Hydro Q1 progress report

Conversation Proposal updates
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As committed in our January funding proposal, the Hydro Team will provide quarterly progress reports. Our primary goal is expanding the size and value of ATOM deployments processed through the application. Additionally, we aim to increase the number of protocols participating in the auction process. Together, these efforts drive progress toward our third goal - maximizing payouts to ATOM stakers and making sure their investment pays off.

Here’s how we performed on these goals in Q1 2025:

Metric Value
Value of deployments 983,754 ATOM
Number of deployments 20
Number of bids 32
Number of protocols 13
Total tributes paid out $14,005
  • numbers include round 5 bids & tributes (value as of 28-Mar)

The trendline is strongly positive, with nearly all metrics increasing consistently each round, culminating in Round 5 as our most successful to date.

On the technical side, our priority is to automate the deployments & clawbacks and open up new safe use cases for deployments. This is what we worked on over the past 3 months:

Feature Description
Stream Stream is an integration between Hydro & Valence to automate deployments. Round 5 deployments to Astroport will be made without the committee having to sign txs. Osmosis deployments will follow shortly
Vortex Vortex is an off-chain program that ensures that Hydro doesn’t suffer impermanent loss on volatile LP positions. It enables Hydro to automatically unwind & claw-back positions if the collateral falls below a liquidation threshold
USDC bucket The USDC liquidity bucket (sourced from the Hub community pool) was integrated into the Hydro front-end and made available for project bidders during round 5. The first deployments of USDC will happen shortly
OSMO lockups In preparation of a new BTC liquidity bucket sourced from the Osmosis community pool, we’re working on enabling OSMO lock-ups into Hydro so that OSMO and OSMO LSTs holders can allocate new liquidity buckets
Governance We’ve customized DAO DAO to provide Hydro users with the ability to vote on governance proposals, define the protocol parameters, manage the treasury and elect (or remove) the Hydro committee members
Auto-compound We’ve made it possible for Hydro users to claim, swap to ATOM and (soon) compound everything into lock-ups directly from the Hydro interface. This feature bypasses the Hydro global lock-up cap & rewards early adopters
Project dashboard We’ve built a dashboard so projects can submit bids via a user interface instead of having to use the CLI. We’re now working on making the UI automatically work out deployment caps based on security restrictions

New hires have joined the Hydro Team over the past 3 months: 1 FTE Growth Lead, 0.5 FTE Operation Coordinator and 0.5 FTE Technical Advisor

Several other people are supporting the team on an as-needed basis: Legal Counsel, Finance Coordinator, HR Coordinator

Our Product Lead (Brian) is leaving the Hydro Team to focus on his family. We are thankful for his contributions and wish him the best in his next chapter.

The Hydro Team’s total expenditures amounted to $228,577 for Q1. Hydro Labs is currently in the process of setting up an entity in the British Virgin Islands to spin out of Informal, which should be complete in early Q2. Given this transition period, all Q1 costs have been covered by Informal Systems. The funding allocated from the Cosmos Hub community pool remains untouched and will be used to reimburse Informal once the entity is officially registered and able to open a bank account. At the current burn rate, we expect this funding to cover expenses beyond the anticipated 6 months mandate planned in Prop 986.

During Q1, we also allocated $66,603 in Hydro-related grants via the Hydro Grant DAO. Below is a breakdown of how this budget was used:

Recipient Notes Amount
Hydro committee Liquidity deployments & general advisory $11,656
Telegram admins Moderation & user support $1,403
Indexing & deployments Liquidity deployments & indexing $6,750
Data processing Ingestion pipelines and API endpoints $2,400
Stream & Vortex Engineering support $26,839
Current NFT marketplace for locked ATOM positions $6,000
Other code contributions Snapshot script development & other PRs $11,555

Similar to the Hydro Team DAO, we expect the funding received by Hydro Grants DAOs to sustain costs beyond Q2. By then, our goal will be to transition to using the Hydro Treasury rather than requesting additional funding from the Hub’s community pool.

We’re pleased with the progress made in Q1, excited to see the impact of Stream & Vortex on Hydro’s growth during Q2, and thankful to the Hub community for the continued support :ocean:

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We would like to thank the Hydro team for this clear and informative Q1 progress report. It’s encouraging to see a project that not only delivers on its mandate but also maintains a forward-thinking and sustainable approach.

