As a slot auction derivatives protocol developed by Bifrost, SALP has gone through several rounds of landing practice and achieved good results. Bifrost actively popularized science and introduced SALP through articles, AMA, Meetup activities and other forms, constantly enabling community partners to deeply understand SALP, participate in the casting and trading of derivatives, and enjoy the benefits of liquidity release.
Many friends have fully understood vsKSM / vsDOT after reading SALP related articles. With the official launch of vsBond trading market, they are still confused about vsBond. This paper intends to straighten out the source and help you understand vsBond and fully understand its origin, utility, price attribute and other characteristics.
How does SALP release Crowdloan liquidity？
We have understood that Polkadot is a fragmented multi chain system, which is composed of relay chain and parachain (including bridged heterogeneous chain). The parachains communicate reliably through the relay chain. However, due to the performance of the relay chain, the accessible parachain is limited. Polkadot created the form of slot auction, allowing candidate projects to compete for parachain slots in the form of crowdloan stake DOT / KSM. In order to release the liquidity of staked dot, Bifrost developed the SALP protocol. Users who participate in crowdloan staking through SALP will obtain liquidity derivatives.
Since the lease expiration dates of different parachain auctions are different, SALP has to generate different derivatives for different parachain auctions, but this can not maximize the effect of releasing liquidity. Therefore, we adopt the “decoupling scheme” to create two different types of derivative assets, vsToken and vsBond. vsToken (vsDOT / vsKSM) is used to express homogeneity and vsBond is used to express heterogeneity. Users who participate in crowdloan pledge through SALP will obtain vsDOT/ vsKSM and vsBond derivative assets at the same time.
Why is vsBond needed？
The decoupling method increases the complexity on the surface, but releases the liquidity to the greatest extent. If only one derivative is designed, with only vsDOT / vsKSM and no vsBond, the heterogeneity must be borne by vsDOT / vsKSM, which means that supporting different parachains will generate different vsDOT / vsKSM (e.g. vsDOT-Parachain X, vsDOT-Parachan Y), and vsDOT/vsKSM cannot be used as a complete homogenization token to form the maximum liquidity.
Is vsBond NFT?
vsBond is not NFT, but vsBond is not the same fungible pass as vsDOT/vsKSM. We will call it “semi fungible pass”. A specified vsBond is a fungible token, for example: vsBond (20220515-KSM-BNC), and vsBond is the total of multiple specified vsBonds, which is the sum of a class of fungible tokens.
What is the complete expression of vsBond?
As mentioned earlier, the vsDOT/vsKSM obtained by participating in different parachain auctions are exactly the same, but the vsBonds obtained are different. We need a way to represent different vsBonds. We will fully represent vsBond in this way:
vsBond (Expiration date DOT / KSM parachain name)
Where DOT / KSM indicates whether the parachain is a Polkadot relay chain or a parachain of Kusama relay chain.
What we need to know is that the essential reason for the different vsBonds corresponding to different parachains is the different cashing period, which has little to do with which parachain. vsBond (20220808-DOT-Parachain A) and vsbond (20220808 -DOT-Parachain B) are completely equivalent. At the same time, according to Polkadot auction rules, there is no parachain with exactly the same lease expiration date. This means that for the complete representation of vsBond, the parachain information can be omitted and expressed as
vsBond (Expiration period — DOT / KSM)
Nevertheless, another simple way cannot be adopted:
vsBond (DOT / KSM parachain name) ❎
Because the same parachain may participate in bidding for many times, vsBonds with different payment periods are created.
In the relevant pages of Bifrost DAPP, in order to present more intuitively, we will adopt a complete expression.
What can vsBond do?
1、Portfolio redemption
During and after the cashing period, vsBond can cooperate with vsDOT / vsKSM to redeem DOT / KSM. Redemption utility is the most fundamental utility of vsBond, and it is also the basis and support for the existence of other utilities.
2、Independent trading and portfolio trading
Although vsBond is not directly convertible in DEX like vsDOT / vsKSM, it can also be traded at any time. Bifrost has created a special market for vsBond, and the holder can trade vsBond alone or in combination with the same amount of vsDOT / vsKSM.
At present, Bifrost Dapp has launched the separate trading market of vsBond, and the combined trading market will be launched soon.
3、Farming
If you want to hold vsBond for a long time and don’t want to sell it, we also offer a way to lock up your vsBond. vsBond can be combined with vsDOT/vsKSM to participate in SALP mining and lock up your vsDOT/vsKSM+vsBond to split the reward pool provided by Bifrost and the parachain project partners.
