HydraDX Omnipool (part 1)
Introducing the LHDX token
This is the first post in a series of 4 R&D articles which explain the mechanics behind the HydraDX Omnipool, as well as some of the cutting-edge research that we have been conducting recently. This is a deeper dive for those who’d like to become advanced Hydraheads.
The Omnipool embodies our vision of the AMM of the future. It is designed to put an end to liquidity fragmentation by accommodating many cryptoassets in a single trading pool (we proudly refer to it as “an ocean of liquidity”).
In this post, we are happy to introduce the LHDX token (Liquid HDX). LHDX is the token powering the Omnipool. Its introduction means that HydraDX will be transitioning towards a two-token design once it hits mainnet as a Polkadot parachain.
LHDX: The pool token
LHDX is the pool token of the HydraDX Omnipool. It acts as a proxy which allows us to determine the price of all other assets in the Omnipool. This means that all trades will pass through the LHDX token, with trading fees being paid in LHDX (and potentially burned).
The initial supply of LHDX will be distributed entirely to the Omnipool. The market cap of LHDX will be set to match the amount of DAI raised during the HDX LBP, as well as the HDX which will be supplied as the first tradable asset in the pool.
From that point on, the cap of LHDX will fluctuate depending on the total liquidity in the Omnipool. When new liquidity is added to the Omnipool, the protocol will mint a corresponding amount of LHDX tokens. Once liquidity is removed, the LHDX tokens are burned.
HDX: The ownership token
HDX continues to be the main token which grants you membership to the HydraDX tribe (protocol ownership), as well as voting rights in all tribal matters (governance & referenda). Its economic value is further highlighted by the fact that rewards for liquidity mining are paid out in HDX.
We naturally find protocol-owned liquidity a very attractive option for any AMM. After mainnet, we will further explore the possibility to acquire protocol-owned liquidity with HDX. Any decision to do so will be taken by the tribe following the governance process, as usual.
Why two tokens?
By separating the pool token (LHDX) from the ownership token (HDX), the HydraDX protocol will be able to incentivize actors without necessarily granting them governance rights.
This means that HDX will be protected from the fluctuating supply of the pool token, which will change depending on whether liquidity is added to, or removed from the pool. If we were to use the pool token for governance, this could potentially broaden the governance attack surface. The separation of tokens would also allow us to limit the options for mechanisms to control payoff structures of single-asset liquidity providers.
In the next post of the R&D series, we will discuss the structure of Omnipool, as well as some of its intriguing features which make it unique.
Stay hydrated, not liquidated! 💦
Quick FAQ:
1. What does this mean for my HDX bags?
HDX remains the main token granting protocol ownership and voting rights.
The introduction of LHDX allows us to keep the total supply of HDX stable, thus removing the unpredictability associated with Omnipool liquidity provisioning.
2. How do I get LHDX? How is LHDX distributed?
Initially, LHDX will reside entirely within the Omnipool. New LHDX is minted only when liquidity is provided to the Omnipool. Liquidity providers will need to obtain LHDX in order to pay for transaction fees.
3. How much LHDX do the team and evil VCs get?
Zero / nada / none.
Bless thee Hydra 🙏🏼
This totally devalues and de-utilise the HDX token. Creating a second utility token has never been good for a token utility point of view. Look at AXS-SLP. Please consider removing LHDX token and using HDX token to replace all of the LHDX utility. Demand will come from traders who want to trade in Omnipool. Supply will come from minting as Omnipool increases. If more liquidity providers come in, supply will increase with HDX minting and price will drop. If more traders come in, demand will increase and price will increase.
The HDX token has to be of high utility and price value to make it a strong token. With more adoption of Omnipool and high trade volume, HDX price value will increase. We can consider creating another token for governance. And only holders of HDX token are given governance token (GHDX) once a day based on % of HDX holdings. This way people who want to buy their way into governance has to purchase HDX tokens and are incentivise to hold HDX tokens.