Inspiration
In terms of utilizing Polkadot’s interoperability, we are drawing inspiration from XCM v3, which is the latest version of the Cross-Consensus Message (XCM) format. XCM v3 supports complex message routing and is expected to further improve the interoperability of different blockchain networks. Additionally, we are considering the use cases discussed in the ISMP post (https://polkadot.polkassembly.io/post/1864) that provide valuable insights into the potential benefits of multi-chain development. By leveraging off XCM v3 and the insights from the ISMP post, we believe that Polkadot protocols can take full advantage of the benefits of multi-chain development, such as improved scalability, security, and interoperability.
Context
We hope to integrate Bifrost’s Liquid Staking Pallet with Polkadot XCM to create a product with XCM features. Based on the feature of cross-chain invocation, developers can remotely interact with Bifrost SLP pallet in parachains that support any environment, truly achieving the multi-chain expansion of DeFi protocols.
Problem Statement
As for the expansion of DeFi protocols to multiple chains, Ethereum’s multi-chain DeFi protocols usually “copy” single-chain contracts to multiple chains to achieve “multi-chain deployment”. However, this approach may bring some problems:
- User Experience Fragmentation: In order to use different on-chain services, users need to transfer assets across multiple chains, register addresses on different chains, and learn about different operations on each chain. Many times, users need to go through multiple steps and prepare various types of Gas to achieve the desired result.
- Liquidity fragmentation: In many types of DeFi protocols, liquidity depth is a core part of the user experience. However, the same liquidity cannot exist simultaneously on multiple chains. Every time a DeFi protocol is deployed on a new chain, liquidity needs to be rebuilt, which reduces the overall efficiency of liquidity.
- Polkadot needs to introduce more PoS assets from external chains to accumulate underlying liquidity for DeFi and establish upper-layer applications.
- LST governance rights integration: At present, there is no LST in the market that can inherit the governance rights of the original chain. On the one hand, most proposals in the Ethereum ecosystem are implemented off-chain. On the other hand, due to the lack of interoperability restrictions, LST is technically unable to inherit the original chain governance rights. However, with the gradual popularity of Polkadot OpenGov, how LST retains the governance rights of the original chain has become a key issue. And we’re working hard to achieve this by leveraging XCM’s interoperability.
Our Vision
In order to solve both problems of “multi-chain deployment” and “liquidity fragmentation” at the same time, we can adopt a new approach, which is to deploy the protocol “subject” that owns asset issuance rights only on one chain, and then expand it to other chains that support cross-chain calls. This method can not only solve the problems mentioned above, but can also improve the overall security of the protocol. Therefore, we suggest using Polkadot XCM to achieve this, and using cross-chain bridges to expand to outside Polkadot. (We are prioritizing Bridge Hub as the solution at next stage.)
For heterogeneous blockchains like Ethereum, we can still ensure that the sovereignty of asset issuance is placed on the Polkadot side, and asynchronous LST minting is achieved through system parachains like the Asset Hub and through bridges.
In the above figure, Other LSTs in corresponding ecosystems such as BSC, Ethereum, etc., require separate liquidity maintenance for the LST protocol, and the asset types of LST may not be compatible with Polkadot Substrate. However, Bifrost will deploy remote pallets (contracts on EVM chains), enabling one-click deployment and cross-chain LST interactions.
This model can be described as a “headquarters + branch” model. The main program logic is placed on one chain, the “headquarters.” A lightweight program, a “brand store” is provided on other chains to facilitate interaction with end users (to obtain user input and output the results they need). When a “branch store” or user provides input, the input is transmitted across chains to the “headquarters”, where it is processed and the result is output, then the result is transmitted back across chains to the “branch store” for output to the user.
For Bifrost, the LST minting protocol SLP (Staking Liquidity Protocol) deployed on the Bifrost chain acts as the “headquarters”. The protocol called SLPx, which is invoked on other remote chains, acts as the “branch store”.
