PolkaWorld Interview | StakeFi could be the next DeFi hot topic

Recently, PolkaWorld interviewed Bifrost Co-Founder Lurpis. The interview was about the role of Staking derivatives in the ecosystem, what stage of development its market is in, what actions it will take to achieve its goals and what derivative assets it plans to launch in the future. Read the interview to learn how to empower the StakeFi economy.

In the PoS network, users can obtain the benefits of Staking by pledging tokens in the network to provide security for the network itself. The problem is the assets in Staking cannot be used within a certain locking period. Staking derivatives can release the liquidity of Staking assets to improve their utilization.

- What is Staking derivatives and what problems can it solve?

Staking derivatives has the function to issue corresponding vouchers to the original tokens (such as DOT/KSM) staked in the platform. General users, who are holding this voucher, can obtain the benefits of Staking, while using the voucher to maximize their rewards. After the end of the Staking cycle, this voucher can be rigidly changed back with the original Token.
Staking derivatives mainly solve three problems.

- The high proportion of PoS chain positions will lead to less liquidity, which seems to be a good thing for the Market. Will the emergence of Staking derivatives bring inflation?

Derivatives will not lead to more circulation, because the liquidity of derivatives and original assets is not the same thing, they are different.

- How big is the market for Staking derivatives? What is the current development stage of Polkadot ecosystem Staking derivatives market?

A reasonable derivative should set the upper limit of casting quantity.
The current rule designed by Bifrost is that in order to ensure the consensus security of Polkadot and Kusama, the maximum casting amount of products for Polkadot and Kusama will not exceed 33% of their Staking amount (50%), that is, 16.5% of the total amount. According to this ratio, the total market value of the PoS chain is about $500 billion (data source: stakingrewards), so the Staking derivatives market has a market size of about $82.5 billion. We can see that many large TVL projects on Solana and Cosmos are Staking derivatives projects.

- What opportunities will Staking derivatives bring?

First of all, it is the opportunity to track the Staking derivatives or StakeFi. This track will be an indispensable middleware, which will capture value from the underlying chain and other applications at the upper level. After the development of PoS network, the value of StakeFi agreement will be greater and greater. We will see that there are many projects in the StakeFi track with high TVL but low market value. For example, Lido, the largest protocol in Ethereum 2.0, has exceeded US $7 billion in TVL, but Lido’s market value has not yet ranked in the top 100, which also shows that the track has not attracted a lot of attention.

- How to promote a large-scale adoption of Staking derivatives?

I think there are three main points for Staking derivatives to be widely adopted. The first one is high security, the second one is good liquidity of derivatives, and the third point is high standardization of derivatives.

- What specific actions will Bifrost do next to achieve these three goals?

First, security. At the coding level, Bifrost is implemented based on the technical framework of substrate and XCM, which is the premise for the casting of derivatives, and has completed the code audit by SlowMist and other audit institutions.

- After vKSM, what derivatives does Bifrost plan to launch next?

Our Polkadot parachain is being auctioned. When Bifrost Polkadot parachain goes online, we will successively launch vDOT and derivatives of such parachains as vGLMR, vMOVR, vPHA and vKILT. Interestingly, through Polkadot’s unique cross chain interoperability, we can enable derivatives with parachains to be directly cast and circulated in their own ecosystem.

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