2022 / 10 / 20 12:45
Bifrost
Since the DeFi Summer in 2020, a lot has changed.
Products that revolutionized the crypto landscape just two years ago already look static compared to their newer counterparts who enter the market.
The times where multi-year long locking dates with no other interactions with the locked funds are appealing to users, seem to come to an end. The market demands greater flexibility from DeFi products in a fast-paced environment like crypto to give them the ability to react to changes in market sentiment.
This call for flexibility starkly contrasts the original Parachain auction the Polkadot and Kusama Relay Chain deployed. In an ecosystem where in two years the market can go through multiple bull and bear markets, it seems counterintuitive to commit to a locking duration of one (Kusama) or two (Polkadot) years. Users will think twice about locking their tokens and earning a double-digit yield in two years, when during that time, their locked tokens undergo price changes of multiple hundred percents.
SALP (Slot Auction Liquidity Protocol) is Bifrost’s product for an improved take on the Parachain auctions. Analogue to their dynamic Staking Protocol (SLP), SALP locks your tokens in for the duration of the Parachain lease and creates two unlocked derivative tokens, which lets you work with your funds. After contributing your KSM or DOT to a crowdloan via Bifrost, you will receive two vsTokens, which combined will get you back your initial contribution after the Parachain slot lease is up. These two tokens are vsKSM or vsDOT (depending on which kind of auction you are contributing at) and vsBond, which is specifically marked to the Parachain auction you contributed to. Because in this instance, you get two tokens for one token contributed, each “vs”token holds an intrinsic value when redeemed of 0,5 original tokens. For example: 1 vsKSM + 1 vsBond (which is redeemable, because the lease duration is over and is from a Kusama Parachain project) = 1 KSM. This equation is fixed and not changeable.
vsKSM is a freely exchangeable token. After receiving it, you have different options to maximize your gains. You can provide LP in a vsKSM - KSM - LP Farm or you can exit your vsKSM position and swap vsKSM with a current exchange rate of 1 vsKSM = 0,47 KSM [Remember: 1 vsKSM is worth 0,5 KSM when paired with 1 vsBond, which is worth 0,5 KSM in that case as well]. After exiting yours vsKSM position, you are free to leverage your newly acquired KSM position as you wish.
vsBond is a Parachain-specific bond that can be redeemed in combination with 1 vsKSM for 1 KSM when the specific Parachain slot lease is over. Before that time, you can convert it to vsKSM, if you are happy to take a malus, or you can sell it on the open bond market. The malus of converting it is dependent on how long the lease is still good for.
When participating in a Parachain Auction as a contributor, you are never at risk of losing your initial funds. The only risks you carry when contributing are the opportunity risk: With Bifrost’s SALP, these risks are minimized.
When you participate in a crowdloan via Bifrost you can get maximum flexibility and yield. For the DeFi Degens, there is even the possibility to exit the position altogether and enter the next maximum yield farm or crowdloan. Even if exiting your vsKSM position, your crowdloan allocation is not touched. You will always get your whole crowdloan allocation, as promised.
I want to emphasize this one more time. Although the swap rate for vsKSM is not set in stone, it keeps hovering around 0,45 KSM. With a lot of incentives for buyer and seller this swap ratio will hold true during normal market times.
This means that you can exit your vsKSM position early, do everything you want with 45% of your initial crowdloans funds and enter the vsKSM position almost a year later again and get your KSM back as if nothing happened.
This opportunity contrasts the old system where, besides the crowdloan token allocation you receive from the project you support, you receive nothing.
Especially when contributing to Polkadot crowdloans the old-fashioned way, you commit to nearly two years. It does not matter what happens in a fluctuating environment like crypto during that time, your Dots are locked. Bear, Bull or Crab, you stay in your position.
Even though Bitcoin and the whole crypto market pummeled and went into a bear market at the beginning of this year, users are still interested in vsToken products and contributing their DOTs and KSMs via Bifrost to parachains. This will only increase, when market sentiment turns positive again and strong projects with a great audience go for a Parachain slot.
As shown in the graph above, vsDOT and vsKSM had incredible success right from the start. vsKSM collected nearly 60.000 KSM in the first 6 months, with a value of around $23 million USD!
This outstanding performance is only being topped by the performance of vsDOT since release: In the first two months vsDOT collected over 2,3 million DOT with a value of around $70 million USD.
This data is even more impressive considering that Bifrost is not even launched on Polkadot yet. This will change soon and with the onboarding of Bifrost as a Polkadot Parachain the full potential will unlock.
Let us show you three examples of what you can do with the agile and liquid vsKSM when crowdloaning with Bifrost.
Option 1 ~ Bob, the KSM Maximalist: Bob crowdloans 100 KSM to a Parachain Project. He receives 100 vsKSM and 100 vsBond with a redeem date set for a year later. Bob exits his vsKSM position and swaps his 100 vsKSM for the current conversion rate of 0,47 KSM per vsKSM and receives 47 KSM. He stakes his KSM natively in the Bifrost app and receives vKSM which he puts into the vKSM solo farm. Bob receives 28% APY on his 47 KSM. In the span of a year, he receives another 13 KSM. After swapping everything back and redeeming his KSM with the vsKSM and vsBond, he has 113 KSM plus the tokens from the Parachain Project he contributed to. While having his tokens in a farm, there was no chance of impermanent loss occurring.
APY: 13% Risk: Very Low
Option 2 ~ Sarah, the Farmer: Sarah crowdloans 100 KSM to a Parachain Project. She receives 100 vsKSM and 100 vsBond with a redeem date set for one year later. Sarah exits her vsKSM position for 47 KSM. She swaps half of her KSM into aUSD. With these aUSD and her existing KSM she provides liquidity for the aUSD-KSM-LP Farm earning 50% APR. Sarah compounds her rewards weekly which increases the APY to nearly 64%.
APY: 30% Risk: Increased
Option 3 ~ Kim, the DeFi Degen: Kim crowdloans 100 KSM to a Parachain Project. They receive 100 vsKSM and 100 vsBond with a redeem date set for a year later. Kim exits their vsKSM position and swaps their 100 vsKSM at the current conversion rate of 0,47 KSM per vsKSM for 47 KSM. They sell half of their KSM for MOVR and bridge the KSM to Moonriver and provide liquidity in the xcKSM-MOVR-LP Farm earning 63% APR. Kim compounds his rewards weekly which increases the APY to nearly 90%.
APY: 41% Risk: Increased
Bifrost SALP gives you much-needed freedom and flexibility in a very static system. With a multitude of options already available and a great number of other options in the pipeline, you have the possibility to choose to create new opportunities for yourself while continuously participating in one of DotSama core functions: The Parachain Auctions. You can either provide liquidity for native vsToken farms or exit your vsToken position altogether and search for opportunities in non vsToken farms or even non-Bifrost related products.
It does not matter if you try your luck in the next iteration of Cryptopunks or found a juicy farm in the EVM ecosystem. You could go even as far to use the KSM you got from exiting your vsKSM position, to contribute to another Parachain Auction via Bifrost. This leverages your initial staking liquidity, while earning Parachain project tokens in doing so.
Don’t miss out on the next article to learn more about vsBond, the bond market Bifrost created and its endless possibilities.
Content written for Bifrost Finance by 0xCrane.
