New DeFi Track: How to Balance staking voting rights and rewards (Part II)
The Mundellian Trilemma of staking derivatives
In light of the above, we found that there is a Mundellian Trilemma in staking derivatives. Non-fungible, does not change the original chain voting rights and expresses staking rights, the three can achieve up to 2 conditions at the same time.
Staking derivatives projects may need to make choices based on their own business goals.
How to generate staking rewards?
Next, we’ll explore the second challenge with Staking derivatives: reward settlement. The reward settlement is divided into two stages, one is that the validator settles reward to the contract account of the derivatives protocol, and the other is the contract account settles the rewards for Staker.
First, let’s discuss the first step, how the validator settles the rewards to the contract account.
Different PoS projects have different ways of issuing staking rewards. Some projects (such as Tezos, EOS) do not have an on-chain staking rewards issuing mechanism. However, off-chain staking rewards issuing method is insecure. The validator may be dishonest, fail to perform the contract, and not issue the rewards to the delegators in full and on time.
In the face of this situation, the most awkward way is to develop a staking reward issuing module by the derivatives protocol, which will incur additional development costs. Secondly, if you encounter a project like EOS that prohibits “voting bribery”, it may be incompatible with the original chain.
In this regard, Bifrost’s staking campaign pool mechanism is remarkable.
Bifrost’s staking campaign pool mechanism abandoned the old staking reward issuing method and adopted the “rent-paid-first” method.
A validator who wants access to Bifrost’s validator set must first make a yield bid, that is, tell the protocol what percentage of the reward is willing to give the Stakers who are using the protocol.
If the bid is 10% and is ultimately accepted by the protocol, then the validator will share the 10% reward to the protocol regardless of the actual rate of reward to the validator.
For example, if I am a house owner and I want to rent out the house, and I delegate an agent to handle it, I will agree with the agent that no matter how much it costs to rent it out, the agent will draw 10% commission and I will take 90%, which is “reward-issuing”.
If I don’t contact an agent, but a house trusteeship company and agree to rent the house out for $500/month. The house trusteeship company can rent it out for $800 or $1,000, or the house trusteeship company will rent it out for $300/month for capital reflow, I’ll still get my $500/month. This is “rent-paid-first”
For validators, Bifrost’s campaign pool acts like a hosting company, helping validators find delegators and buy their votes. I believe that the method of rent-paid-first is more concise and efficient than the reward-issuing. Moreover, the rent-paid-first method provides validators with the option of subsidizing.
What is Bifrost ?
Bifrost is the DeFi project for PoS tokens, that include staking and liquidity both. It allows to get vToken for operations and delivering liqidity, plus you got staking rewards all the time your DOT, KSM,EOS or other token blocked by the smart-contract. You get the reward from the Day 1 of nomination, without locking periods and can change your, for example, vKSM for KSM any time. BNC is the native token of Bifrost.
vToken can optimize transactions in multiple scenarios such as DeFi, Dapp, DEX, etc. When vToken is used as a collateral for lending, its staking income can offset part of the interest and realize low-interest borrowing.
With vToken you can hedge the risk of locked positions, DeFi & Staking double rewards and leverage Staking and other application scenarios.