2022 / 10 / 20 13:00
Bifrost
Older mechanisms like the static staking protocol of the Kusama Relay Chain gives the user very limited possibilities to actively manage their funds. Although being proven and reliable, this limits active users in their versatility and in their possibility to achieve greater yields with their investment capital. That’s why there is a growing demand for dynamic DeFi products on the market.
With the introduction of the Staking Liquidity Protocol (SLP), Bifrost picks up these calls. Bifrost first vToken - vKSM - is one of these products to cater to an audience demanding flexibility.
On the 8th of August 1.2 million KSM, with a value of around $80m USD, will be unlocked. These KSM were locked about a year ago by 65,000 contributors for the projects who won a Parachain slot in the second lease. These projects were Basilisk, KILT Protocol, Calamari Network, Heiko Finance, Kintsugi and Altair.
Considering the flooding of such a huge amount of KSM into the market, there might be a fear, that with such an enormous influx of liquidity comes an inevitable price dump of people cashing out their KSM. This fear is based on the same perimeters of the fear people had after the first round of leases were up and an even greater amount of KSM were unlocked. The projected price drop did not happen.
This can be attributed to different reasons. One of these is the great decrease in value KSM had in the last year. Contributors in the second round contributed on average 18 KSM per auction while one KSM had a value of 65 USD, which means that the average contributor has the value of its contributed KSM decreased by 75% or around $3,700.
As Bitcoin is up 35% from its recent low of around $17,000 USD, people are slowly getting their hopes back up for a further price increase in the whole crypto market. This means that instead of selling while being down 75%, people who have their KSM unlocked, will look for other opportunities in the coming days. As there is no project in sight who contends for a parachain slot, people will turn to a meanwhile matured DeFi market with new products at hand to satisfy the increasing demand. These liquid staking derivatives, will play a vital role in the next run up of the DeFi market and the whole crypto market as well.
vKSM is Bifrost’s liquid staking Kusama derivative. vKSM is a shadow token which increases in value, but does not increase in quantity except when new vKSM are minted from users entering a liquid staking contract. This means that the staking rewards will be automatically added to the value of vKSM. No manual claim and no additional attention is needed from the users site. vKSMs value will even increase if it just sits in a wallet without further actions needed.
vKSM comes with more advantages compared to KSM. Besides the already mentioned liquid staking, which allows user to keep actively managing their tokens after they have staked them, along with the automatically embedded staking rewards in the vKSM pool, vKSM also has a floating redemption period that lets users exit their vKSM contract and redeem their KSM in a shorter period of time (contrary to the fixed 7-day redemption period of KSM staked directly on the relay chain). This shortened redemption period is on a variable duration and depends on how many people are minting vKSM. When a user decides to mint vKSM with their KSM (or swap into it) they profit from a higher staking yield than just normal KSM staking.
The underlying protocol screens over 10 verified nodes and choses the most profitable ones to increase the return for its users.
Another advantage of vKSM vs. KSM is its multi environment nature.
vKSM is one of Substrate assets in the Bifrost Parachain. By using the HRMP channels between Bifrost and others, it can be easily utilized in EVM, WASM and Substrate compatible parachains. In the medium-long term, users will have the freedom and ease to put their vKSM to use wherever they please, instead of swapping tokens around, and paying the fees for it, to access the market they prefer.
Furthermore vKSM (and other vTokens which are ready to be launched) are built with standardization in mind. This is achieved by building these derivatives through XCM as a standard. All staking derivative tokens will have a unified interface, a unified redemption method and an interest calculation method, which are forged by the same set of agreements. Users will be able to trade with and loan vKSM against other vTokens.
Standardizing, unifying and stimulating each other is one of the great goals the Dotsama ecosystem is trying to achieve. This aligns with the vision of Polkadot and Kusama having interconnected relay chains, a vision to provide security for a flourishing and integrated ecosystem. Bifrost is at the core of this vision for an interconnected Dotsama.
Although there are different providers in the Kusama ecosystem for Liquid Staking Derivatives, Bifrost performs really well in the metrics an interested user should look at when deciding which platform, he or she should choose.These metrics are:
The APY, Flexibility and Trading Pairs.
While being a newer offering in the staking derivatives market, vKSM offers two different options for users to increase their yield after deciding to dynamically stake their KSM via Bifrost. The regular Solo vKSM option increases the base APY to around 30%, which is more than a 50% increase over the normal Kusama staking protocol rate. This is one of the safest DeFi farming options available to users, as impermanent loss plays no role when choosing this farm.
If users want to increase their yield, they can do this by converting half their vKSM back to KSM and provide liquidity in the vKSM-KSM-LP Pool on Zenlink. If they decide on doing this, they can farm a smooth 22% in addition to the staked base APY they’ll get for staking their KSM for vKSM. In the near future vKSM - TaiKSM can be utilized via a stable pool on Bifrost. There are also plans for vKSM - TaiKSM to be direct collateral for Karura aUSD. Another LP farm is set to be created as well, which will farm vKSM-xcvKSM and create a direct access to the Moonbeam and Moonriver ecosystem.
For the next 17 days Bifrost created another solo vKSM farm for users to increase their yield. This will give a great opportunity for old and new users of Bifrost to maximize their profit. At the moment of writing this article this farm provides a massive 74% APY. This number is expected to go down the more people are entering the farm though.
Beyond the increased APY for staking their KSM via Bifrost, vKSM will bring a user a lot of flexible benefits such as:
In the recently passed Kusama treasury proposal, Bifrost was granted a 50,000 KSM subsidy for their staking liquidity derivative vKSM. The proposal passed with a Yay vote of over 87% and solidifies the stellar reputation Bifrost has in the DotSama community.
The 50,000 KSM will be used to provide liquidity and/or collateral for different pools, which are:
The successful proposal for 50,000 KSM will benefit users of the whole ecosystem when interacting with aforementioned tokens and LPs. It will create deep liquidity pools which minimizes the risk for end users when providing liquidity themselves.
In the first 45 days after its creation Bifrost already minted over 86,000 vKSM and over 140,000 vKSM in the first 75 days. It was the fastest growing KSM derivative in this period and already is the second biggest liquidity derivative by itself.
Furthermore, Bifrost sports a massive TVL of $75m shared between its assets.
As shown in the graphs below Karura and Bifrost KSM derivatives are on a strong upward trajectory and are on their way to separate the market between the two of them. The two market leaders grew 31,88% (Karura) and 106,21% (Bifrost) in the last 45 days. Lido was able to increase its KSM derivative products by a quarter while Parallel actually shrank by nearly half.
With the KSM unlock, a lot of liquidity is up for grabs for these projects. The total amount which gets unlocked is three times the size of the whole market share of all KSM derivatives. So, it is to be expected that these numbers will change a lot. If the trend continues Bifrost will take the lead in market share of all KSM derivative products in the next months.
Bifrost created the next generation DeFi products with their SLP. vTokens and especially vKSM are derivatives specially designed to provide users with maximum yield and flexibility. No more long lock-ups or low yield. All this is built on an ecosystem which was designed for cross chain interoperability and high security in mind. No faulty bridges, which can get hacked, but instead use the safe XCM standard.
It does not matter if you want to stake your tokens and don’t bother with them anymore, or if you want to enter the market via a high liquidity, high dynamic product which passively earns you an improved staking rate. In either case, DeFi users now have the freedom to provide liquidity or utilize it as collateral on multiple chains in the DotSama ecosystem…ultimately, it’s up to you.
Content written for Bifrost Finance by 0xCrane.
