Hydro: Where Staking Meets Governance to Fund Cosmos Projects

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Hydro: Where Staking Meets Governance to Fund Cosmos Projects
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Introduction to Hydro

Hydro is an advanced liquidity management solution for the Interchain, designed to transform liquidity allocation in the Cosmos ecosystem. As a recent addition, Hydro introduces an innovative way to vote for projects using staked ATOM while still earning staking APR. Built to support and secure the growing ecosystem, Hydro allows users to lock their stakded ATOM to gain Voting Power, empowering them to choose which projects should receive liquidity and how much.

How Hydro Works: Locking, Voting, and Tribute Rewards

Hydro’s uniqueness lies in a system where users lock their ATOM, gain voting rights, and receive a portion of the tributes offered by projects seeking liquidity. Here’s how it works:

  • Users lock their ATOM (without losing staking APR).
  • They vote for a project they wish to support.
  • In return, they receive a share of the tributes paid by the project.

Voting in Hydro: A Tranche-Based Approach

Currently, Hydro allows users to lock their staked ATOM to gain Voting Power and support specific projects. Users can vote for one project per tranche, with each tranche representing a distinct liquidity category. If a user wishes to support multiple projects, they must do so in different tranches, as it is not possible to split their vote across multiple projects within the same tranche.

Pilot Cycle Structure and Limits

This pilot cycle launches with strict caps to ensure safe scaling. The current limits include:

  • 200 ATOM per Wallet: Each participant can lock a maximum of 200 ATOM, maintaining a controlled testing environment.
  • 20,000 ATOM for Hydro: This cap is for user participation during Hydro’s pilot cycle, ensuring a smooth experience.
  • 200,000 ATOM for Protocol-Owned Liquidity (PoL): This cap pertains to the protocol’s own liquidity that Hydro can deploy to fund selected projects, maximizing sustainable liquidity distribution within the Cosmos ecosystem.

These limits help Hydro to maintain a gradual, secure approach as the platform scales and improves its features.

Benefits for the ATOM Community

Hydro offers clear benefits and fosters community engagement:

  • Earn without Sacrificing Rewards: Users continue to earn staking rewards on their ATOM even after locking them.
  • Support Promising Projects: By voting, users contribute to project development while receiving a portion of the tributes.
  • Enhanced Community Engagement: By participating in voting and staking, the ATOM community directly influences the funding of new projects.

How to Participate in Hydro

Here are the steps to join Hydro’s pilot cycle:

1 .Delegate ATOM: If you haven’t staked ATOM, use Keplr’s dashboard to select a validator and start earning rewards.

2 .Check LSM Shares: Use Moonkitt to ensure your LSM shares are enabled; if not, click "enable" and wait 21 days.

3 .Liquefy Your ATOM: You can liquefy your ATOMs later on Hydro, but for information purposes just know that you can do it directly on Moonkitt in a very intuitive way. Moonkitt.

4 .Access Hydro: Connect your wallet to Hydro and follow these steps, don't worry you will be well guided :

  • Liquefy staked ATOM into LSM shares if needed
  • Send them to Neutron
  • Lock LSM with Hydro to obtain VP (Voting Power)

5 .Choose Your Project: Browse available projects and pick one that resonates with you.

6 .Vote with VP and Track Rewards: Once locked, monitor tributes offered by projects and enjoy your returns.

Refresh Lockup

This Hydro feature incorporates two key principles to optimize users' Voting Power (VP).

  • The longer the lockup period, the more voting power is granted. For example, a 12-month lockup will provide more VP than a one-month lockup.
  • Voting power decreases over time: as the lockup ages, VP gradually diminishes, prompting users to refresh or extend their lockup to maintain their influence in project governance.

These mechanisms encourage continuous engagement and active participation within the Hydro ecosystem.

These mechanisms encourage continued engagement and active participation in the Hydro ecosystem.

Hydro vs. Polkadot’s Crowdloan

Hydro and Polkadot’s crowdloan mechanism both enable token holders to support projects by locking assets, but they differ in approach and structure.

  • Hydro:
    • Locked Staked ATOM: Hydro users can lock their already-staked ATOM, keeping staking rewards while contributing liquidity to projects.
    • Flexible Lockup Options: Hydro offers the flexibility to choose different lockup durations, such as 1, 2, 3, 6, or 12 months. However, during the pilot phase, only the 1-month lockup is available. This flexibility allows users to adjust their commitment according to their support horizon.
    • Project Tributes: Competing projects offer tributes (rewards) to attract votes, with users receiving proportional shares.
    • Participation Limits: Each user can lock up to 200 ATOM, and Hydro has a 20,000 ATOM cap for the pilot phase.
  • Polkadot’s Crowdloans:
    • Locked DOT: Users lock their DOT to support projects competing for parachain slots.
    • Project Rewards: Projects may reward contributors with native tokens or other incentives.
    • Extended Lock-Up: Unlike Hydro, locked DOT is bound for a fixed period, usually aligning with the parachain lease duration (often 96 weeks), after which it is returned.

Summary: With Hydro, users can retain their staking rewards while supporting projects through a voting system to allocate liquidity, enjoying flexible lockup options to meet each project’s needs. In contrast, Polkadot’s crowdloan model requires a prolonged DOT lockup to support parachains, with specific rewards and lockup durations.

Conclusion

Hydro represents a significant step forward in the Cosmos ecosystem by merging staking and governance to fund innovative projects. This platform allows ATOM holders to lock their staked tokens, vote for promising initiatives, and receive tributes while continuing to earn staking rewards.

As Hydro evolves, with features like weighted voting and potential slashing mechanisms, it’s essential for the community to stay informed and engaged. By participating in Hydro, you’re not only funding cutting-edge projects but also playing a crucial role in the governance and future development of Cosmos.

Source : https://hydro.cosmos.network/docs

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