Omni Liquid Staking Advantages
- Easy to expand. The main logic of the program is processed on a single chain, and the application has a unified state record. When users deploy “branch modules” on a new chain, they can inherit all the state records and liquidity from the “head office” without having to reinvent the whole thing;
- Better user experience. Users do not need to care about which chain the program is deployed on, and can access the program from any branch, just like accessing a local program, without having to transfer assets back and forth or learn operations on multiple blockchains and prepare multiple transaction fee;
- Easy to integrate across chains. When other applications integrate with this program, they only need to connect with the “head office” to use all its functions and liquidity, instead of having to connect with all branches separately.
Universal Validator Election
The election of validators for the liquid staking protocol has always been controversial in the industry. Because Lido grabbed 70+% of the market share (From Defillama), the problem attracted even more attention. We believe that the election of validators for liquid staking should ensure decentralization and set the hard cap of the LST minting scale to ensure that the liquid staking protocol will not threaten the consensus security of the original chain.
What Bifrost does:
- LST minting volume hardcap: Set the LST minting hard cap to be within 33% of the total supply of the original chain token.
- Transparent validator scoring mechanism: Validators are scored through validator slash records, number of nominees, identity level, reward points, commission, and other dimensions. The final validator to be nominated by liquid staking is determined by scoring. Anyone can check by running the scoring script to the final nomination results.
- Validator election track based on OpenGov: Provides a governance mechanism for validator election. The community can add a validator whitelist through the validator election track (VET), allowing the liquid staking pool to nominate validators who have made additional contributions to the community but do not have enough tokens to enter the active validator set. Make the active validator set of the original chain more diverse.
These functions are not limited to vDOT and vKSM, they will also be adapted to all vTokens supported by Bifrost. Therefore, a universal and standardized validator election mechanism is the great value of the omni chain liquid staking. We hope to indirectly transport OpenGov to more in heterogeneous blockchains.
Use Cases
The SLPx pallet facilitates cross-chain vToken (Bifrost LST) minting scenarios, allowing users to mint vToken on the target chain. it also allows cross-chain swaps and liquidations. Learn more about XCM v3 utilization on Bifrost liquid staking pallet.
The underlying logic of SLPx enables users to initiate vToken minting on a target chain. The asset will be transacted to Bifrost via XCM, and then minted to a vToken. The vToken will subsequently be transferred back to the user on the target chain. This eliminates the need for the user to bring their assets to Bifrost themselves as this will be automatically handled by the SLPx pallet.
Any parachain can use SLPx to provide users with a concise Liquid Staking service, or to facilitate treasury revenue. Here are some examples:
- We hope to take advantage of SLPx’s compatibility with EVM contract deployment to Bring ETH LST to Polkadot Ecosystem. Bifrost vETH will soon be supported on the Bifrost Polkadot, allowing Ethereum developers to integrate SLPx contracts and bring Substrate LST, such as vDOT and vKSM, into the Ethereum ecosystem. Below is a client interface developed based on SLPx contracts, which is how Bifrost LSTs can be deployed on multiple chains: Ethereum users can easily mint vDOT and vETH in EVM environments, while Substrate users can mint vETH and other vTokens on any parachain that has integrated SLPx contracts or pallets.
- Parachains use the treasury address to remotely call Bifrost SLPx’s vToken minting function via XCM (currently supporting vDOT, vKSM, vGLMR, vMOVR, and vFIL) to expand and diversify the treasury’s revenue. (We are working towards a partnership with HydraDX to achieve this use case).
- By integrating Bifrost SLPx Pallet, a Parachain can complete Bifrost vToken minting within the Substrate logic of the original chain. This will allow the application chain to incorporate vToken minting into its existing business logic, increasing user earnings with yield-bearing tokens like Bifrost vToken LSTs. (We are working with Interlay to explore the integration of SLPx Pallet’s aggregated services within Interlay iBTC’s underlying reserve assets).
- For parachains that already support EVM, SLPx can provide room for innovation. We encourage developers of Moonbeam and Astar to deploy DeFi applications which can interact with external EVM blockchains on top of SLPx contracts.
There are more possibilities to build on top of SLPx as listed below:
Our team is dedicated to bringing the omni-chain LST vision to life using Polkadot. We plan to share more information about SLPx soon, but first, we would love to hear suggestions from the community. Please feel free to leave any comments or feedback. Thank you for your support.
