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Bifrost DOT Liquidity Loan — Year 2 Renewal

inWish For Change
33 days ago
Executed

Treasury Proposal | June 2026
Proposer: Tyrone - Bifrost

1. Executive Summary

Bifrost successfully completed its first year of the 1M DOT liquidity loan (Referendum #1538). Over the 12-month period from May 2025 to May 2026, the 1,000,000 DOT loan generated 53,185.39 DOT in interest (blended APR: 5.318%), and Bifrost distributed an additional 68,173 BNC (~$6,335) in liquidity incentives to the vDOT-DOT pool — on top of 187,173 BNC distributed in the three preceding years.

Bifrost now proposes to:

  • Repay the Year 1 interest (53,185.3937 DOT) to the Polkadot Treasury by June 26th. (Repaid TX)
  • Renew the existing 1,000,000 DOT loan for a second year at a blended interest rate of ~3%. (Bifrost will NOT taking commissions from it)

2. Year 1 Performance Report

2.1 Loan Structure & Returns

ItemValueNotes
Principal
Total loan amount1,000,000 DOT
Liquidity Pool Deployment
Minted as vDOT and deployed as liquidity672,469.39 DOT67.25% in pool — generates staking yield
Deployed as liquidit327,455.47 DOT32.75% in pool — does not generate staking yield
Returns (May 2025 – May 2026)
Total interest earned53,185.3937 DOT
Blended APR5.318%

A total of 1,000,000 DOT was borrowed and deployed in vDOT/DOT liquidity: 672,469.39 DOT (67.25%) was minted into vDOT, while the remaining 327,455.47 DOT (32.75%) deployed in stable pool against vDOT. After one year, the position generated 53,185.39 DOT in total interest, reflecting a blended APR of 5.318%.

2.2 Liquidity Incentives — Bifrost's Long-Term Commitment

ItemValueValue in USD
Liquidity Incentives (BNC)
Total BNC rewarded (2025–2026)68,173 BNC~$6,335 based on 1-yr avg. price
Total BNC rewarded (2023–2026)255,346.16 BNC~$33,195 based on 4-yr avg. price

Over the past four years, Bifrost has distributed a total of 255,346.16 BNC (~$33,195) in liquidity incentives to the vDOT-DOT pool — demonstrating consistent, long-term commitment to DOT liquid staking. Of this, 68,173 BNC (~$6,335) was rewarded in 2025–2026 alone, with the remaining ~187,173 BNC distributed across the three preceding years, reflecting Bifrost's role as a sustained contributor to the DOT LST ecosystem well before recent market cycles.

3. Repayment Commitment

Bifrost commits to repaying the Year 1 interest in full to the Polkadot Treasury by June 26th to the activation of the Year 2 loan.

ItemValueNotes
Principal1,000,000 DOTPropose to roll into Year 2 loan
Interest53,185.3937 DOTPaid to Treasury by June 26th

The 53,185.3937 DOT interest will be transferred directly to the Polkadot Treasury.

4. Proposed Terms — Year 2

ParameterYear 2 TermsNotes
Loan amount1,000,000 DOTRenewal of existing loan
Loan duration12 months from enactment
Blended interest rate~3%Contingent on DOT staking APY ~5%
vDOT allocation~60% of principal~600,000 DOT minted as vDOT
Liquidity allocation~40% of principal~400,000 DOT deployed to vDOT-DOT pool
RepaymentPrincipal (1,000,000 DOT) + accrued interestFull repayment at end of term

4.1 Interest Rate Rationale

The blended interest rate for Year 2 is projected at approximately 3% and Bifrost will NOT take any commissions from it. This rate is lower than Year 1 (5.318%) due to the adjustments of DOT inflation, validator commission and decreasing of staking reward.

4.2 Capital Deployment

  • ~60% (~600,000 DOT) will be minted as vDOT via Bifrost SLP, accruing staking rewards through the vDOT yield bearing.
  • ~40% (~400,000 DOT) will be paired with vDOT and deployed to the vDOT-DOT liquidity pool on Bifrost, deepening on-chain liquidity and reducing slippage for vDOT transactions.
  • No DOT will be used for speculative positions or off-protocol deployments.

