Despite the fact that DeFi has been significantly surging since 2020, it is still struggling to satisfy all users in every aspect. For instance, the isolated liquidity pools occasionally bother users by grounding them within specific trading pairs. When we talk about DeFi, we can hardly skip the topic of liquidity, which is critically essential for decentralized exchanges. However, liquidity pools of designated trading pairs lack interoperability with each other, which also causes another issue, insufficient trading depth of various cryptocurrencies. And if it is related to cross-chain transactions, fishbowl-like liquidity pools of different DeFI ecosystems will make the user experience even more frustrating.
The overall architecture of the current crypto ecosystem is very inefficient and rigid, just like traditional finance. The assets on the market are separated like islands in the ocean. Recalling the original intention of creating DeFi, we want to rebuild finance by implementing incrementally better technology of blockchain rather than just copying traditional finance and building some competing crypto exchanges; we want to build an unlimited decentralized finance ecosystem with a deep, fluid, and interconnected ocean of liquidity. And that is what HydraDX aims to achieve.
HydraDX is a cross-chain liquidity protocol built on Substrate and deployed on Polkadot, whose mission is to provide users a decentralized platform enabling frictionless liquidity for all crypto assets. The HydraDX team works on building the first of its kind multi-asset liquidity pool, the HydraDX Omnipool. With the Omnipool, HydraDX breaks with the traditional conception according to which assets are traded in pairs using isolated pools. HydraDX’s native token $HDX is used as a proxy for determining the relative values of various cryptocurrencies in the Omnipool, through which a single unified layer of integrated cross-chain liquidity pool is built.
Speaking of HDX, it serves as the base asset in the design of HydraDX. HDX, whose model is inspired by a bonding curve, is minted and held by HydraDX protocol, and the protocol itself is a liquidity provider, which gives two sides to HydraDX Omnipool: the liquidity provider side and the protocol side. Within the Omnipool, various assets can be priced against one another since they are all priced against HDX, which makes HDX act as a price oracle. Moreover, users will not be required to provide two assets in pairs to add liquidity. For example, when Alice purchases HDX with DOT, she injects a single asset DOT into the Omnipool, and the DOT she used to buy $HDX from the protocol side of HydraDX Omnipool become the property of HydraDX protocol, which makes the protocol itself a liquidity provider.
HDX represents 50% of the initial value of the liquidity pools, while the other 50% of the initial value is provided by the liquidity providers in exogenous assets. The 1:1 ratio is kept algorithmically, and HDX remains within the pool until they are bought. To illustrate it, Alice bought HDX for 1 BTC and Bob bought HDX for 10 ETH. Immediately after these trades, HydraDX starts to provide liquidity for BTC and ETH and to earn fees on top of them. This means HDX will be backed by the overall reserves composed of various assets injected into the pool to purchase HDX. By the time various cryptos are deposited or withdrawn, HDX gets minted or burned accordingly.
Additionally, HydraDX also figures out an elegant way to execute transactions without slippage creating friction for users. To achieve that, the HydraDX team combines the efficiency of CLOB order matching and the best of the AMM by clearing the opposite transactions in one block directly without involving AMM.
Compared to other great projects, such as Uniswap or Balancer, HydraDX breaks through the limitations like solid form and an artificial shape that trap the mentioned above. With the design of the native token HDX, HydraDX processes this flexibility mimicking a shapeless organism that expands and contracts, adapting to its current state rather than a rigid structure. HDX enables HydraDX to handle any inflow and outflow of cryptocurrencies to continuously adjust itself.
HydraDX presents an ocean to all DeFi users by bootstrapping the liquidity of the whole DeFi ecosystem of long-tail assets to life, and it can definitely play a crucial role as a pluggable middleware for everyone who would like to enjoy seamless and frictionless transactions.