Bifrost DOT liquidity loan for vDOT liquidity for one year; repay in full with approximately 6% interest.

Liquidity loan proposal summary

The subsidy request of this proposal had raised to 1m DOT as mentioned in the previous discussion post, appendant #2.

Key highlights

This liquidity loan proposal would request the Polkadot treasury to loan a total of 1,000,000 DOT (approximately $4.000,000) which would be repaid in full with roughly 6% interest (roughly 60,000 DOT in staking rewards if staking apy remains 10.68%) at maturity back to the treasury.
The liquidity loan is crucial in building deeper liquidity for vDOT-DOT, supporting vDOT growth and penetration and broader utilities and use-cases across various DeFi applications and scenarios within the Polkadot ecosystem, both on Substrate and EVM parachains.
Furthermore, the minting of vDOT for the Polkadot treasury is a compelling diversification strategy which puts its DOT capital to work for a 1 year duration and receives its 1,000,000 DOT principal back with staking rewards on its loan.
Bifrost has a strong treasury loan track records:

Bifrost has previously successfully repaid both its 2022 and 2023 - 50,000 KSM (over $2.5M) Treasury liquidity loan with interest to the Kusama Treasury for its liquid staked KSM (vKSM). More details can be found here regarding the 2022 and 2023 loans. In addition, Bifrost has recently in December 2024 successfully extended a 50,000 KSM treasury liquidity loan for 18 months with the Kusama treasury (more info here). Overall, with these previous initiatives Bifrost has brought a total income of 8,370.5523 KSM (over $300,000) to the Kusama Treasury. Similarly in early 2024, we successfully received a 500,000 DOT (over $4M) liquidity loan from the Polkadot treasury which will be repaid in March 2025.

Footsteps of Track Records:

Kusama
- 2022: https://kusama.polkassembly.io/post/1606
  - The execution timeline of the proposal: https://kusama.subscan.io/treasury/177
  - 2023: Repayment 53,745.5028 KSM via Bifrost Treasury via XCM,
    - with 3,745.5028 KSM Interest.
- 2023: https://kusama.subsquare.io/referenda/236
  - The execution timeline of the proposal: https://kusama.subsquare.io/referenda/236?tab=timeline
  - 2024: Repayment 54,625.0495 KSM via Bifrost Treasury via XCM,
    - with 4,625.0495 KSM Interest.
Bifrost has brought a total income of 8,370.5523 KSM to the Kusama Treasury.
- 2024: https://kusama.subsquare.io/referenda/477
  - The execution timeline of the proposal: https://kusama.subsquare.io/referenda/477?tab=timeline
  - Repayment will happen in Aug, 2026
Polkadot
- 2024: https://polkadot.polkassembly.io/treasury/613
  - The execution timeline of the proposal: https://polkadot.polkassembly.io/treasury/613?tab=timeline
  - Bifrost repaid its Subsidy loan to the Polkadot Treasury on March 26th.
    
    The repayment composition breakdown:
    - The principal of Subsidy: 500,000.00 DOT
    - Staking rewards (interest from 216,313.34 vDOT): 427,23.02 DOT
    - Total Repayment: 542,723.02 DOT

More about Bifrost

Bifrost is a Liquid Staking app-chain tailored for all blockchains. By leveraging off the Polkadot SDK and utilising decentralized cross-chain interoperability it empowers users to earn staking rewards and DeFi yields with flexibility, liquidity, and high security across multiple chains.

Learn more about Bifrost's key advantages and features for vDOT.

Key milestones

The Growth of vDOT Usecases

Over the past year, the diversification of vDOT use cases has led to significant user growth: from 2,820 holders in March 2024 to over 5,000 today, representing nearly a 100% increase. vDOT has been widely adopted across multiple scenarios including Yield, MM, Governance, and AMM. For example:

Engate DOT governance by using vDOT
Money Market on Hydration
Bifrost LoopStake for leveraging DOT stake
Interlay IBTC Vault Collateral
vDOT Cross-chain scenarios

The completion of asset registration of all vTokens on EVM parachains such as Astar, Moonbeam, and Moonriver networks and the recent development of SLPx and the launch of the Omni LS DApp has allowed for more use-cases across parachains which has also supported the growth of vDOT. The data below presents the volume of vDOT that have crossed-out to target chains from Bifrost by end users.

Target Chain	Volume (vDOT)
Hydration	1,844,441
Interlay	851,997
Pendulum	30,003
Moonbeam	29,331
Astar	9,090

The total volume of vDOT above equals roughly 2,764,862 DOT, which has been used in cross-chain scenarios including the vDOT money market deployment in Hydration. This market has gained significant traction in liquidity lending, achieving a 76% utilization rate with a $1.972M reserve size that has reached its supply cap. This is just the beginning, as the supply cap will continue to grow. In addition, vDOT liquidity in Omnipool has surpassed over $6m in TVL.

With the launching of Hyperbridge, liquidity deployment across Base, Optimisim, Aribitrum, Binance Smart Chain and Ethereum mainnet has formally started. Bifrost and Hyperbridge will boost the liquidity growth of DOT and vDOT with the incentives applied from Polkadot DeFi Singularity.

The objective of these native pool deployments has been to facilitate native use cases for vDOT on respective networks and enable vDOT liquidity traction on Aerodrome (Base), Camelot (Arbitrum), Thena (BNB Chain), and Uniswap (OP, Ethereum). As liquidity grows, Bifrost can expand these use cases to Pendle, Morpha, Moonwell, and other yielding and leveraging protocols.

