HydraDX is a decentralized platform with inter-blockchain support, powered by Substrate, and operates on Polkadot where it runs as a parachain.
The cryptocurrency industry has evolved rapidly in the last several years since Bitcoin and Ethereum paved the way for a new industry of digital assets to flourish. Apart from exchanging one digital asset for another, the space now allows individuals to borrow and lend their crypto holding without the need of an intermediary, which is what we commonly call decentralized finance (DeFi).
Unfortunately, although this crypto subsection recorded massive growth in 2020, it has some shortcomings. Assets need to be deposited into separate pools. In some cases, users need to provide cryptocurrencies on both sides of a trading pair in a pool.
Additionally, there’s little to no interoperability between cryptos on different decentralized networks. Among the few platforms that have successfully solved these issues is HydraDX. The protocol combines the features of different standalone DeFi networks and allows cross-chain interaction. Below, we take an in-depth look into the platform’s major parts and how it differs from the rest.
The protocol is developed by Galactic Council, which is comprised developers concentrating on building on Substrate, the engine powering the Polkadot ecosystem. Notably, Galactic Council is a member of Zee Prime, a venture capital firm “investing in programmable assets.”
The protocol is backed by a long list of angel investors such as Tenzor, DFG, CMS, and Hypersphere.
What is HydraDX?
HydraDX is a decentralized platform with inter-blockchain support. It is powered by Substrate, the same engine driving reputable platforms such as Polkadot and Edgeware. However, it operates on Polkadot where it runs as a parachain.
By using Substrate, HydraDX developers can implement system-wide upgrades without triggering a hard fork. On the other hand, its implementation on Polkadot as a parachain allows it to optimize key properties such as speed, flexibility, and security.
In addition, Polkadot accommodates the future, and already the number of projects on the platform are soaring. HydraDX’s primary offering lies in its strength to act as a trusted and secure middleware to power decentralized token swapping whether on or outside Polkadot.
Note that operating a parachain on Polkadot allows for increased customization to fit any use case.
Major HydraDX Use Cases
With cross-chain support, flexibility, speed, and security, HydraDX’s financial use cases are limitless. Key among them include;
- Swapping cryptocurrencies from different blockchains.
- Users can provide liquidity and earn rewards.
- Users can create new liquidity pools for new tokens.
- Developers can integrate in-wallet swaps, and directly connect crypto storages with decentralized exchange (DEX) aggregators.
- Developers can interact with Bitcoin (BTC), Polkadot (DOT), ERC-based coins, and other blockchain-based assets.
How HydraDX Operates
Although the platform uses automated market-making (AMM) to determine the asset prices in pools, it moves away from the conventional AMM model. To better understand HydraDX’s price discovery options, let’s look at where it’s applied.
The protocol uses a single decentralized pool which it calls an ocean thanks to its flexibility in expansion. The pool’s liquidity comes from individual liquidity providers and the platform itself. Interestingly, this approach allows it to combine features from traditional DeFi platforms such as Uniswap and Balancer to provide an enhanced network for users.
Liquidity from the protocol uses the platform’s native currency, HDX (more on this later). Furthermore, half of the pool is made up of HDX while the remaining percentage comes from LPs. The number of tokens minted depends on the activity on the pool.
HydraDX’s Native Token (HDX) and Governance
HydraDX’s native currency is called HDX. Its minting depends on the tokens provided by LPs on the single pool. As such, the more assets, the more HDX tokens are minted. On the other hand, when LPs withdraw their assets from the pool, the platform ensures equilibrium by burning more HDX.
HDX can be traded with other assets in the pool or bought outside the platform. The pool currently supports the platform’s base asset, Ethereum (ETH), and Polkadot (DOT).
Other HDX Use Cases
Apart from providing liquidity in the pool, HDX has more use cases. For instance:
- It is used as a reference point when pricing an asset in terms of another asset.
- As such, it guards against price slippage and improves capital efficiency. Note that price slippage is among the key issues troubling DeFi platforms employing conventional AMM features.
- Interestingly, HydraDX’s approach enables LPs to provide single assets for liquidity. HDX allows the protocol to live up to its comparison with an ocean. How? The ocean can expand and shrink at will depending on the liquidity.
- Consequently, HydraDX’s omni pool, using the native currency, is able to expand and shrink depending on the “inflow and outflow of assets.” In doing so, the network reduces liquidity scattering while enhancing execution.
Observe that the approach taken by HydraDX enables the native currency to be backed by all tokens deposited in the omni pool.
- HDX also doubles up as a staking token where it can be locked in a wallet, allowing holders to participate in finding new blocks on a proof of stake blockchain. Additionally, HDX holders benefit from discounted trading costs and a lower over-collateralization ratio when borrowing from the network.
- That’s not all. HydraDX is a community-governed platform. Therefore, to give real users a voice on the platform, it uses its native token.
- However, before going to the decentralized governance route, the platform has a Discord channel where users can propose changes and improvements to HydraDX. Twitter and Telegram are other platforms where the HydraDX community meets to discuss critical issues.
Although these platforms don’t provide decentralized governance, they have a large crypto following, are easily accessible, and easy to use.
How to Earn HDX
First, the native token is an incentive to those providing liquidity on the omni pool. Thus, being an LP automatically earns you HDX coins.
Apart from liquidity provision, the tokens can be bought off the protocol and staked to earn more coins. Moreover, bounty hunters are rewarded in HDX for their participation in the network.
Improvements On the Platform
HydraDX developers are spending sleepless nights to ensure everything a DeFi user wants is available and perfectly running. In recent months, the platform has gone through major improvements. For instance:
- It has incorporated a technology to enhance transaction tagging.
- Developed an improved order matching mechanism with excellent error handling and enhanced fee determination.
- More bugs fixed, which translates to a smoother user experience.
- All components benchmarked to provide a more stable system.
From our above discussion, it’s clear HydraDX is an exceptional DeFi project, with a uniqueness that comes, in part, from its use of an improved AMM model. This allows LPs to provide a single asset instead of all quoted assets in the pool. Additionally, using a single pool for all tokens provides a better user experience, lowers price slippage, and attracts more liquidity.
The protocol’s implementation of its native token enables it to easily adapt to the changing liquidity in the pool. Furthermore, HDX has additional benefits such as discounted trading fees and staking rewards to its holders.
Being a decentralized network, employing decentralized governance is a natural addition. HydraDX’s choice of using Substrate and Polkadot is a clear sign that the platform is keen on developing an all-inclusive network capable of withstanding the highs and lows in the DeFi ecosystem now and in the future.