Introducing Hydro Protocol: A Thin Protocol for Decentralized Exchanges
What is Hydro Protocol?
The open-sourced Hydro framework incorporates:
- Professionally audited smart contracts which perform secure token exchange transactions between two or more parties through atomic swap
- A rapid, robust order matching algorithm
- Developer tools and resources to expedite the creation of decentralized exchanges (relayers)
Hydro is designed for developers looking to build decentralized exchanges without having to deal with the complexity and expense of designing, deploying, and securing smart contracts.
The Hydro Protocol v1.0 smart contract is live on DDEX as of January 1, 2019.
The Hydro Protocol v1.0 Contract
The first version of the Hydro Smart Contract uses an order matching architecture. This architecture utilizes token allowance permissions to facilitate trades without losing custody of their digital assets. Exchanges on the v1.0 contract can offer both limit and market orders.
There are several key differences between Hydro Protocol and existing decentralized exchange protocols. To highlight a few:
Omission of a 3rd party fee token
Transaction fees in a Hydro system are collected via the base token (i.e. WETH, DAI) of each specific trade, rather than a separate protocol token (i.e. ZRX).
Superior for Liquidity Providers
Smart contract level support for asymmetric fees and discounting yields an average of 35 more basis points for liquidity providers*. This promotes more liquid markets, lower spreads, and greater depths that benefit all users.
*Market makers on Hydro based relayers earn maker rebates for providing liquidity. Through rebates and asymmetrical fee structures, makers can actually yield negative trading fees, effectively earning up to 50% of trading fees as profit.
True Matching: Market Orders, No Order Collision, Free Cancellation
Hydro v1.0 could be seen as a clean implementation of 0x’s “matching mode” contracts. By prioritizing order matching on a smart contract level, market orders are seamlessly integrated into existing liquidity, there is no order collision whatsoever, and order cancellation is always free.
Why A New Decentralized Exchange Protocol?
The Hydro Protocol smart contracts were largely inspired by our experience running DDEX, a decentralized exchange which previously utilized the 0x protocol in “matching mode”. We realized that there was fundamental room for improvement on a smart contract level that could yield benefits not only to our own exchange, but for all developers and traders entering this ecosystem.
Many of the fundamental problems we encountered could only be addressed at a protocol layer, rather than through application layer solutions. Hydro Protocol is a direct effort to solve these protocol layer problems we, and other relayers, faced.
More detail regarding future developments will be posted in our wiki. A few key dates below:
- Launch Hydro Protocol 1.0
- Upgrade DDEX web and iOS/Android mobile apps to take advantage of true matching and flexible fee structure
- Developer Toolkit (Beta)
- Publish Token Economics Proposal
- Contract Fillable Liquidity
- Upgrade Hydro Swap
- Begin autonomous incentive token distribution
- Ship additional exchange engine(s)
- Developer Portal (Public)
2019 Q4 and beyond
- Hybrid liquidity sharing exploration
- Cross-chain exploration
- Level 2 scalability integrations
Interested in learning more about Hydro Protocol or starting a Hydro Relayer?
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