on Bifrost chain, all of the transaction data are recorded on Polkadot or Ethereum.
As said before, Bifrost only acts as a transaction layer with the mechanism of an omnichain or a layer zero network, helping the layer ones to communicate and process transactions.
There are several services on the Bifrost DApp. The main one is the staking service which is the feature that provides the liquid staking that is the main point of Bifrost.
Through this feature, users can stake their coin or token to receive LSD in the form of vTokens where they will get passive yields from staking their original coin or token.
For example, users can stake 1 DOT to receive 1vDOT that they can use for anything. With that staked vDOT, users will earn a floating APY of around 18%, where floating means that the APY can fluctuates overtime.
There is also a lock up period that varies from different coins and tokens, so users cannot immediately stake and unstake their tokens or coins after staking it on the Bifrost staking feature.
That vDOT can be used in the farm feature of the Bifrost DApp which is a way for users to provide liquidity for the DApp.
Just like any other liquidity farming, users need to supply two tokens or coins as a pair to then receive a liquidity pool (LP) token that can be locked to earn rewards.
Continuing on the example above, users can use their vDOT to pair them with USDT to receive an LP token that can be locked to receive 37.52% APY passively.
This 37.52% will be received on top of the 18% received from locking DOT. so the essence of liquid staking, which is compound APYs are evident on the Bifrost DApp.
There are different liquidity pools to lock users LP tokens that can be accessed on the swap feature of the Bifrost DApp.
Just like most DeFi DApp, there is a swap feature to accommodate users that wants to trade a token or coin with another token or coin, hence making the liquidity pool useful for the DApp.
This feature is pretty straightforward because users can just input what token or coin they want to trade and input the amount to see how much they will get of the token they will receive.
The fees are also shown on this feature so users do not need to worry about hidden fees and sudden fees charged when confirming the transaction.
With the help of the XCM technology that was talked about before, users can send tokens or coins from one blockchain to another through the cross chain bridge feature available on the Bifrost DApp.
This feature is also pretty straightforward, where users just have to choose what blockchain and wallet they want to send from and to while inputting what and how much of the token they want to send.
The fee is also shown so that users do not need to worry about hidden fees, the same as the swap feature.
Bifrost also gives a portfolio feature where users can see their transaction history and their current portfolio of their Bifrost DApp transactions.
Aside from that, Bifrost also has two more features that are the innovation that has not been created yet by other products on the Polkadot ecosystem.
The first one is the vCrowdloan, which is a liquid crowdloan to support a project that is currently participating in a parachain auction on Polkadot’s parachain.
Parachain auction is an auction that is held by Polkadot to see what projects can have a slot to build on the Polkadot ecosystem.
Through crowdloans investors and community members of projects that are participating on a parachain auction can chip in and help the project so that they can have higher bids, because the higher the bid is the more likely they will win the auction.
Regular crowdloan on the parachain auction requires investors to lock their contribution fund to the project which will then be unlocked or returned with the project’s token after launch.
But with vCrowdloan, the obligation to lock the token or coin is technically non existent because users will receive an LSD token plus the project’s token, in the same amount as that locked token or coin.
For example, there is a vCrowdloan available for Equilibrium, which is a project that is currently participating in a parachain auction.
If users decides to contribute funds with DOT, then they will lock their DOT and receive vsDOT and vsBond which are the LSD for vCrowdloan, plus the token of Equilibrium which is the Q Token all of them totalling to the same amount as the locked DOT.
This helps users stay liquid when their DOT are being locked so that they can still use their money for other things.
Speaking of vBonds, Bonds are another new product from Bifrost that lets users lock their DOT for a period of time and then receive DOT Bond in the same amount as the locked DOT, essentially creating another product around liquid staking but focused on DOT.
The DOT Bond Token acts as LSD Token, so users can use it for other things while their DOT is being locked, but need it when they want to unlock and redeem their DOT, just like a regular LSD Token.
All of these features are what create a liquid staking ecosystem in Bifrost Finance, essentially creating a new cross chain staking environment not only for Polkadot but the whole EVM ecosystem.
