New players have appeared amidst the LSD frenzy sparked by the Ethereum Shanghai upgrade. While the seasoned players vie for the highest minting volumes and liquidity, the more recent players are eager to grab some share of this potential billion-dollar market. However, most of these protocols need more fundamental innovation at the product level and rely mainly on subsidies and airdrops as their competitive strategies.
Against this backdrop, our community partners have continuously asked:
- What sets Bifrost apart from other LSD protocols?
- What advantages does it have?
- What ecosystem niche will Bifrost occupy, and what competitive strategies will it adopt?
Bifrost is the first Omni-chain LSD application, which is differentiating it from single-chain LSD applications at the architectural level. This grants Bifrost better integrability and higher liquidity utilization.
What is the concept of “Omni-chain”?
The term Omni-chain is different from Multi-chain and Cross-chain, but only a few have been able to explain the differences clearly.
Firstly, Omni-chain does not mean all chains. No application runs on all chains, nor is there any cross-chain bridging infrastructure compatible with all chains.
Omni-chain refers to an application architecture paradigm where developers build applications, take full-chain interoperability as a prerequisite, and design the application, incorporating different parts of the application on other chains rather than simply replicating a single-chain application on multiple chains.
Why is Bifrost referred to as an Omni-chain LSD protocol?
The pallet Bifrost uses to support vToken minting and redemption is known as SLP (Staking Liquidity Protocol). Through SLP, Bifrost has successfully facilitated the issuance of LSD assets on nine different chains. However, Bifrost does not do this by deploying the SLP pallet on each chain.
The SLP pallet is exclusively deployed on the Bifrost chain. The minting and redemption of vToken on other chains are accomplished through cross-chain interactions, which invoke the SLP pallet on the Bifrost chain. To achieve this, an auxiliary module supporting remote invocations must also be deployed on the other chains.
Omni-chain applications can be built in a “headquarters + branch” model, where the main program logic of the application is placed on one chain, acting as the headquarters. Then, a lightweight program is provided on other chains to facilitate interaction with end-users (receiving user input and providing desired output), thus acting as individual branches or stores. When a branch/store receives user input, it is transmitted across the chain to the headquarters for processing. The results are then sent back to the branch/store for output to the user.
In the case of the Bifrost SLP protocol, the portion deployed on the Bifrost chain serves as the headquarters, while the parts deployed on remote chains act as branches/stores.
Advantages of Omni-chain LSD:
The Omni-chain architecture offers several benefits, including:
- Applications that integrate with Bifrost only need to interact with the headquarters instead of individually interacting with all the branches, reducing the complexity of cross-chain integration.
- If the logic of the headquarters involves the utilization of asset liquidity, it can be uniformly deployed on the chain where the headquarters resides to avoid liquidity fragmentation.
LSD protocols such as Lido, Rocket Pool, and Frax Finance support LSD minting on multiple chains but employ a multi-chain deployment approach, which cannot be classified as a omni-chain application.
The essence of multi-chain deployment is to replicate the same functionality on different chains without cross-chain interoperability. Unlike the Omni-chain architecture, multi-chain deployment faces challenges with integration and liquidity fragmentation.
1. Easy Integration
We previously discussed cross-chain integration in the article “What are the advantages of the Polkadot XCM-based Liquid Staking design?” In the case of multi-chain deployment, each chain has its own LSD format and varying standards. If applications on other chains need to integrate, they must integrate separately for each chain.
However, as an Omni-chain LSD protocol, Bifrost ensures that all vTokens are issued in the native format of the Bifrost chain. This allows applications on other chains to integrate all vTokens in one go. To integrate LSD assets through Lido, you must make N efforts (connecting with N chains). But with Bifrost, you only need to make one effort (connecting with the Bifrost chain).
2. Unified Liquidity
Cross-chain application integration involves not only the integration of tokens but also the integration of liquidity. In the case of multi-chain deployment, the primary liquidity for each LSD is typically established on its native chain. The liquidity for different LSDs is fragmented across diverse chains, and this liquidity cannot be accessed across chains. In Bifrost, all vTokens’ official liquidity pools are deployed on the Bifrost chain, enabling cross-chain accessibility. Users can swap vToken/Token on other chains while utilizing the liquidity on the Bifrost chain.
Suppose a lending protocol on a particular chain integrates vToken as one of the collateral assets. When liquidation is required, the liquidity on the Bifrost chain can be remotely accessed without the need to establish liquidity pools on the local chain. By centralizing liquidity in one place, the depth of liquidity can be maximized.
Due to the Omni-chain architecture, where the main components of the application are deployed on one chain and other chains only require a lightweight remote invocation program, the overall code is more concise compared to multi-chain deployment. Concise code implies higher security and a lower probability of contract vulnerabilities. Additionally, only a simple pallet must be deployed when adding support for a new chain. Therefore, it exhibits stronger scalability.
4. The Empowerment of XCM
Bifrost has chosen to build as a parachain on Polkadot because XCM provides maximum empowerment for Bifrost’s cross-chain interoperability.
XCM is a set of instructions for cross-chain interactions with specifications and language standards that apply to the Polkadot ecosystem and cross-chain messaging between heterogeneous chains. In Bifrost’s Omni-chain architecture, pallets on different chains must communicate, and all communication is done using the XCM message format.
It is important to note that using the XCM message format is a choice, and applications on different chains can use any agreed-upon standard for communication. However, XCM is a more general and widely applicable choice. If applications default to using XCM as the language for cross-chain communication, it will save a lot of costs in business integration and unlock deeper levels of cross-chain interoperability.
We believe that the competition between LSD protocols goes beyond just the base interest rate; it is a competition of composability.
LSD assets integrated into more protocols will give holders more options for usage scenarios and higher yield earning opportunities. In the future multi-chain era, composability includes both on-chain and cross-chain composability, and an Omni-chain architecture undoubtedly brings superior cross-chain composability.
For LSD protocols and all DeFi protocols, Omni-chain integration is the inevitable direction of development. Bifrost, as a pioneer of Omni-chain LSD protocols, is undoubtedly at the forefront of paradigm iteration.