This strategic focus is perfectly aligned with what the Cosmos Hub ecosystem needs: deeper liquidity, higher ATOM utility, and broader protocol participation. The attention given to increasing both value and adoption speaks volumes about the maturity and ambition of the team.

We particularly appreciate the responsible financial management demonstrated here. The ability to extend the project’s runway while laying the foundation for self-sustainability through the Hydro Treasury reflects a commendable sense of accountability toward the community pool. This is exactly the type of fiscal prudence and long-term planning we wish to see more often in the ecosystem.

We share your excitement about the upcoming developments, especially with the introduction of Stream and Vortex. Both features could represent key catalysts for Hydro’s next phase of growth, and we look forward to monitoring their impact.

In conclusion, Hydro continues to represent a strong example of aligned incentives, ecosystem utility, and operational transparency. We remain supportive of the initiative and look forward to seeing its role within the Cosmos Hub continue to expand in Q2 and beyond.

Thank you once again for your ongoing efforts and community engagement.
Govmos
pro-delegators-sign

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Hm.
Can you clarify your reasoning/methodology and any other metrics underlying your claim of “strongly positive trendline”?

Based on the reported figures above, not seeing it.
And you don’t provide a breakdown of round-over-round improvement in bid density, payout ratios etc

Show, rather than tell.

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We’ve been working with Numia to make round-by-round data easily available: https://hydro.cosmos.network/metrics/

The 0.8% is a decent estimate of the tribute yield already distributed to Hydro participants (because it’s paid upfront) but that’s just one part of Hydro’s revenue. There’s also deployment yield (swap fees, lending income, external incentives) which hasn’t been distributed yet - it’s collected at the end of each deployment and sent to the Hydro treasury.

Most deployments run for 3 months, so we don’t have a large dataset yet, but I expect the average yield for LPs on ATOM derivatives and single-sided liquidity to be around 5% average. With Vortex, Hydro will start entering volatile pools, and we should start seeing double-digit APRs. I’ve been testing Magma in preparation for integration and my ATOM-USDC vault is above 30%.

It’s worth noting that 0.8% tribute APR on deployments translates to something like 16% for Hydro participants, so they double their staking APR. Also, because tributes are paid in various tokens (STRD, SHD, ELYS, NLS, etc.), the actual round-by-round APR depends on their relative price to ATOM at the end of each round.

So It’s not a straightforward calculation, but for the next progress update, we’ll have cleaner, automated metrics in place on the /metrics page. This page right now is still a work-in-progress because we haven’t yet standardized performance tracking across protocols and venues.

If you put aside the fact that it started at Informal, and you’re obviously not a fan - what is the good-faith case against Hydro? Here are a few critiques I’ve seen so far:

“Hydro will not be profitable”: Yes Hydro will be a net cost in 2025. Isn’t it easy to see how that changes with growth ?

Scenarios Now Later?
ATOM price $5.00 $10.00
ATOM deployments 2,000,000 6,000,000
Average yield 5% 10%
Yearly revenues $500,000 $6,000,000
Yearly cost $1,500,000 $1,500,000
Yearly PnL -$1,000,000 $4,500,000

“PoL drives away real users”: This really doesn’t hold up. “Real users” are getting a smaller share of a much larger pie. Better liquidity, tighter spreads, and lower borrowing costs induce more demand (that’s why Hydro bidders keep coming back to bid) meaning more returns for everyone in these pools.

“PoL is risky”: This is the strongest argument, but risk cuts both ways. Eureka carries risks (bridges are responsible for a massive share of hacks) yet most people would agree it is likely the best thing that’s ever happened to the Hub. Hydro already has a risk framework and as it matures, it can enforce even stricter standards on bidders. We are also looking to implement voter slashing (opt-in) as a form of insurance for the protocol.

On the other side of the ledger:

  • Hydro boosts demand through deeper liquidity
  • Hydro enables efficient treasury management
  • Hydro reduces sell pressure via lockups
  • Hydro rewards active community members

I know we still have a lot to prove, but it could become a core part of ATOM tokenomics - what Proof-of-Liquidity is for Berachain and Initia VIP is for Initia. Like @Mag, I think the Hub should focus on increasing demand rather than reducing supply and Hydro has a role to play.

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