BNC and vBNC Token
Aside from the chain and DApp, Bifrost also has its own token which is called BNC, short for Bifrost Native Coin.
It has a maximum supply of 80 Million BNC and is used as utility and governance token on the Bifrost DApp and chain.
BNC also has its own LSD called vBNC where their token economics and value are the same, so users can lock their BNC on the Bifrost DApp and receive vBNC as their LSD Token.
The token allocation seems fair because the “insiders” which are the team and backers currently hold 45% which is a bit too close to 50%, where it might affect the decentralisation perception of public investors because of the potential price manipulation from the insiders.
But considering that there is a vesting period of around seven years, the assumption might have a zero chance of being a reality, because most of the tokens are locked so the team and backers cannot suddenly sell all their holdings.
What’s interesting is the allocation for the ecosystem, where some of the distributions are allocated towards crowdloans, making it possible for the liquid crowdloan mechanism to continue.
Another thing to highlight is the incentive for holders of BNC and vTokens also for Collator so that the whole Bifrost ecosystem is kept alive.
The slash insurance is also a big deal considering how risky new projects can be, because the insurance will cover when slashes occur in the protocol, which is a condition where the protocol become temporary faulty because of bad actors.
The treasury management of Bifrost is also kept well because most of the revenue will come from fees, where users are charged a 10% reward fee and 0.1% unstake fee when using the Bifrost DApp.
Also when converting Bonds into tokens, users will also be charged a 0.01% fee, providing a diversified source of revenue for Bifrost’s treasury.
All of those charged fees will not be kept for the project’s treasury alone, as Bifrost only takes 60% of all fees gathered and 20% will go to vToken holders and 20% will go to vBNC holders.
Overall the decentralisation aspect of token economics is kept solid, but sadly, as of right now the BNC token is falling, probably due to the lack of marketing and education around this innovative ecosystem and the delay of some plans from the original roadmap.
Plans Ahead
Even though the BNC token is falling, the adoption of Bifrost DApp is currently rising, where the total value locked or TVL has risen to $100 Million, which is a significant achievement considering how new the platform is.
Bifrost also has managed to reach more than 85,000 active users on its platform, which is also an achievement compared to other liquid staking protocol in the crypto space at the moment.
Plans for the future seem to be finishing some of the delayed plans of 2023 such as integrating with other chain’s ecosystems and improving the overall Bifrost DApp quality.
Aside from that, there is also plan to change the token economics of BNC which until now is still being developed by the core contributors.
One of the most awaited innovations of this platform is the borrowing feature that has not seen a clear plan or date yet for the launch.
If Bifrost decided to release a flexible lending and borrowing feature to complete their DApp, then their transaction volume overall, considering flexible lending and borrowing are also the hype around the DeFi ecosystem because of the liquidity they provide for decentralised passive income enthusiasts.
Conclusion
Overall the Bifrost ecosystem is one to look for because it has great potential, especially if the trend of DeFi summer comes back to life going into the predicted bull market of 2025.
Two things to consider before buying BNC to hold as an investment in the long run are the glitches of the DApp and the marketing aspect of it.
There are some glitches when using the DApp with some wallets, where the DApp cannot detect the existing wallet on the user’s browser extension.
But luckily the Bifrost team is aware of this glitch and have provided a guide to follow if users wallet is not detected by the Bifrost DApp.
However, the glitch might turn some new users away as first impressions are everything so they might take one look at it and think it’s a faulty DApp, so the team might need to focus more on that.
Another problem is the marketing aspect of this project, because of its high complexity and innovation, it requires marketing and education towards new investors, just like any other crypto projects.
Considering the project is still new and the nature of the crypto market itself, no matter how great the tech is, if the marketing is not done well, then people won’t know about it, and the project will not grow.
But just like any other projects, every problem can be fixed overtime so if solely looking at the innovation and infrastructure of this project, Bifrost is one to keep an eye out going into the predicted bull market of 2025.
