Liquid Staking Derivative

Staking Derivatives

Bifrost is a completely decentralized network, 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:
  • Assets released on chain
  • Reward settled on chain
  • Equity proved on chain
At present, PoS consensus assets naturally have the above three characteristics. Bifrost will provide liquidity for Staking assets as the entry point of the market, and provide liquidity of Staking derivative vToken for various PoS networks.

Reward Settlement Forms

How to ensure the decentralized generation of the derivative rewards while making it more simple to provide liquidity, adding derivatives compatibility scenarios is the core question. Therefore, the reward settlement form of vToken is designed to be compatible with both centralized and decentralized scenarios. In centralized scenarios, vToken is available to be used or converted without extra development by a third party. For those users who host vToken in centralized hot wallet or cold wallet can still get the rewards generated by vToken without loss. This is due to the fact that vToken eliminates the traditional transaction settlement form on chain and adopts the vTokenmint Price Up method to complete the settlement of vToken rewards. Therefore, in order to avoid the later users' sharing of previous users' rewards, users entering from different periods will follow the current vTokenmint price.

Noun Description


Case A: User A mints 1000vDOT with 0.01 Token Mintprice that converted by 10 DOT in Bifrost. Original DOT through the Voucher Notary and Voucher Bidder game to complete Staking, which will generate 0.5 original DOT reward after one week. Note, the reward DOT generated by Staking does not correspond to the minting of new vDOT, the Mintprice is raised from 0.01 Token to 0.0105 Token (10.51000). At the moment, 1000 vDOT can redeem 10.5 DOT, the extra 0.5 DOT is the Staking reward from holding vDOT for one week.
Case B: According to Case A, the Mintprice has risen to 0.0105 Token. Now, user B can mint 952.380952381 vDOT (vToken accuracy is 1012) by 10 DOT with current mintprice of 0.0105 Token and he will receive 0.5 DOT reward after one week of Staking. Therefore, the original mintprice will raise from 0.0105 Token to 0.011025 Token (10.5952.380952381), which means that 952.380952381 vDOT can redeem 10.5 DOT now, the extra reward of 0.5 DOT is the Staking reward by user B holding vDOT for one week.
Settling rewards by Tokenprice Up has noticed advantages:
  • Compatible with centralized scenarios, there is no additional development required.
  • Intuitive user reward
  • Price performance continues to rise against the original Token.
  • Mintprice is unanchored, users may worry about price fluctuations.

Reward Generation

When assets from Bifrost protocol’s Staking Pool enter the Voting Pool, there will be two methods entering to the Voting Pool, by Bidding Vote (default) or Self Governance. The voting right that corresponds to the original token can be received by the bidder from the bidding vote. In this way, user’s voting rights are represented through Bifrost that assigns the vote to the highest bidder at a specific time. In essence, this method changes the original model of Staking reward from reward ledger into "pay first, let later", which standardizes Staking income from different PoS public chains and bypassing the restrictions brought by different reward rules.

Voting Right Market

The election mechanism has abandoned the reward-sharing model, if Validators wants to enter the Validator set of Bifrost, they have to make a yield bid at first, which means that they transfer information to the protocol what proportion of the reward is willing to give to Stakers for who uses the agreement. If the bid is 10% and is finally accepted by the protocol, the Validator will share the reward as 10% to the protocol no matter what the actual return rate is. "Shareholder Votes For Sale" provides more extension and demonstration for the function.
  • Bidder offers < Staking income, analogous to bidder allocation commission > 0% There is profit , users can get normal rewards.
  • Bidder offers = Staking income, analogous to bidder allocation commission = 0% There is no profit, users get the highest reward of the original chain.
  • Bidder offers > Staking income, analogous to bidder allocation commission < 0% There is an allowance, users get higher reward then original chain.
According to the requirement of voting right in the market, the binding vote might have different results. Normally, the Staking rewards that are generated by users nomination will be released after Validators deducting the commission, Validators become a bidder under the form of binding vote. Offer high and low fluctuation will be according to the market demand and rational judgment to the market, bidders may get profits from users’ Staking rewards while setting the offer below the range of Staking rewards. When the market demand for voting rights is strong, bidders will pay extra to get votes, and users will get the extra rewards from the bidder as the Staking reward. In this case, the Staking rewards obtained by users will be higher than the maximum reward on the original chain.

Self Governance

Users will skip bidders’ offer process and choose specific bidders to trade based on their own decisions. However, the reward still needs to follow the Bifrost reward distribution rules, repurchase fund, insurance fund and channel fund shall be deducted.

Reward Structure

  • 10% for Repurchase Fund, regular repurchase BNC
  • 1%-5% for Slash Insurance, Risk allocation when collateralized funds by Validators are Slashed, floating based on Slash history.
  • 3% for Channel Fund, released according to channel contributions.
  • Releasing to users 82%-86%, flows to the original Tokemint pool and releases reward to users through Tokenmint Price UP.

Retain Governance Right

Token holders can choose a particular bidder to execute corresponding Token governance right without any condition while they mint vToken. If they do not choose a particular bidder, the governance right will enter the bidding market by default.

Impossible Triangle of Derivatives

  • Governance Vote Right of Original Chain Token holders choose the Validator, just like in a representative democracy, the election of an MP. Each Token represents a vote, the vote right belongs to the Token holder. Staking derivatives as the interlayer should inherit the right for users to choose Validators on their own. However, this might be a serious problem that derivatives are non-fungible, which means that users who choose different Validators will get different derivatives.
  • Fungible Token holder selects any Validators to generate the same proceeds, implementing different Tokenmint derivatives by different holders have the same governance right. Fungible Staking derivatives have better liquidity, but Token holders might face Tragedy of Commons by eliminating the Slash risk for choosing Validators thus overall Staking reward will decrease.
  • Right Expression Staking derivatives can inherit the proceeds from Staking collateral while liberating the liquidity of Staking. When Staking derivatives are transferred, their proceeds and redeemed right will be transferred accordingly.
In Bifrost Impossible Triangle of Derivatives, In order to provide better liquidity of Staking derivatives, the protocol design focuses more on the two aspects of fungible and expression of rights. By default, users’ original chain voting rights are delegated to Bifrost protocol by means of vote price bidding. Meanwhile, users can still choose the particular bidder to delegate when they have special needs.

vToken mint Incentives

In the Bifrost economic model, 18,000,000 BNC (Bifrost Native Coin) account for 22.5% of the total amount, reserved as the vTokenmint incentives. The incentive period is set to be 10 years of linear release, with the annual output halved every 2 years. It is allocated according to the value of users' vTokenmint, so as to encourage users to mint and hold vToken with governance rights, fungible and liquidity.

vToken mint Channel Funds

By using Bifrost vTokenmint protocol, users can ransfer coinage channel parameters, which will record contributions to the corresponding channel according to the value of the Tokenmint. In Bifrost Staking Reward Structure, 3% will be allocated as channel funds by all channels according to the proportion of their total contributions. When channel contribution is high, it will receive more share of the channel funds generated by users, which will encourage more developers to integrate the Bifrost vTokenmint protocol into Wallet, Dapp and Exchange. The channel contribution will continue to increase until the referendum proposal is passed every six months.