Bifrost is launching vFIL, one of the first Liquid Staking solutions for the Filecoin Network
Filecoin, a peer-to-peer network that leverages the IPFS protocol, is among the leading decentralized storage solution providers. Since its mainnet launch in 2020, the network has attracted over 19.19 EiB (Petabytes) of storage space, thanks to its economic incentives and cryptographic measures that ensure the reliability of stored files over time. However, the project’s ambitions have not been fully realized: Filecoin continues to work towards achieving a “global hard disk” with more computing power.
One key strategy is to lower the entry barrier for new participants to achieve its goal. There are currently two barriers that potential Storage Providers must meet: high FIL staking cost and physical storage operating costs.
To ensure the stability of the network, all Storage Providers must stake a proportional amount of $FIL based on the computing power they provide. In the event of offline storage or data loss, Storage Providers face a Slash penalty.
Each sector packaged for storage providers requires hard drives and stake tokens. Overall, the staking cost of FIL accounts for 80% of the cost structure of storage providers, whilst the cost of physical storage operations (including hard drive purchase, depreciation, maintenance, iteration, electricity, network deployment and network fees, etc.) accounts for only 20% of the cost.
Thus, the difficulty in FIL acquisition could deter potential storage providers from entering this field or stop everyday users who hold FIL from earning more via operating their own devices.
Liquid staking solutions present possibilities for breaking down these barriers. We can overcome both hurdles with liquid staking, which is also facilitated by Filecoin’s recently launch of FVM, a Filecoin-based virtual machine environment that allows developers to deploy smart contracts directly to Filecoin.
Liquid staking is a rapidly growing alternative to locking up a users’ tokens and contributing to the security of PoS blockchains. PoS chains require stakes from nodes in the network to maintain their security, and there is a waiting time before unstaking allows for the retrieval of staked assets. This imposes an opportunity cost on the node and the pledgee delegating to the node. Liquid staking provides stakers with increased liquidity and capital efficiency.
Bifrost - Omnichain LSD
Bifrost, a leading permissionless cross chain liquid staking protocol for staked assets, has leveraged liquid staking to provide opportunities for multiple asset types through its SLP (Staking Liquidity Protocol) protocol. Through the protocol, Bifrost mints liquid staking derivatives (LSD), vTokens, enabling users to participate in staking without losing liquidity.
Bifrost SLP will release a new LSD asset, vFIL, which supports full-chain LSD extensions. With vFIL, Bifrost will become the liquid staking service provider for the Filecoin ecosystem and extend the base layer of Filecoin.
Bifrost’s non-custodial liquid staking solution allows users to stake their FIL and receive vFIL (voucher FIL) in exchange. vFIL is one of the voucher tokens in the Bifrost vToken set, representing the liquid-staking token of staked FIL.
By using the bridge between Filecoin and Polkadot, vFIL can exist in EVM and Substrate asset formats, simplifying the operativity between the Polkadot and Filecoin FVM ecosystems. The underlying mechanism behind vFIL is run by the Bifrost SLP.
vFIL holders will also receive an ongoing share of FIL revenue, while storage providers can expand their storage capacity in this way, without focusing on staking requirements.
The storage provider’s revenue is divided into three main components:
- Storage revenue - The storage provider earnings for storing data for Filecoin users. After gaining storage revenue, the system locks it and unlocks it linearly over 520 days.
- The participation reward for the consensus nodes of the Filecoin network.
- Gas fees.
The storage provider and the vFIL holder will receive a portion of the revenue, with the storage provider earning ~60% and the vFIL holder receiving ~40% (as defined by the storage provider). The vFIL’s revenue portion shall be compounded automatically as interest and represented in an upward adjustment of the exchange rate.
Consider the following example with an accumulation return of 5%. By staking initially 1 FIL, users acquire a 5% return on their initial principal. With this system in place, the swap rate will automatically adjust upward so that each vFIL equals 1.05 FIL returns — allowing users to reap increased rewards from providing liquidity. The payout mechanism eliminates the need for users to manually claim and compound their earnings, providing a hassle-free experience for vFIL holders.
If another user were to stake 1 FIL at this time, they would only receive ~0.9524 vFIL, which would be fair to any user casting or redeeming at any point in time.
There are various advantages for users staking FIL and minting vFIL on Bifrost:
- Exposure to FIL native staking rewards whilst holding vFIL and having liquidity: vFIL’s price attribute will mimic FIL; therefore, vFIL will fluctuate with the rise and fall of FIL, however, vFIL’s price will rise relative to FIL because of the accumulation of staking income.
- Automatic compounding of staking rewards: without any operation, the rewards will be automatically re-commissioned and compounded.
- Access to liquidity with Flexible trading: vFIL is tradable at any time in the secondary market, holding vFIL users will not have any liquidity risk.
- Advance earnings: Although storage revenue takes 520 days to unlock linearly, the price of vFIL reflects unissued earnings in advance, with a discount rate.
- Fast Redemption: Users can redeem their underlying FIL with rewards whilst vFIL is destroyed by the protocol. The system places redemption requests in a queue and matches them with new mint requests to facilitate fast processing. This approach may still require a certain waiting period for the user initiating the redemption. However, If the user wishes to redeem immediately, they can swap through the liquidity pool of vFIL/FIL on Bifrost.
- vFIL will have various LSD & #DeFi benefits, including trading, lending, and borrowing within Bifrost.
Finally, whilst users can earn staking rewards on their staked FIL, they will have the flexibility in participating in DeFi scenarios with vFIL within native Polkadot Substrate, EVM and Filecoin ecosystems.
What vFIL means for the Filecoin network
vFIL adds the following advantages, besides the FIL holder and Storage Providers benefits:
- As the capital threshold for storage providers decreases, more storage providers will join the network, boosting the overall computing power of the Filecoin network.
- vFIL will facilitate increased FIL staking in the network, improving the consensus security of the Filecoin network.
- We’ll write the delegation algorithm to skew delegation towards storage providers in regions with less arithmetic power to improve the balance of Filecoin’s arithmetic power in the geographic distribution and promote the arithmetic democracy of Filecoin.
vFIL Launch Details
vFIL is issued based on the Bifrost SLP protocol and it will be implemented in two phases:
Phase One - The Multi-Signature Phase
We’ll deploy vFIL using a multi-signature account on Filecoin and an off-chain EVM. The user will transfer FIL to the multi-signature address on the Filecoin chain, and the off-chain EVM will notify the SLP module on the Bifrost chain to mint vFIL for the user, with the amount minted depending on the current swap rate.
The multi-signature address will delegate the FIL to the storage provider, encapsulate the sector, and start generating revenue. During the multi-signature phase, the vFIL will liquid staking a hard top. Upon reaching the hard top, staking vFILs becomes impossible.
Phase Two - The FVM Phase
FVM is a virtual machine environment based on the Filecoin network. FVM went live on the Filecoin network on March 14, allowing developers to deploy smart contracts on the Filecoin network directly based on FVM. vFIL will enter the second phase after we complete the development of the corresponding contracts, in which we’ll achieve full decentralization of vFIL based on FVM contracts. At that point, we’ll remove the vFIL minting hard top.
vFIL will obtain the investment opportunities of Filecoin and storage arithmetic to Polkadot and the broader chain-wide ecosystem. As an interest-bearing asset, vFIL will be a better underlying asset in the DeFi world, and vFIL holders will potentially reap multiple benefits in multi-chain DeFi.