📚FAQ
Frequently Asked Questions
Last updated
Frequently Asked Questions
Last updated
Our FAQ aims to answer every basic question we've been asked on Bifrost/Omni LS and vTokens. You can find our most detailed FAQ in our Bifrost Lab support.
All our vTokens are yield-bearing.
Yield-bearing (or reward-bearing) refers to the inclusion of yield and interest earned by LST assets. This method breaks the 1:1 swap rate between LST assets and their underlying assets, allowing the rate to change in real-time as income increases.
The reward-bearing tokens model converts staking rewards and token slashes into changes in swap rates. With this mechanism, LST represents the sum of the principal and the income accumulated from the start of staking to the present.
Unlike tokens following the Rebase model, such as stETH, vTokens do not mint new receipt tokens for Tokens network rewards. Instead, vToken’s conversion rate increases to represent Tokens network rewards earned.
You can can a full explanation about the rewards issuing methods by reading this Medium article.
Practical implications of the vToken model’s dynamic conversion rate
vToken’s conversion mechanism has practical implications for stakers:
Visibility of growth: You can see the growth of your stake directly in the value of vToken, not just in the number of tokens you hold.
Simplified rewards management: Instead of managing separate reward payouts, everything is consolidated under your vToken holdings.
DeFi and CeFi composability: vTokens are Substrate & Ethereum ERC-20 compliant, and are more widely adopted (and thus more useful) than other forms of receipt tokens in DeFi today, such as rebase Tokens. This is due in part between the challenges of accounting for dynamic balance updates when participating in DeFi protocols, which has led some to develop wrapped vToken versions of rebase Tokens for use in DeFi. The composability of vTokens, and their wider adoption, were factors in the selection of the vToken model for the design of Bifrost’s vTokens.
Auto-staked rewards: Plus, with vToken, you don't have to manually claim and stake. Network rewards are automatically staked while holding vToken, so that opportunities to receive rewards are compounded with no action required.
As explained for the previous question. It's all about the reward issuing method. All our vTokens are pegged 1:1 the 1st day they are created, then the vToken:Token ratio keeps increasing over time.
vToken represent more than just staked Token. Because it is based on the vToken model, the rate at which vTokens can be redeemed for Tokens dynamically incorporates accrued rewards.
Because the conversion rate means that each vToken unit is redeemable for an amount of staked Token plus accrued Token network rewards, vTokens might seem to trade at a "premium" compared to Token in open markets. However, this perceived premium is more likely a reflection of vToken's value being greater than a single unit of Token, due to the included rewards.
So, why isn’t vToken pegged 1:1 to Token?
Accruing rewards: The value of vToken changes over time because it includes the rewards earned from staking Token. As these rewards accumulate, the value of each vToken increases, representing a share of both the original staked Token and the earned rewards.
Not a mirror: Unlike tokens that are designed to mirror the value of another asset (like stablecoins pegged to fiat currencies), vToken is meant to reflect the value of staked Token plus rewards. vToken is not a derivative. Hence, expecting a 1:1 peg with Token is a misunderstanding of vToken’s purpose and mechanics.
Market dynamics: The native value redemption value of vToken (as defined by the Protocol Conversion Rate) is separate and independent from the rate at which vToken may trade on the open markets. The market value of vToken is also influenced by market conditions and overall demand and supply dynamics.
Minting ratios of all vTokens can been on stats.bifrot.app Ex1: stETH from Lido has a rebase model. Each new reward is minted into new issued tokens, stETH increases in quantity, so 1 stETH = 1 ETH over time. Ex2: vETH from Bifrost has a yield-bearing model. Each new reward is included in the minting ratio (price), vETH increases in value, so 1 vETH = more and more ETH over time.
Here below vKSM example, we can see the minting ratio (green line) was 1:1 in June 2022, and now vKSM "peg" is 1:1.4, because in June 2024 vKSM includes 2 years of staking rewards.
Because the redemption value of vToken represents staked Token plus Token network rewards earned, fees, and penalties, the value of vToken does not have an explicit ‘peg’ to the market value of Token. The concept of vToken ‘depegging’ from the value of Token is unlikely given the opportunity for arbitrage between the price in the secondary market and the vToken/Token Protocol Conversion Rate.
It's a common error to simulate with 1 Token the ouput after unstaking using the UI. This use case in not a real one, because you are simulating a dummy case where you don't keep staking to accumulate staking rewards. We have bridge fees and a 0.1% unstaking fee, so it impacts this dummy simulation. The less the value of the simulation, the greater the impact of these fees. Ex: You stake 1 MANTA, you get 0.79701 vMANTA. Simulating the unstake will give as a result, with fees, only 0.76639 MANTA, a 25% loss.
But this is normal because the impact of the fees in this scenario represents 25%, and you accumulated no rewards. Let's take the same example with 1000 MANTA now. You stake 1000 MANTA, you get 895.42109 vMANTA. Simulating the unstake will give as a result, with fees, 998.76739 MANTA, which represents the 0.1% as the bridge fee are negligible here.
You can find a proper yield calculator on every vstaking page on the Bifrost app.
As explained in 1st question of the FAQ, all vTokens increases in value, not in quantity. There is no claim as vTokens are auto-compounding. If you want to take profit on your staking rewards, you have to sell a portion of your holding, the appreciation of vDOT part.
Ex1: vDOT as a 17% APY yield, so it means you can sell 17% of your vDOT holding every year. This part represents the accumulated staking rewards.
Ex2: you can use a Yield DCA feature, like the one that exits on Hydration. You set a schedule to sell very 24h for 1 week/1month/6 months/1 year.
The vToken base yield comes from the implied appreciation of LSTs against holding the corresponding native Token. This base yield exclusively comes from the staking rewards from PoS chains (Polkadot, Ethereum, Moonbeam, Astar...), tokens are created to reward validators/collators for the service they provide to verify and produce blocks.
On top on the base yield, Bifrost can add its own incentives to boost temporarily the yield or the user can get extra yield using his vToken in Defi. Global yield = Base Yield + Defi Yield
Bifrost uses an algorithm to select the best validators/collators (downtime, commission...) to maximize users return and provide the best possible base yield.
Leveraged staking through Loop Stake performs recursive borrow/lend of DOT/KSM and liquid staking token (vDOT/vKSM) to amplify yields from the user’s initial deposit. Detailed explanation here.
Users can deposit LSTs like vDOT/vKSM and borrow DOT/KSM to multiply their returns.
Here’s an example of how leverage staking works:
Deposit an LST as collateral through Loop Stake
The program uses the deposited LST to borrow DOT/KSM against the LST up to the user’s intended leverage ratio on Loop Stake
This effectively gives users a larger notional position size of the LST, which multiplies the base yield for users.
If staking yields exceed the borrow costs, there is a premium from this Loop Stake.
Bifrost has several layers of security. They are detailed in this blog article.
Polkadot shared security
"Secured by Polkadot". Bifrost chain inherits its own security from the Polkadot relay-chain. That's the shared security provided from being a Polkadot parachain.
Audit reports
See our code audit reports here.
XCM
Bifrost utilizes XCM (Cross Chain Messaging) protocol, the cross-consensus communication message format used inside Polkadot. It's a native and trustless feature. All tokens are moved and staked on-chain using this protocol, mitigating any risk of bridge hacks.
There are "Quick Answers" available throughout the documentation as well.
We would love to answer any unanswered questions. Join us in Telegram & Discord.
