How to enhance liquidity: in a conversation with a cross-chain network

Launched in 2019, Bifrost has been focusing on developing a parachain for liquidity’s staking. Tyrone Pan,  Bifrost product manager, talked to Cointelegraph about liquidity release solutions and why they are important for efficient and secure staking.

What’s staking liquidity and why did you decide to take your company in that direction?

Nowadays, the proof-of-concept (PoC) consensus mechanism is dominating the blockchain world. Most proof-of-stake (PoS) public chains require validators or full nodes in the network to stake part of the token, ensuring that the blockchain can operate safely.

According to the Staking Rewards data, the average staking rate of PoS blockchains is above 55%, and DeFi protocols have over 30% staking rate.

Therefore, the liquidity problem during the staking period needs to be solved urgently, which will significantly increase the fund utilization rate of the entire network. Anc Bifrost was founded in 2019, aiming to solve this problem.

What’s your mission?

Bifrost hopes to release liquidity for staking assets in the form of derivatives and open up cross-chain channels between heterogeneous chains to provide sufficient liquidity for the vision of Web 3.0's multi-chain interoperability.

Tell us about liquidity release solutions and why they’re important.

Bifrost has two liquidity release solutions:

1. Staking Liquidity Protocol (SLP)

Bifrost is a completely decentralized network, issuing staking derivatives with standardizing the interest generation, settlement and equity retention of staking assets, which can provide liquidity for all kinds of staking assets.

However, due to the decentralized characteristics, the collateral also needs to have the following characteristics, including assets released, reward settled and equity proved on-chain.

vETH is the initial staking derivative product of Bifrost, which has accumulated an underlying 18,000 ETH at the moment.

2. Slot Auction Liquidity Protocol (SALP)

Bifrost SALP (Slot Auction Liquidity Protocol) aims to release liquidity of contributions in Kusama (KSM) and Polkadot (DOT) crownloan through the issuance of derivatives. This will greatly increase asset utilization and attract more prudent investors who do not want to lose opportunity costs to support the parachain slot auction, thereby accumulating more DOT/KSM lockups for the Polkadot/Kusama ecosystem.

What’s Slot Auction Liquidity Protocol and how does it work?

SALP is a liquidity release protocol designed specifically for Polkadot parachain auctions. 

Parachain auction is a model unique to Polkadot, which is essentially a multi-chain architecture with a slicing mechanism that gives parachains shared security, allowing them to verify parachain blocks. 

However, there is a limit to the number of Parachains that a relay chain can access. In order to allocate the limited Parachain slots to more valuable Parachains, Polkadot/Kusama will use an auction for each Parachain project to compete for slot leases. The competition is done by staking DOT/KSM to the relay chain, and the more stakes there are, the more likely it will get slots. This process is known as Slot Auction.

SALP generates derivatives for Crowdloan participants who contribute DOT/KSM through Bifrost, they will get vsDOT/KSM and vsBond as a derivative to be used to hedge the cost of opportunity cost during the locking time. 

What have been your most important achievements over the past 12 months?

Throughout the 2020–2021 Milestone, Bifrost has basically accomplished 80% of its mission target in the four quarters of 2021. It was mainly following  five main lines, launching test network, mainline online, vETH business, SALP business and cross-chain bridge, which enriched Bifrost product lines and established more ecological cooperations.

Since Bifrost went live on the Kusama Parachain on July 20, 2021, Bifrost Parachain has produced and verified 1,062,400 blocks, performed 259,684 on-chain operations and 230,108 transfers; and ranked second in Kusama in terms of the number of BNC addresses held on the chain at 78,132. The number of addresses held by BNC on the chain is 78,132, ranking second in Kusama.

With the removal of Sudo, access to the Bifrost mainnet upgrades was transferred to a democratic referendum. Since the governance module went live, 42 democratic referendums have been executed, including 11 mainnet upgrades, 5 Zenlink upgrades and 26 community proposals. The Council will open the democratic campaign function in 2022.

What’s next for Bifrost?

Bifrost is expected to release the second batch of Polkadot parachain auctions. And since Bifrost uses only one mainnet, Bifrost-Kusama will slowly migrate to Bifrost-Polkadot in the future.

The platform will continue the derivative minting of the Polkadot & Kusama parachain auction, release locked-up liquidity and implement Bifrost’s SLP (Staking Liquidity Protocol). 

Based on derivatives, Biforst is also continuing to follow up on Snowfork's decentralized Ethereum cross-chain bridge program, and it is expected to complete the docking in the first quarter of 2022.