Ecosystem use-cases and case-studies

RSP (Revenue Sharing Program)

This program aims to boost ecosystem growth by sharing Bifrost protocol revenue, promote developers to integrate Bifrost SLPx, engage vDOT and vToken mintings across multi-chain protocols. This program had integrated with 13 partners, across multi different chains such as Moonbeam, Soneium, Astar; blockchain tools like StakeingRewads, Subscan and communities like The Kusamarian and Astar Degen. The program had accumulated nearly $4m TVL with 76,000 vDOT contribution from partners.

With the support of Hyperbridge and Snowbridge, the RSP partnership will expand to more entities, bringing DOT staking traction to more chains.

vDOT is held by Hydration Treasury, incentivizing all assets in Omnipool

Hydration used the treasury address to cross-chain invoke Bifrost SLPx and minted 868,784 vDOT, which equals to 1,280,204 DOT in staking. By leveraging yied DCA, Hydration can easily withdraw vDOT staking rewards to incentivize across all ecosystem pools. Furthermore, vDOT can be used to pay for tx fees on Hydration.

A component of “gigaDOT”

gigaDOT, DOT steroids composed by vDOT and aDOT.

“Holders of gigaDOT have exposure to the price action of DOT while accumulating composite yield from three different sources: vDOT staking APR, aDOT lending APR, and targeted incentives by the Hydration and Polkadot treasuries.” - what is gigaDOT

gigaDOT is live at https://app.hydration.net/strategies/gigadot

vDOT cross-chain with Ethereum & L2s via Hyperbridge and Snowbridge

By leveraging Hyperbridge and Snowbridge, BIfrost SLPx can easily deliver DOT staking to any chain. The vDOT crossing multi-chain UI had launched on Bifrost Dapp, Hyperbridge App, Snowbridge and Turtle.

The seed liquidity pools for BNC and vDOT have been successfully deployed across these networks:

vDOT Vault on Interlay

vDOT as collateral for Vault creation on Interlay, allowing anyone to choose vDOT as collateral when establishing an iBTC Vault on Interlay. The staking reward feature of vDOT will enhance the collateral income for Vault creators, enriching the revenue attributes of Interlay Vault collateral.

vDOT on Interlay lending and borrowing markets

Bifrost successfully proposed and enabled vDOT as a collateral asset for Interlay lending and borrowing markets to the community, access markets here. vDOT has became the top collateral asset with deepest liquidity and borrowing efficiency on their lending and borrowing markets. The objective being to increase the base income for lenders who deposit iBTC, DOT, or any other asset as collateral in the lending market and increasing their yield through leveraged staking by rotating borrowed DOT stake to vDOT and depositing it as collateral. Furthermore, vDOT can be used to pay for tx fees on Interlay.

KPI

The main purpose of this proposal for Bifrost is to increase the overall TVL for vDOT, deepen the liquidity for DOT-vDOT liquidity on Bifrost Stableswap to ensure a better experience for users swapping between the assets, and to more broadly increase the use cases and growth of vDOT across the Polkadot ecosystem from Substrate to EVM parachains. As a result, Bifrost will track vDOT minting TVL and DOT-vDOT Stableswap liquidity growth, unique address growth rate, and XCM transfers related to vDOT as well as new vDOT ecosystem integrations to assess the success of this treasury liquidity loan proposal.

Liquidity Loan and incentive proposal

Amount:

This liquidity loan proposal would request the Polkadot treasury to loan a total of 1,000,000 DOT (approximately $4,000,000) which would be repaid in full with roughly 6% interest (roughly 60,000 DOT in staking rewards if staking apy remains 10.68%) at maturity back to the treasury.

Protocols and instruments used

Bifrost Liquid Staking StableSwap

Bifrost dedicated liquid staking Stable Pool was developed drifting peg to optimise for efficient and low slippage swaps between liquid staking tokens and their original tokens. Current DOT-vDOT liquidity on Bifrost Stable Pool is $2,826,425, DApp here. For more information regarding the mechanism please check here.

Managing funds and repayment

Tracking Borrowing and Repayment Process

Bifrost will complete the borrowing/repayment process of the 1,000,000 DOT subsidy through a fully open and transparent process on Polkadot and Bifrost governance and leveraging off XCM to ensure the borrowing-repayment process is achieved in a completely trust minimised and trustless way.

Borrowing Process

Polkadot side

Apply to Polkadot Treasury to borrow 1,000,000 DOT to the ParaId2030 (13YMK2eeopZtUNpeHnJ1Ws2HqMQG6Ts9PGCZYGyFbSYoZfcm) beneficiary through the (Treasury::propose_spend) method of the treasury module on Polkadot.

Management Process on Bifrost

Call currencies:set_balance method, an additional 1,000,000 DOT will be issued on Bifrost treasury address;
Dispatch Bifrost Treasury to call vtoken_minting to mint 600,000 DOT to vDOT ;
Provide 400,000 DOT and 600,000 DOT worth of vDOT to Bifrost DOT-vDOT Stable Pair (Note: the actual liquidity provision proportion is subject to real-time DOT:vDOT ratio.)

Repayment process

Dispatch Bifrost Treasury to remove liquidity from vDOT-DOT Stable pair.
1. 100% of the 1,000,000 DOT LP is repaid and does not incur impermanent loss (IL), given the nature of correlated assets in this case staked assets and their respective liquid staked assets and the underlying principle which remains unchanged at LP withdrawal.
Redeem withdrew vDOT to DOT.
Dispatch Bifrost Treasury transfers all 1,000,000 DOT + Staking Reward back to Polkadot Treasury via XCM.

Security

Read Bifrost Security Declaration at here.

Resources

Bifrost

App

Website: https://bifrost.io
Mint vDOT: https://app.bifrost.io/vstaking/vDOT

Code & Documentation

Docs - https://docs.bifrost.io/
GitHub repo - https://github.com/bifrost-io
Audits - https://docs.bifrost.io/resources/audit-report

Community & Social Media