In the early days of DeFi, Ethereum reigned supreme at the pinnacle of the decentralized segment of the blockchain industry. However, Polkadot’s ascension opened a gateway for endless possibilities, especially cross-chain functionality and interoperability. One of its projects is HydraDX-a new platform for Cross-Chain Liquidity Protocol.
Both ecosystems share similarities (e.g., smart-contract technology), but they still have different goals. While Ethereum wants to create the ultimate platform for distributed finance, Polkadot aims to build entire and integrate entire blockchains between each other.
Still, many platforms are building their concepts around the much-anticipated Ethereum’s layer-2 scaling process, while projects like HydraDX prefer to explore the possibilities brought by Polkadot’s interoperable network.
Introducing HydraDX – The Essentials
Expected to be launched on mainnet by the end of 2021, HydraDX is building a unique cross-chain liquidity protocol based on Substrate. Substrate is the framework created by Polkadot to make facilitate the structuring of customized chains.
Therefore, Substrate materializes a revolutionary concept, as it permits projects not only to build on Polkadot’s structure but to become a parachain. For those unaware, a parachain is a custom, project-specific blockchain integrated within Polkadot’s network.
Fully open-sourced and governed by its community formed by users, liquidity providers, and validators, HydraDX has a multi-asset liquidity pool strategy. Nothing similar to other pools seen in the past, the protocol is deploying an interoperable Omni pool on Polkadot.
Ideally, the platform’s ultimate goal is to provide users with deeper liquidity, lower slippage, internal composability, and next-level transaction processing.
What’s So Special About HydraDX? – Explaining the Project’s Uniqueness
It’s almost impossible to talk about DeFi without talking about liquidity protocols. Created to facilitate trading on decentralized exchanges (DEXes), these protocols helped to boost efficiency and usability in the industry’s early days.
Among the best-known examples of liquidity protocols, Uniswap, SushiSwap, Bancor, Balancer, and Curve is easy to remember. However, from these mentioned examples, none was initially built to be cross-chain compatible.
However, the increasing competitiveness and the demand for further scalability are forcing platforms to change. For example, while Curve adopted a multi-chain approach, protocols like SushiSwap, Bancor, and Balancer are all moving towards supporting cross-chain transactions.
In this context, HydraDX has an extreme advantage when compared to other liquidity protocols. Built as a self-reliant base layer, the protocol has much more flexibility to customize and fine-tune specific parameters, which will be fundamental in the long run.
Currently, most standard liquidity protocols are built upon the Ethereum network. Consequently, all these Ethereum-based projects inherit the network’s structural limitations, which is not the case with Polkadot-based protocols.
For example, if the Ethereum network takes too long and does not scale on time, it could become a colossal bottleneck for liquidity protocols.
Read more: Best DeFi Projects in 2021
Community-Driven Approach – HydraDX’s Vision on Token Distribution
Unlike other projects that allocate massive amounts of tokens only to early investors and the founding team, HydraDX has a community-centric approach.
Accordingly, only 15% of the protocol’s total token supply is reserved for investors and the founding team, while the rest (85%) is reserved for anyone who actively engages in the project.
As it’s plain to see, HydraDX’s main goal is to expand the network as much as possible, significantly increasing the likelihood it will become widely adopted.
Unlike most traditional AMMs (Automated Market Makers), HydraDX does not have different pools for all assets deposited within the platform. Instead, they have one single pool that encompasses all exogenous assets that users deposit into their network.
While this unique Omni pool securely holds all deposited assets, HydraDX’s idea is to have a base asset – the HDX token – which will be minted and controlled by the protocol.
Hence, this base asset will represent 50% of the initial value of the platform’s liquidity pool. In comparison, the other 50% of the initial value is provided by liquidity providers when depositing exogenous assets.
To maintain a 1:1 asset ratio, HydraDX employs algorithm-based technology. Therefore, as assets are either deposited or withdrawn, the platform’s unique mechanism will mint or burn native HDX accordingly.
HydraDX Tokenomics – In Layman’s Terms
HydraDX’s liquidity pool has two different sides, with liquidity providers on one end and HDX tokens (supplied by the protocol) on the other end.
Hence, let us say someone decided to deposit $10 worth of DOT (Polkadot’s native token) into the first side. Simultaneously, the protocol will proceed to mint $10 worth of HDX and deposit it on the other side of the pool.
This way, since all exogenous assets are pooled together, this mechanism increases capital efficiency. Plus, considering HydraDX’s liquidity is not scattered around in various pools containing different assets, it should massively reduce slippage levels (at least, theoretically).
Although this model is not proved yet, it will have a massive impact on the way people conceive liquidity provision if it succeeds. Consequently, liquidity providers would not have to deposit assets in different pools, as they could inject them all together into an Omni pool.
Plus, Assuming the project’s Omni pool has insignificant to zero occurrences of impermanent loss, this feature could transform HydraDX into a magnet for liquidity providers spread across different ecosystems.
HydraDX’s HDX Token – Is It Worth the Investment?
Unfortunately, many DeFi projects fail when structuring their token proposals, as they only deliver purely speculative assets. to determine if a token will succeed in the long term, the main factor to evaluate is called real value.
In this sense, HydraDX believes HDX tokens must have meaningful value accrual. Hence, as the protocol keeps creating and capturing further value, they need to direct this value influx to those token holders actively participating in the network.
For example, many DeFi projects fail because they invest too much time in attracting the non-loyal public, while they should invest their time only in building and strengthening a loyal base of token holders.
Additionally, HDX tokens must have some utility, meaning the asset must serve a meaningful purpose that enhances the protocol and does not create friction.
This type of approach is excellent, especially considering platforms that give liquidity incentives to bootstrap liquidity need to maintain that optimal level of liquidity over time – even if incentives waive or cease to exist.
Built on Substrate, HydraDX is a Polkadot-based project that aims to be the present’s cross-chain liquidity protocol. In parallel with a unique system based on one single pool of assets, HydraDX firmly believes in optimal token distribution.
Ultimately, HydraDX believes in maintaining HDX tokens in the hands of individuals that will be around in the long term, which explains why the project decided to allocate most of its token supply to liquidity miners and stakers.