The Hydra Chain project took a major step towards decentralizing its exchange liquidity this week by migrating core pools to its newly launched LYDRA token. In addition to adding direct LYDRA pairs, the incentives for providing liquidity to ETH, WBTC and USDC were also increased.
The upgraded liquidity mining campaigns aim to significantly improve capital efficiency and TVL on the Hydra DEX by reducing opportunity cost for liquidity providers. With yield bearing opportunities for HYDRA stakers, the dilemma of choosing between staking and providing liquidity has been eliminated.
LYDRA Allows Simultaneous Staking and Liquidity Provisioning
The key driver was the introduction of LYDRA – an ERC20 derivative token minted against staked HYDRA at a 1:1 ratio. By allowing HYDRA stakers to mint liquid LYDRA tokens, the mechanism unlocks simultaneous staking yield collection and liquidity provisioning.
This is in contrast to HYDRA itself which must be unstaked before adding to pools – forfeiting staking income in the process. Hence LYDRA fundamentally aligns user incentives for pool participation by reducing opportunity cost to zero.
The lower barrier to entry is expected to bootstrap TVL and improve campaign ROI across approved pairs – starting with ETH, WBTC and USDC.
New LYDRA Pools and Upgraded Mining Rewards
- 5,000 HYDRA/month for ETH/LYDRA
- 5,000 HYDRA/month for WBTC/LYDRA
- 5,000 HYDRA/month for USDC/LYDRA
In addition, ETH/WBTC and USDC stablecoin pairs saw mining rewards boosted to 5,000 HYDRA and 2,000 HYDRA per month respectively.
The migration of core pools to LYDRA as the primary base asset also signals longer term intentions to build future AMM liquidity around the dual-token model. LYDRA is seen as the natural primitive for bootstrapping sustainable growth of the nascent DEX.
Early data and sentiment suggests the move has already stimulated wider interest in providing liquidity on Hydra – particularly from leveraged HYDRA stakers seeking to put LYDRA yields to work.
How Liquidity Mining Rewards Work
Many new users had questions in the Hydra Telegram group about the stated rewards of 5000 HYDRA per month for providing liquidity. These incentives are distributed to liquidity providers proportional to their share of the pool. By adding funds to the trading pools and staking the LP tokens received, users earn HYDRA tokens as an incentive for providing liquidity. The more total value locked in the pool, the smaller the share of rewards each provider earns.
Auto-Compounding Benefits of Superstaker Nodes
In addition, delegating HYDRA to “superstaker” nodes with lower minimum staking thresholds allows for automatic compounding of rewards. Rather than manually having to redelegate rewards, superstakers handle this automatically, simplifying earning compounding interest.
Mint LYDRA For Simultaneous Rewards and Liquidity
Further utility comes from the ability to mint LYDRA tokens against staked HYDRA. This allows stakers to free up liquidity while their locked HYDRA continues earning delegation rewards. Some users were confused about how burning LYDRA results in unlocking the HYDRA. This dual-token mechanic is a key innovation for aligning incentives.
Strategic Impact on HYDRA and the Broader Ecosystem
Besides the direct yield incentives for liqudity providers, the elevation of LYDRA is also expected to benefit the HYDRA ecosystem in several key aspects:
More LYDRA Utility Drives HYDRA Demand: Higher utility and demand for LYDRA indirectly translates into higher demand and buying pressure for its parent asset HYDRA, due to the 1:1 minting ratio.
Improved Capital Efficiency: By reducing opportunity cost to zero, the same liquidity mining budgets are able to bootstrap higher TVL as user incentives align more cleanly with no external yield being forfeited.
Greater Accessibility for New Users
The flexibility afforded by LYDRA lowers the barrier to entry for provisioning liquidity while learning about the ecosystem. New users can stake HYDRA for yield while simultaneously providing liquidity using LYDRA to earn additional rewards.
Based on these dynamics, the latest upgrade provides a template for sustaining liquidity that is fundamentally better suited to an asset like HYDRA that offers high external staking yields. By separating out liquid and locked forms of the asset, user incentives can be perfectly convergent.
This innovation serves as a case study for how high yield ecosystems can sustain liquidity for native assets – by offering yield derivatives like LYDRA to eliminate opportunity cost. Based on early traction, the introduction of optimal incentivization design is already reaping benefits for the Hydra DEX.
Ongoing Developments and Community Dialogue
As the project continues introducing further features and capabilities into its dual-token model, the latest migration of mining pools to leverage LYDRA represents a milestone in aligning liquidity provider incentives by eliminating opportunity cost. It also continues the trend of innovative staking solutions pioneered by the protocol to bootstrap sustainable growth and liquidity with a yield-oriented token.