Will vsBond expire?
vsBond does not have the problem of expiration, it will always be valid. Each vsBond has a corresponding lease expiration date, which is called the cashing period. It cannot be redeemed before the expiration period, but you can use it to redeem with vsDOT / vsKSM at any time on and after the expirate period. If you like, you can always hold it and it will always be valid.
Can you still get rewards from the project after selling vsBond?
vsBond is not linked to the rewards of the project party. The project side will only reward users who directly participate in crowdloan, which means that if you participate in crowdloan, you can get the crowdloan reward of the project side even if you sell vsBond. If you buy vsBond but do not participate in crowdloan, you cannot get the crowdloan reward of the project side.
How to understand the price attribute of vsBond?
We can start with the price attribute of vsDOT / KSM + vsBond, because we can understand it in the framework of futures. The so-called futures refers to the assets that can be cashed in the future. (Which is much easier for you to understand in English.)
vsDOT+vsBond (20220808-DOT) refers to the DOT that can be cashed after August 8, 2022. It is a typical DOT futures. The English expression will be more intuitive — future DOT! The price attribute of futures is closer and closer to the spot price as the maturity date approaches. The price of future dot should be the price of DOT multiplied by a certain discount rate.
Bifrost once envisaged providing a function that supports the synthesis of vsDOT / vsKSM and vsBond into a new derivative fDOT / fKSM (where f is the abbreviation of future), but adding another derivative will further increase the complexity, so the function was finally abandoned. We provide a portfolio trading market. You can combine the two derivatives and trade them as one derivative. This combined trading market can be fully understood as DOT / KSM futures market.
Next, we can understand the price attributes of vsDOT / vsKSM and vsBond. Assuming that vsBond has reached the payment period, the price of vsDOT+vsBond(y/m/d-DOT) should be completely equal to the price of DOT. In theory, the price of vsDOT is 0.5 DOT, while the price of vsBond(y/m/d-DOT) is also 0.5 dot. If vsBond fails to reach the cashing period, then vsDOT+vsBond(y/m/d-DOT) < 1 DOT. We assume that the discount is 80%, and the sum of the two prices is 0.8 DOT. Since vsBond bears the cashing period attribute, in the theoretical state, the price of vsDOT is still 0.5 DOT, while the price of vsBond(y/m/d-DOT) is 0.3 dot. Of course, there are many factors that affect the price. Both vsDOT/vsKSM and vsBond will fluctuate around the reasonable value.
If someone hoards one of vsKSM/vsDOT and vsBond, will the other be unable to redeem for a long time and depreciate?
This is a typical concern about the SALP double derivatives scheme. In fact, there is no need to worry about this problem, because slot bidding is a normal and continuous process, and new vsKSM/vsDOT and vsBond will continue to be produced. Hoarding is not only unprofitable, but also makes hoarders lose the opportunity cost of their funds.
Why did Bifrost’s vsBond market adopt the form of order book instead of DEX?
As mentioned above, vsBond does not refer to a single pass, but the sum of a class of passes, which means that there are many categories of vsBond. If Bifrost establishes liquidity for it in DEX, it will need to establish many transaction pairs. However, if a third party has established liquidity in DEX, you can also trade, but the upper limit of liquidity is the casting volume of a specific vsBond, and its depth is likely to be insufficient, which may lead to too large transaction slip point.
The vsBond individual trading market and portfolio trading market provided by Bifrost are more general and more appropriate vsBond trading channels. You can pay the bill or sell the bill according to your intention. Of course, the disadvantage of thin orders is that you have to wait when there is no suitable opponent order.
Summary
The design of the two derivatives of SALP is the best choice after weighing the advantages and disadvantages. If heterogeneity is inevitable, we will limit it to vsBond so that the liquidity of vsKSM/vsDOT can be fully released. In this way, at least half of the value can be cashed immediately.
Through combined trading or combined farming, the two derivatives can also achieve the effect of one derivative, while one derivative can not achieve the liquidity brought by the two derivatives. Fundamentally speaking, SALP’s dual derivative scheme provides more options than the single derivative scheme.
Q&A to understand the usage and price attributes of vsBond was originally published in Bifrost — DeFi for PoS. Staking and Liquidity. on Medium, where people are continuing the conversation by highlighting and responding to this story.
