Why Bifrost SLP is the good choice for Decentralized Liquid Staking
Since Polkadot officially introduced the Nominators Pool feature and Fast-unstake, the experience of participating directly in Staking on the Polkadot chain has improved.
Nominators Pool can be understood as protocol-level pools, where any user can create a Nominators Pool, other users can delegate DOT to the Nominators Pool, and the Nominators Pool’s administrators will decide which validators receive the delegation. Currently, 90 Nominators Pools are available on Polkadot.
The Nominators Pool’s existence lowers the threshold for user participation in Staking. Users need at least 1 DOT to stake through a Nominators Pool. The creator of the Nominators Pool executes the validator selection activity.
Fast-unstake allows users to quickly and easily become familiar with the binding operation without delegating their DOTs immediately. If a user has bound partly bound but not delegated any of their tokens yet, they can use this feature as an introduction before committing long-term.
Every public chain tries to improve the staking experience to increase the staking ratio and network security. Polkadot’s official Nominators Pool implements the pool function on the chain, allowing users to enjoy the pool’s convenience while maintaining the non-custodial asset property. After the Nominators Pool goes live, centralized pools lose their meaning of existence.
Does that Nominators Pool mechanism conflict and compete with what Bifrost is doing? Our community often asks this question, and our answer is a solid No!
Bifrost’s approach resembles a decentralized Nominators Pool, with its users enjoying non-custodial asset staking as Nominators Pools do. Our vToken FAQ Summary explores the interaction between these protocols.
Beyond addressing Staking thresholds, one of Bifrost’s crucial advantages over other models is its enhanced liquidity maximization and interest generation opportunities compared to traditional Nominators Pool.
We have considered different liquid release options.
- Peer-to-peer matching: An efficient method to shorten the unstaking event, it carefully matches stakers and unstakes via a complex algorithm, ensuring quick results without compromising optimal matching needs. Unfortunately, users are not offered any additional utility apart from Staking during this period.
- Reserve pool lending: When someone needs access to their unstaked funds, we lend a reserve pool of assets with the requirement that they repay interest on loan repayment. Users receive these borrowed funds immediately before returning them once their original asset has finished its unstaking process.
- Create wrapped assets: By staking through the protocol, users acquire a redemption voucher, vToken, which can fund unstake procedures or be sold directly in cases where waiting for unlocking periods is undesired. Our solution offers more than quick funds redeployment; it opens new possibilities concerning interest generation and diversified income streams while retaining access to their locked tokens.
We finally adopted a scheme with option three (3) as the main component and one (1) as the secondary component.
Advantages of vTokens
While the Polkadot Nominators Pool has lowered the barrier to staking participation, Bifrost has done more radically.
- In addition to minting vTokens (e.g. locking DOT to mint vDOT), users can directly participate in Staking by purchasing vTokens without any additional actions and receive Staking revenue by holding vTokens.
- The Nominators Pool creator can help Stakers to select better validators and optimize risk and return, but Bifrost’s SLP protocol has been running for more than 1.5 years, we already have a mature dynamic validator selection algorithm and Slash risk control mechanism, and it is entirely decentralized. For more details, check out the article on How Bifrost provides an insurance mechanism for vToken holders against the Slash risk.
SLP functions similarly to a Nominators Pool and may draw commission from users’ Staking revenue. The overall yield of the SLP protocol is higher than staking directly on the chain, mainly for the following reasons.
- The dynamic validator selection algorithm of the SLP protocol is more intelligent, and the Slash risk control measures are an improvement, which often leads to higher returns and minimizes losses in the event of a Slash.
- Bifrost will use (part of) the system staking proceeds to subsidize the vToken’s revenue pool.
- Bifrost will launch incentive pools periodically to mint or hold vToken and receive BNC rewards.
- Derivatives can be used in more interest-bearing scenarios, e.g., to gain income for vToken/Token group liquidity.
vToken can also increase cross-chain possibilities, gain circulation on a broader scale, and derive more usage scenarios.
vToken’s chain-wide uniformity and Bifrost issuance mean that all vTokens are a native asset on the Bifrost chain, thus
- Users only interact with the Bifrost chain to enjoy access to Staking proceeds on multiple chains. The model eliminates the learning costs of operating different blockchains.
- One chain issues staking-wrapped assets from various chains, making it more conducive to the cross-chain integration of vToken.
What Bifrost is doing is not inconsistent with the PoS chain’s efforts to lower the Staking threshold. vToken, the Staking wrapper asset issued by Bifrost, is about more than decreasing the Staking threshold.
The Staking wrapper asset (vToken) option is better than other liquidity release options. In addition to lowering the Staking participation threshold, vToken offers higher yields, more diversified returns, cross-chain composability and full-chain uniformity compared to Native Staking.