Bifrost is a DeFi protocol built on Polkadot that aims to solve one of the ecosystem's biggest challenges: the liquidity of locked assets. Through liquid derivative assets, it allows users to access a variety of DeFi products, expanding the use cases for locked funds.


In this article, we'll walk you through the different features Bifrost offers its users.


ℹ️ INFO

Although it's built on Polkadot, Bifrost is developed by an independent team. If you have any questions or technical issues regarding Bifrost we recommend checking their documentation or connecting with their team through their official Discord channel.


TABLE OF CONTENTS


What is Bifrost


Bifrost is a Web3 derivatives protocol and Polkadot and Kusama rollup (parachain), designed to address the liquidity challenges of staked assets. Through its Staking Liquidity Protocol (SLP), Bifrost enables users to earn staking rewards without sacrificing the flexibility to exchange their assets freely, bypassing lock-up periods and ensuring constant liquidity across chains thanks to native XCM interoperability.

Bifrost's most notable features is liquid staking via its vStaking product, which allows participation in farming with pairs or single assets, token swaps without relying on centralized exchanges, cross-chain asset transfers powered by its interoperability framework, and, last but not least, governance participation in Polkadot OpenGov.

Let's go through some of these features.


⛔️ READ THIS FIRST

Using Bifrost products involves interacting with DeFi protocols and carries certain risks, including potential fluctuations in token values and variations in liquidity. 

Make sure you understand these risks and how the platform works before using any of its features.

Liquid Staking (LST)


⛔️ READ THIS FIRST

Using vDOT through vStaking involves risks. The value of vDOT may differ from native DOT due to market conditions, and redeeming it might not be instant if liquidity is low. There is also a minimal slashing risk, although Bifrost implements mechanisms to mitigate it.

Please make sure you understand these risks before proceeding.


The main product of Bifrost is Liquid Staking, which allows you to stake your tokens and receive a representative token (vToken) in return. The vToken is a reward-bearing asset that continuously accumulates staking rewards over time, increasing in value. Additionally, you can use vTokens to participate in various DeFi products across the Polkadot ecosystem, improving capital efficiency and allowing you to optimize yield opportunities.


One of the main advantages of using vTokens is that you don't have to wait for the 28-day unbonding period required by native staking on Polkadot or 7-day on Kusama. vTokens holders can redeem their tokens at any time through the Swap pool, or use the Fast Redeem feature to accelerate withdrawals through Bifrost's matching queue mechanism. vToken is also the first liquid staking token to retain full governance rights, allowing users to vote in Polkadot OpenGov directly through the Bifrost interface. Moreover, vTokens benefits from slash protection via the BNC Insurance Fund, and support a wide range of use cases across Polkadot DeFi, such as liquidity farming, restaking, and as collateral in lending protocols.



vStaking is an excellent tool for users who want to maximize the utility of their assets without giving up staking rewards, governance rights, or locking their funds for long periods. However, as with any DeFi strategy, liquid staking also carries certain risks. Financial risks include potential liquidity issues if many users try to redeem their vTokens simultaneously, or systemic risks if problems occur on connected chains. On the governance side, risks include validator misbehavior, slashing, or excessive concentration of staked assets. In extreme cases, these factors could result in a depeg between vTokens and their underlying assets. For this reason, it is important to understand the risks before participating.

If you want to dive deeper into the pros and cons, we encourage you to take a look at this Bifrost article.

Now that you're familiar with the benefits and risks, you can follow this step-by-step guide, which explains how to start using Liquid Staking.


vTokens use cases


Thanks to vToken, you not only benefit from staking your tokens (DOT, KSM, etc.), but you can also participate in various DeFi or governance products both within and outside the Bifrost ecosystem, such as:

  • Swapping vTokens for other assets offered by Bifrost.
  • Providing liquidity in liquidity pools.
  • Joining farming pools to earn additional rewards in the BNC token.
  • Participate in Polkadot OpenGov.


This allows you to combine the profitability of staking with the flexibility of DeFi and earn additional yields through other products.


DeFi with vToken


⛔️ READ THIS FIRST

Providing liquidity to pools (LP) and joining farms on Bifrost involve inherent risks. These include potential impermanent loss due to market fluctuations, variations in token value, and reduced liquidity during volatile periods.  

Make sure you fully understand these risks before joining any Farming program or provide liquidity.


With your vTokens, such as vDOT, you can participate in various DeFi strategies on Bifrost. For example, you can provide liquidity to a pool (such as vDOT/USDT or vDOT/DOT) and, in return, receive LP or BLP tokens. You might have the possibility to stake these (B)LP tokens in Farming to earn rewards in BNC, Bifrost's native token.

Providing liquidity to a pool with a vToken does not affect the appreciation of the vToken's value from underlying staking rewards. Depending on the type of pool you join (stableswap or standard), you might be able to "farm" with the (B)LP tokens to earn both swap fees and BNC incentives. This allows you to combine three potential sources of income: the staking yield from the vToken (liquid staking), swap fees from the pool (liquidity provider), and additional BNC rewards (farming).

You are not limited to using your vToken on Bifrost, you can engage with other DeFi products across the Polkadot ecosystem. For example, you can lend and borrow on Hydration or interact with a variety of DeFi dApps on Moonbeam. Learn more about these and more DeFi scenarios here.


Governance


Governance is one of the most important pillars of the Polkadot ecosystem, and Bifrost acknowledges it. The protocol is designed so that you don't have to give up your ability to participate in Polkadot OpenGov just because you own vTokens. 


Thanks to its design, Bifrost lets you use vTokens to take part in the governance of their respective native networks (e.g., vDOT on Polkadot). This means you can earn staking rewards without unbonding periods, provide liquidity to pools, farm your (B)LP tokens, and still stay involved in shaping the future of the network.

Keep in mind that when you use your vTokens to vote, the tokens will be locked depending on the conviction you select when voting. If your vToken is already being used in farming or another activity, it won't be available for governance voting, and vice versa. 


If you want to learn more about Polkadot OpenGov and its lock periods, check out the Polkadot wiki.