Hydro is a bidding & governance platform for the efficient deployment of liquidity across the Interchain. It is an important piece of the previously introduced ATOM wars strategy and a response to the biggest challenge of the ecosystem: token liquidity.
Hydro allows projects to bid for deployments of ATOM (and other tokens) liquidity under the control and for the benefit of all ATOM holders. The exact mechanics of Hydro’s auction and governance systems are specified in the following litepaper:
Hydro: An auction platform for liquidity exports
Hydro provides key features for the streamlining of liquidity access to both Interchain (Cosmos) and non-Interchain projects and chains. These features include token locking, voting rights, bidding rules, voting rules, and fund allocation rules.
Hydro is a key component of the concept of “ATOM wars” but may also facilitate the deployment of other tokens (Celestia & Stargaze are examples)
Community Pools: While the Cosmos Hub will likely be the first community pool to provide an ATOM “loan” to Hydro to coordinate exports, Hydro has been designed in a way that allows other community pools to participate and contribute liquidity into buckets.
Hydro: This is where the auctions for liquidity injections take place. Hydro manages the distribution of special voting rights through hATOMs receipts and governs the bidding, voting, and allocation processes (see attached lite paper for details)
Timewave: The covenant system may ensure that chains retain direct ownership of their liquidity. it eliminates the need for multi-sigs, reduces complexity and increases security. Hydro is still able to operate via multi-sigs in the absence of Timewave.
Vote aggregators: Third-party projects may be developed on top of Hydro. Vote aggregation projects could offer holders the benefits of long-term locking while providing them with a tradable liquid derivative and abstracting the complexities of voting away from users. Multiple aggregators may compete over maximal returns.
Status, Updates & Roadmap
Thanks to extensive community discussions, comments, and feedback, we’ve also made significant improvements to the design of the auction platform since the original ATOM wars forum post. The following changes have been integrated into the litepaper:
- Multiple liquidity buckets, starting with stATOM
- Two tranches for each bucket (one exclusive to ICS chains)
- Ability to vote for a project in multiple tranches (increased earning potential)
- Weighted distribution allocation to promote competition
- 3 governance layers (monitoring committee, hATOM holders & Hub veto power)
- Whitelist of assets and deployment
- Prevention of sniping strategies with a random deadline
- Alignment of locking periods and frequency of rounds
- Bids submitted beforehand to prevent unfulfilled promises
In an effort to accelerate the launch of Hydro, the Informal team is planning to divide the fully-featured implementation of the product into several releases.
- Hydro v1 is an MVP that only accepts the locking of stATOMs from the Stride protocol. The MVP also will also come without the sniping mitigation strategies and the performance incentives for voters that are described in the litepaper
- Hydro v2 will use the LSM (Liquid Staking Module) DelegationShares instead of (or in addition to) stATOM. This would allow any ATOM staker to acquire hATOMs by directly locking their "DelegationShares’’ (obtained through LSM) into the platform.
- Hydro v3 will include performance incentives for voters and the hATOM governance layer (prior to that, Hydro governance relies on the committee and standard Cosmos Hub governance) as well as snipping mitigation strategies (random deadline)
The purpose of this forum post is simply to introduce Hydro as a concept and provide a status update on ATOM wars. The Hydro smart-contracts are currently waiting for a third-party audit. After completion of this audit, a governance proposal will be submitted to Cosmos Hub’s on-chain governance to seed Hydro from the community pool and elect a monitoring committee.
Any project interested in receiving liquidity exports from Hydro may already reach out to the Informal Systems account on Twitter. Informal Systems also has a number of open positions to work on Hydro, including a Business Development lead and Rust engineers.