As decentralized finance (DeFi) expands across different blockchain networks, there is a growing need for derivatives products that provide hedging, liquidity, and yield opportunities across chains. Bifrost is a protocol aiming to fulfill this role, with a suite of DeFi derivatives tools powered by its native BFC token.
What is Bifrost?
Bifrost is a multichain DeFi protocol that facilitates derivatives for managing risk in cryptocurrency markets. It allows users to mint derivatives called vTokens that track the value of underlying assets across various blockchains.
For example, users can mint vTokens to get Ethereum exposure on Polkadot, or Bitcoin exposure using Bifrost on the Klaytn network. This avoids the need to bridge assets or hold them directly.
Bifrost was launched in 2020 by a team based in Seoul, South Korea and San Francisco. It is compatible with Parachain auctions on Polkadot and can also be implemented on Ethereum, Solana, Terra and more.
Key Components and Products
Bifrost offers the following key components:
- vTokens — These derivative tokens track the value of assets like BTC, ETH, stablecoins, and can be minted by collateralizing other tokens.
- Vaults — Smart contract vaults that hold collateral and issue vTokens, similar to MakerDAO’s CDPs. Fees are generated for BFC holders.
- Earn — A yield optimization product that provides lending, borrowing, and automated yield strategies for vToken holders.
- Staking Derivatives — Users can stake vTokens representing staked assets like DOT, KSM, ATOM to earn staking rewards and DeFi yield.
- BFC Token — The utility and governance token that powers Bifrost’s DeFi applications and is used to pay fees and secure the network.
- Oracles — Decentralized price feeds that securely relay off-chain data to value vToken derivatives on-chain across networks.
Benefits of Bifrost
Bifrost unlocks several advantages for DeFi users by bridging derivatives across blockchains:
- Access to assets on other chains without directly holding them or bridging.
- Hedging volatility by minting vTokens for non-correlated assets.
- Earning staking rewards and yield on ETH, BTC, DOT etc. using vTokens.
- Supplying liquidity with wider range of assets represented by vTokens.
- Governance rights for protocol changes through the BFC token.
- Expansion to more chains beyond DOT through Polkadot’s cross-chain messaging.
BFC Token Utility and Economics
The BFC token has multiple utilities on Bifrost:
- Used to pay gas fees at discounted rates.
- Collateral for minting certain vTokens in vaults.
- Staked for earning protocol fees from vaults.
- Governance for voting on platform upgrades and changes.
- Validators must stake BFC for operating oracle nodes.
BFC has a total supply of 3 billion. 15% was sold in private and public token sales, while the rest goes to the team, ecosystem fund, liquidity rewards, and community treasury.
Future Roadmap and Adoption
Bifrost plans to expand support and integration with most leading layer 1s like Solana, Terra, Avalanche, L2s like Arbitrum, and major DeFi platforms. It will focus on providing vTokens for the top decentralized applications to improve capital efficiency for users across chains.
With the growth of Polkadot and multichain DeFi, Bifrost stands to capture significant adoption over time. Its decentralized cross-chain derivatives model aligns well with the broader vision of an interconnected DeFi ecosystem.
Bifrost fills a key niche in connecting DeFi across chains using derivative tokens. By allowing easy access to assets and yields across networks, Bifrost removes friction and expands opportunities in DeFi. With development growing quickly, Bifrost has the potential to become a core multichain protocol for markets, trading, and risk management.