Around two years back, the Polkadot network reached a significant milestone by delivering the first parachain slots that were secured with the help of crowdloans. This was a historical event for the Polkadot community as DOT holders supported and onboarded their favourite parachain projects and got rewards in the native tokens of the supported projects. The two-year DOT lease period is over now. The contributions of the early crowdloan supporters are unlocked and free to be used elsewhere. If you participated in the crowdloan, what can you do with your unlocked DOT? This is a bear market and overall, we see negative sentiment about almost all projects. It is true that the ecosystem of Polkadot has not matured very much but developments are taking place consistently. The Polkadot SDK Github Repository has over 14700 commits and the on-chain activity of Polkadot is at an all-time high. It may not be a good idea to dump your DOT! You can stake DOT natively and earn staking rewards. Another lucrative option is to explore LSDs!
Liquid Staking Derivatives (LSD) is a type of crypto asset that offers the opportunity to traders to take the benefit of staking rewards without holding the underlying token. With the growing popularity of Proof-of-stake blockchains, the LSD market is also poised for explosive growth. To simplify, LSDs are derivatives based on staked tokens but these are liquid, unlike staked tokens. Due to their liquid nature, LSDs can be used in lending, yield farming or other income-generating DeFi strategies. This provides a new structure of yield. The hype is real and LSD is the hottest trend in the DeFi world today. Bifrost is a modular, scalable, non-custodial omni-chain LSD parachain based on Polkadot. It provides standardized, high-yield, safe, and reliable underlying interest-bearing assets. Let us scout how you can use it to obtain a yield from your unlocked DOT from the first crowdloan.
We need to understand Bifrost first. It is basically a derivative issuer that provides liquidity for all pledged assets, issuing corresponding shadow assets during the bonding period of the original assets. This shadow asset is a fungible Token that can be circulated in different DEXs, pools, protocols and you can also transfer cross-chains. The vision of Bifrost is to remain omni-chain and it wants to use any LSD on any chain. Staking is often considered a win-win game for generating solid passive income but it is a cumbersome process. Let us focus on only Polkadot for discussion.
Everyone can not be a Polkadot Validator. Nomination is the easier method where you nominate validators. The problem is that here you need to monitor validator performance and regularly update nominations. Direct nominators also need to ensure that they stake more tokens than the minimum threshold amount required to be an active nominator and receive rewards. This minimum amount is currently around 500 DOT and increases as staking participation increases. You can check the minimum amount to be a direct nominator here. Nomination has some risks as if you select a malicious validator, you can lose a portion of your stake through slashing. Nomination pools are a new feature for Polkadot’s staking system and you can join with a minimum of 1 DOT. However, it is important to note that there is no guarantee of rewards for those pools that lack enough bonded funds to be included in the bags list. The inactive pool members do not receive any rewards at all.
Bifrost liquid staking solves this. Bifrost's solution for this is vToken (Staking Derivatives Voucher Token). To avail of this, you need to bring your native DOT to Bifrost parachain through cross-chain transfer. This transfer is powered by XCM, the language through which complex, cross-consensus interactions occur. XCM is very important for Bifrost as it is a multichain liquid staking protocol that communicates with many chains. With the help of XCM, Bifrost ensures that each liquid staking derivative is fully reserved by the underlying staked token. XCM also ensures the speed of transfer. The users receive vDOT at lightning speed when they stake DOT on Bifrost and can check their XCM transaction results under validated transactions rather than through a relayer. This vDOT has a yield-bearing feature of DOT staking reward.
To be precise, you earn DOT staking yield while holding vDOT. The rewards of staking automatically get added to the vDOT exchange price and you have no need to claim it manually. The longer the time of holding vDOT, the bigger the amount of reward. vDOT is a liquid asset and can be traded in the open market. Whenever you want, you can redeem it back to DOT. It can also be used in the LP farms to earn high returns. The vDOT-USDT LP Farm on Bifrost has 55% APY currently and DOT-vDOT has 25% APY. So, it gives you various options while you stake. You can decide what to do according to your risk appetite. Suppose, there is a sudden spike in DOT price and price doubles or triples in a single day. You observe that you can have excellent profit if you sell DOT. Holding vDOT enables you to take benefit of such a situation which is never possible in Polkadot’s original chain staking that has a fixed 28-day redemption period. You can sell your vDOT for any stablecoin and book profit. If you want, you can also Fast Redeem your vDOT for DOT in less than 28 days via the matching queue mechanism.
Keeping the asset liquid while earning staking rewards is a great thing! But Bifrost offers you more benefits. The protocol does delegated staking for you by selecting a set of validators and rebalances the rewards to provide more profitable solutions. The Bifrost SLP protocol screens more than 10 verified nodes through governance and adopts a filtering process that includes a number of nominees, commission ratio, and uptime history to ensure that none of the selected nodes has a slashing history. This maximises the staking return of your DOT. Last month, Bifrost launched the Polkadot Unlock Harvest event and vDOT minting volume surpassed 2.7 million in October. This event will end on November 22 and by joining you can share a $130,000 Prize in $BNC. vDOT is quite a hot asset now and the liquidity has surpassed 2.2 million USD!
Bifrost is fundamentally different from other popular LSD protocols like Lido, Rocket Pool etc. The omni-chain vision of Bifrost is different from multi-chain or cross-chain. Normally LSD protocols replicate single-chain application on multiple chains. Bifrost offers full-chain interoperability as a pre-requisite and incorporates different parts of the application on different chains. SLP, the pallet used by Bifrost for vToken minting and redemption, facilitates the issuance of LSD assets on different chains but the SLP pallet is deployed on the Bifrost chain. It is a “headquarters + branch” model. The portion deployed on the Bifrost chain acts as the headquarters, and the parts deployed on different chains act as branches. So, the DAPPs that integrate with Bifrost only need to interact with the Bifrost chain and that reduces complex cross-chain integration. All vTokens are native assets of the Bifrost chain. It also offers unified liquidity and overcomes the problem of liquidity fragmentation.
LSD protocols offer rewards in the form of protocol’s native tokens to attract more TVL (Total value Locked) but that can not be a sustainable approach. Bifrost takes the game to a different level with its composability. The future of blockchain is multi-chain and Bifrost’s omni-chain architecture will pave the way to bring more composability in superior terms. When you deposit your tokens to an LSD protocol, you give away your governance rights of the original chain. Bifrost will surprise you here. vDOT supports Polkadot OpenGov and reserves the voting rights of the staked DOT. Yes, if you hold vDOT, you can have a say in the governance of Polkadot. Sounds amazing right? With the help of Bifriost, you can stake, participate in DeFi, and govern. Yes, vDOT is the only such LST available! Do not wait for the paradigm shift of LSD protocols - that will certainly happen. Experience the capital efficiency of Bifrost with compelling use cases by depositing your DOT and obtaining vDOT.
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This article was also published here.
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