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Bifrost KSM Liquidity Loan — Renewal

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14 hours ago
ProposalStatus.preparing

Treasury Proposal | June 2026
Proposer: Tyrone - Bifrost

1. Executive Summary

Bifrost successfully completed its KSM liquidity loan (Referendum #477). Over the 18-month period from Dec 2024 to May 2026, the 50,000 KSM loan generated 3,637.98 KSM in interest (blended APR: 4.85%), and Bifrost distributed 85,568.9838 BNC (~$7,950) in liquidity incentives to the vKSM-KSM pool.

Bifrost now proposes to:

  • Repay the interest (3,637.98 KSM) to the Kusama Treasury upon execution of the pending vKSM unstaking referendum. (Currently in processing: bifrost-kusama.subsquare.io/referenda/139, expected to complete June 23, 2026)
  • Renew the existing 50,000 KSM loan for a further 18 months at a blended interest rate of ~2% per annum. (Bifrost will NOT take any commission from it)

2. Performance Report (Dec 2024 – May 2026)

2.1 Loan Structure & Returns

ItemValueNotes
Principal
Total loan amount50,000 KSM
Liquidity Pool Deployment
Minted as vKSM (liquid staking)25,000 KSM50% in pool — generates staking yield
Deployed as liquidity25,000 KSM50% in pool — does not generate staking yield
Returns (Dec 2024 – May 2026)
Total interest earned3,637.98 KSM
Blended APR4.85%

A total of 50,000 KSM was borrowed and deployed in vKSM/KSM liquidity: 25,000 KSM (50%) was minted into vKSM, while the remaining 25,000 KSM (50%) was deployed in the stable pool against vKSM. Over the 18-month period, the position generated 3,637.98 KSM in total interest, reflecting a blended APR of 4.85%.

2.2 Liquidity Incentives — Bifrost's Continued Commitment

ItemValueValue in USD
Liquidity Incentives (BNC)
Total BNC rewarded (Dec 2024 – May 2026)85,568.9838 BNC~$7,950 based on 1-yr avg. price

Over the 18-month loan period, Bifrost distributed a total of 85,568.9838 BNC (~$7,950) in liquidity incentives to the vKSM-KSM pool — reflecting Bifrost's continued commitment to deepening KSM liquid staking liquidity throughout the loan term.

3. Repayment Commitment

Bifrost commits to repaying the interest in full to the Kusama Treasury upon execution of the pending vKSM unstaking referendum.

ItemValueNotes
Principal50,000 KSMPropose to roll into the next 18-month term
Interest3,637.98 KSMTo be paid to Treasury upon execution of Referendum #139

The 3,637.98 KSM interest is currently being unstaked from vKSM under Bifrost-Kusama Referendum #139, expected to complete on June 23, 2026, after which it will be transferred directly to the Kusama Treasury.

4. Proposed Terms — Next Term

ParameterNext TermNotes
Loan amount50,000 KSMRenewal of existing loan
Loan duration18 months from enactmentRepayment due 18 months after enactment; specific date to be confirmed once enactment occurs
Blended interest rate~2% per annum (~3% cumulative over the 18-month term)Contingent on Kusama staking APY ~4%
vKSM allocation50% of principal25,000 KSM minted as vKSM
Liquidity allocation50% of principal25,000 KSM deployed to vKSM-KSM pool
CommissionNoneBifrost will NOT take any commission from this loan
RepaymentPrincipal + interest at maturityFull repayment due 18 months after enactment

4.1 Interest Rate Rationale

The blended interest rate for the next term is projected at approximately 2% per annum (~3% cumulative over the 18-month term), and Bifrost will NOT take any commission from it. This projection is based on the 25,000 KSM minted as vKSM (50% of principal) earning an assumed Kusama staking APY of ~4%; the remaining 25,000 KSM deployed to the vKSM-KSM liquidity pool does not generate staking yield. Actual returns will vary with Kusama network staking yields, which fluctuate with inflation, validator commission rates, and total stake participation.

4.2 Capital Deployment

  • 50% (25,000 KSM) will be minted as vKSM via Bifrost SLP, accruing staking rewards through the vKSM yield-bearing mechanism.
  • 50% (25,000 KSM) will be paired with vKSM and deployed to the vKSM-KSM liquidity pool on Bifrost, deepening on-chain liquidity and reducing slippage for vKSM transactions.
  • No KSM will be used for speculative positions or off-protocol deployments.

5. LST Governance & vKSM Voting Rights

Beyond liquidity and yield, vKSM carries full Kusama OpenGov participation rights. This section outlines vKSM's governance utility and clarifies how voting rights are handled for the vKSM minted under this loan.

5.1 vKSM Holders Can Vote in Kusama OpenGov

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

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

This means vKSM holders do not sacrifice governance rights when liquid-staking KSM.

5.2 BNC Governance: Delegated vKSM Voting

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

Specifically:

  • When vKSM 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 vKSM voting weight is cast in Kusama OpenGov referenda.
  • This mechanism does not affect vKSM holders who vote independently — only unclaimed delegated votes are subject to BNC governance.

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

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

5.3 Note on Loan-Derived vKSM

The 25,000 vKSM minted under this loan and deployed into the vKSM-KSM liquidity pool will be held under Bifrost Treasury custody and will not participate in the delegated voting mechanism described in Section 5.2 — it is excluded from Kusama 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.

6. Risk Disclosure

  • Interest rate variability: The ~2% per annum blended interest rate is based on an assumed Kusama staking APY of ~4%, applied to the 25,000 KSM minted as vKSM. Kusama staking yields fluctuate with network inflation, validator commission rates, and total stake participation, so the realized blended return at maturity may differ materially from this projection.
  • 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 vKSM-KSM liquidity pool carries no impermanent loss risk. Although the composition of the position may shift between vKSM and KSM as liquidity is deposited and withdrawn, vKSM can always be unstaked back to KSM 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 to date; upon completion of the pending repayment above, cumulative income will rise to approximately 12,008.5323 KSM.

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

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