5. New Feature: LST Governance & vDOT Voting Rights

Beyond liquidity and yield, vDOT now carries full Polkadot OpenGov participation rights. This section introduces two complementary governance features that increase vDOT's utility and strengthen its role within the Polkadot ecosystem.

Note on Loan-Derived vDOT: The ~600,000 vDOT minted under this Year 2 loan will be deployed into the vDOT-DOT liquidity pool and held under Bifrost Treasury custody. This vDOT does not participate in the delegated voting mechanism described in Section 5.2 — it is excluded from Polkadot OpenGov voting entirely (neither voted directly by Bifrost nor delegated under BNC governance), avoiding any appearance of loan-derived capital being used to influence on-chain governance outcomes.

5.1 vDOT Holders Can Vote in Polkadot OpenGov

vDOT holders can participate directly in Polkadot on-chain governance. Since the DOT underlying vDOT is staked via Bifrost's sovereign address and its derived keyless addresses on Polkadot, these addresses carry full governance voting rights. Through the Bifrost DApp, vDOT holders can:

  • View active Polkadot OpenGov referenda.
  • Vote Aye / Nay / Abstain with conviction multipliers (0.1x–6x).
  • Lock vDOT for voting without losing staking yield — exchange rate appreciation continues during lock.
  • Participate in multiple referenda simultaneously.

This means vDOT holders do not sacrifice governance rights when liquid-staking DOT — a key differentiator for DOT LSTs.

5.2 BNC Governance: Delegated vDOT Voting

Bifrost introduces a new governance layer: BNC holders can direct the voting rights of vDOT that has been delegated to Bifrost but whose holders have not cast a vote themselves.

Specifically:

  • When vDOT holders delegate their voting proxy to Bifrost, their unexercised voting power becomes available for BNC-governed allocation.
  • BNC holders can then collectively decide how this delegated vDOT voting weight is cast in Polkadot OpenGov referenda.
  • This mechanism does not affect vDOT holders who vote independently — only unclaimed delegated votes are subject to BNC governance.

This feature meaningfully increases Polkadot governance participation and gives BNC holders a direct stake in the direction of the Polkadot ecosystem — creating a deeper, more organic alignment between Bifrost and Polkadot governance.

Reference: docs.bifrost.io/faq/what-is-lst-governance

6. Risk Disclosure

  • Interest rate variability: The ~3% blended interest rate is based on a DOT staking APY of ~5%. Material changes to staking yields will affect the effective rate.
  • Governance risk: Bifrost maintains an actively governed protocol with consistent on-chain participation. The team continuously monitors Bifrost governance for referenda involving sensitive method calls — including any that could affect SLP logic, fund movements, or protocol parameters — and responds promptly to ensure the security and integrity of deployed assets.
  • Liquidity risk: The vDOT-DOT liquidity pool carries no impermanent loss risk. Although the composition of the position may shift between vDOT and DOT as liquidity is deposited and withdrawn, vDOT can always be unstaked back to DOT after withdrawal. The principal is therefore recoverable in full regardless of pool rebalancing.

7. Track Record

Kusama

Bifrost has brought a total income of 8,370.5523 KSM to the Kusama Treasury.

Polkadot

References

  • Bifrost Website: bifrost.io
  • Documentation: docs.bifrost.io
  • LST Governance: docs.bifrost.io/faq/what-is-lst-governance
  • Twitter: https://x.com/Bifrost

Comments (2)

32 days ago

If Gavin approves, I'll vote aye. Otherwise, I'll vote nay.

22 days ago

Bifrost had repaid the loan interest to Polkadot treasury with 53,184.6227 DOT

Transaction: https://assethub-polkadot.subscan.io/xcm_message/polkadot-cf1c51d622b268b783ecf47fd0b7fd7c77cc8801

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Proposal Passed