Spotlight on Bifrost: Pioneering OmniChain Liquid Staking with Tokenomics 2.0

The Luna and FTX collapses in 2022 triggered an 18-month crypto winter, yet by 2024, DeFi has staged a remarkable recovery. Despite its “Renaissance”, DeFi remains far from reaching its full potential, presenting an opportunity to uncover undervalued alpha.

The Strategic Role of Liquid Staking Tokens (LSTs)

Liquid Staking Tokens (LSTs) is an important part in DeFi have been widely used as collaterals in lending market. Beyond essential DeFi infrastructure, a thriving ecosystem hinges on robust LST liquidity, making effective liquidity management a top priority.

Thanks to DeFi’s inherent composability, LST liquidity plays a crucial role in the economic security of the broader ecosystem.

When factoring in Liquid Restaking Tokens (LRTs) — tokens generated by restaking LSTs — the capital efficiency expands even further.

Given the need for multi-chain operability and diversified DeFi strategies, LST protocols must integrate seamlessly with external ecosystems. While technical implementations may vary, their business models remain largely similar. The ideal solution would be a highly secure LST issuer capable of providing robust infrastructure, allowing projects to focus on business development.

Bifrost: A Multi-Chain LST Solution

Bifrost, a Polkadot parachain designed for liquid staking, provides a robust cross-chain solution — SLPx, which unified liquidity on its own chain and enable remote calls across external chains.

The SLPx techstack allows users to:

• Mint and redeem vTokens across different chains.
• Swap vTokens with unified liquidity on any chain.
• Provide liquidity and redeem LP tokens across chains.

Economic Security & Sovereign Chain Advantage

As a Polkadot parachain, Bifrost benefits from inherent security advantages. Polkadot employs a relay chain model where all parachains share the relay chain’s security framework. With over $3 billion worth of DOT staked in Polkadot, economic security is well assured. Compared to other chain abstraction solutions, Bifrost requires minimal security investment, allowing it to focus on business development.

Additionally, as a sovereign chain tailored for LSTs, Bifrost avoids the liquidity fragmentation issues that typically arise from deploying LSTs across multiple chains. The flexibility of its Substrate-based techstack enables seamless composability and expansion. For example:

• Issue token and implement its own governance model.
• Business expansion can occur at the chain level, enabling the integration of LRTs, RWA tokenization, and other innovative financial primitives.
• Standardize RPC interfaces to simplify LST integrations for external projects.
• Critically, Bifrost allows LSTs to serve as gas tokens, reinforcing its chain abstraction capabilities.

Tokenomics 2.0: Revenue Sharing

Originally, Bifrost’s native token, BNC, primarily functioned as a governance token — a common challenge among Polkadot-based tokens. In today’s market, pure governance tokens struggle to capture long-term value, prompting even established tokens like UNI to explore revenue-sharing models. To address this, Bifrost is introducing a revamped token model with a strong focus on economic sustainability.

Currently, Bifrost’s protocol revenue flows directly into the treasury without benefiting BNC holders. Tokenomics 2.0 will change this by implementing a 100% revenue buyback mechanism, allocating:

• 90% of buybacked BNC to bbBNC holders
• 10% of buybacked BNC for burning

This shift aligns BNC with the flywheel effect seen in successful DeFi tokenomics. A well-executed buyback model can drive value accrual by reducing token supply while incentivizing long-term participation.

The new model introduces bbBNC, a buyback-based governance token. Users can stake BNC for vBNC (Bifrost’s liquid staking token) and then lock vBNC to receive bbBNC. The amount of bbBNC received depends on the locked amount and the duration of the lock-up period.

Benefits of Holding bbBNC

bbBNC provides several key incentives:

• Revenue Sharing: Holders receive a share of protocol revenue based on their bbBNC holdings and lock-up duration.
• Staking Rewards: bbBNC integrates rewards from staked BNC, increasing overall yield.
• Governance Rights: bbBNC retains BNC’s governance functionality, enabling participation in protocol decision-making.
• Farming Boosts: bbBNC holders enjoy enhanced farming rewards for vToken staking.

Tokenomics Flywheel: A Self-Sustaining Model

If the revenue sharing model functions as intended, the resulting flywheel effect can be visualized as follows:

1. Increased BNC value boosts Bifrost’s market cap.
2. A higher market cap drives greater LST adoption.
3. Expanded adoption raises vToken yield potential.
4. Higher yields drive increased vToken issuance.
5. Greater vToken issuance generates higher protocol revenues.
6. Increased revenues fuel greater buybacks, reinforcing BNC’s value.

A concrete example of Bifrost’s revenue potential, based solely on vToken staking commissions, projects an annual income of approximately $719,068, with broader protocol revenues estimated around $1.69 million annually.

Bifrost’s Growth Potential

With approximately 80 million BNC tokens in total supply and a circulating supply of around 44 million, BNC’s current market capitalization stands at $8 million, with a fully diluted valuation (FDV) of $15 million. As of now, about 10 million BNC is staked, translating to approximately 5 million vBNC in circulation.

Bifrost’s revenue sources include:

• vToken commission fees
• System staking rewards
• Transaction fees from its standalone blockchain
• vToken exchange fees
• Revenue from DeFi integrations
• Early redemption penalties on bbBNC

Looking ahead, Bifrost is collaborating with Hyperbridge and Snowbridge to launch a Polkadot liquidity incentive program, allocating 800,000 DOT to enhance liquidity across Arbitrum, Base, BNB Chain, and Ethereum.

With its innovative chain abstraction model, growing vToken adoption, and refined Tokenomics 2.0, Bifrost remains a leading player in the Liquid Staking sector. While its vDOT currently holds $35 million in TVL — the highest among DOT-based LSTs — its potential remains immense compared to DOT’s $6.7 billion market cap. With a strong foundation and cross-ecosystem capabilities, Bifrost is poised for continued growth.