Intro to Hydro Protocol

Hydro Protocol
8 min readDec 27, 2023

Introduction

Hello Hydro Ninjas, Happy Holidays! Hydro Protocol is nearing launch on Injective (oh, it’s so close!) so we thought we might give you a friendly reminder before we hit the new year!

We find that there is a need for simplicity in the DeFi World, so that you can talk about Hydro with your buddies at the New Year Party. SO, here’s your bite-sized points that summarize the force of Hydro Protocol.

Hydro Protocol is a LSD Infrastructure protocol that will become the core driver of an LSD-centered ecosystem called LSDFi (LSD Finance). An LSDFi Ecosystem is built on the foundation of a core LSD asset (like Hydro’s hINJ). LSDFi can take many shapes and forms, but the way Hydro is going to do it is to offer Real Yield Assets on the Injective Network.

So before the deep dive, let’s go back to Liquid Staking and explore the world of LSDFi together.

Hydro Protocol offers LSDs on Injective, set to become the core asset of LSDFi

Liquid Staking Derivatives (LSD) : The $hINJ LST

Liquid Staking Derivatives (LSD) will be the primary product of Hydro Protocol that offers Liquid Staking. This means that when you stake your INJ with Hydro, you get a Liquid Staked Token (LST) that represents the equivalent amount of INJ. It is with that LST, the hINJ, that now becomes the foundation and standardized asset of LSDFi on Injective.

The hINJ is the LST created by Hydro Protocol that enables instant staking benefits and unlocks liquidity for different uses across other DeFi protocols. When users deposit INJ with Hydro LSD, they will mint and receive hINJ on a 1–1 basis in return. This 1–1 ratio will always be honoured through a smart-contract.

LSDFi + Real Yield Asset (RYA)

Recall that LSDFi (LSD Finance) is an ecosystem derived from the liquid staked asset of a particular network. So then what in the world is RYA?

Real Yield Assets (RYA) is a novel concept created by Hydro Protocol to help users maximize their yield strategies across the crypto market. Simply put, RYA is a core financial product in the LSDFi Ecosystem that give users access to multiple yields in one product (often called a ‘basket’).

Hydro understands that being exposed to one singular asset puts users at unnecessary risk, sometimes at a frightening cost. In order to best hedge these risks, Hydro has created the RYA.

The Hydro RYA will have diversified sources of yields and risks that are indexed as components with different weightings into a basket. The term ‘Real Yield’ in this case refers to yield that is generated from sources of revenue outside of inflationary tokenomics. DeFi saw the emergence of LP Pools, generally in pairs (ie INJ-USDT), the RYA will work similarly to an ETF in the traditional equity market, and be aggregated into an LP token.

Examples of these diversified yields include: revenues generated from margin trading protocols, fee shares and joint ventures, APY from staking, and yield generated from collateralized RWAs.

RYA Components and Structuring:

The creating and structuring of these products will be done in an optimized decentralized manner. The components (the different yield that will be put in) will come from a wide range of yield opportunities, including other projects/assets from Injective, on other AppChains from Cosmos and even other layer 1 mainnets such as Ethereum or Solana.

So imagine a “Injective Only” basket that includes: Perp Trading Fees, RWA tokens, xHDRO staker benefits and the standard APY from staking with Injective Validators. There can be a “cross-chain” basket that includes 3 of the most popular sources of yield from Injective, Sei and Near. Of course, these are just samples but the possibilities are endless

Hydro’s Real Yielding Assets generate additional yield from Injective, Cosmos and other L1s

RYA Component Rebalancing:

Rebalancing is the process of changing the weightings of the components, and entry/exit of certain components as well. In the traditional ETF markets, this happens on a frequent interval, but on Hydro, it’ll be left to the decentralized manner of governance voting.

Leverage on AI Efficiencies

For other changes, Hydro leverages on AI Efficiencies to find an optimized weighting balance. Additionally, through a concept of HDRO Wars (think similarly to Curve Wars on Curve Finance), we can leave it to the community to vote and leverage their tokens for a voice in the component restructuring

This is where we think LSDFi is going to take off on Injective. So make sure you mint your LSTs and grab a bag of $HDRO!

What are Real World Assets (RWA)?

Real World Assets (RWA) are the tokenization of real world tangible or intangible assets that are brought onto chain. Essentially, they are traditional financial assets that are made available to users on the blockchain. RWAs therefore can represent tangible assets like real estate or intangible assets like government bonds.

Real-world asset tokenization is the process of securitizing and bringing these assets on chain as security tokens leveraging on blockchain technology. These RWAs are traditionally backed by traditional assets and can serve as representations of traditional assets issued directly on or off chain.

On Hydro Protocol, there are a two significant ways we can optimize on RWAs:

  1. Use RWAs as index components on Hydro’s Real Yield Assets (RYA)
  • RWA exposure brings in yield from the underlying asset. An example is that a holder of a RWA is entitled to the yield from US Treasuries or rent from a Real Estate backed asset
  • Hydro can therefore hold the asset, giving RYA holders the yield as a component
A sample of a RYA structured by Hydro Protocol, using RWAs as a core component

2. Use Hydro’s LST to collateralize RWAs

  • Partner with RWA projects to use hINJ as secured collateral against their RWAs

Hydro Protocol Core Features

The Hydro Protocol offers three distinctive products that showcases the easy use of Liquid Staking: Staked Assets, Farming and Auto Compounding.

Liquid Staking Derivatives (LSD)

Liquid Staking Derivatives (LSD) will be the primary product of Hydro Protocol that offers Liquid Staking. As mentioned above, this is the beginning and the end of all things related to Hydro and Injective.

Farming

Hydro Protocol has a yield optimization product for liquid assets simply called “The Farm”. By utilizing this product, users can find immediate utility for their hINJ — all you need to do is stake your minted hINJ for further additional yields on your staked tokens. Farming yield is like an airdrop altogether. You stake, and then get additional yield.

Temporarily Amplifying your rewards:

For a pre-determined allocated period of time, users can come and ‘farm’ additional yield. Just like a real farm, the yield is for a temporary season and set to expire. As designed into the Tokenomics of Hydro Protocol, a portion of HDRO tokens will be used for further amplified rewards.

So basically to recap: liquid staking is in INJ, farming is in hINJ and yield boosting is in HDRO.

Auto Compounding

Hydro Protocol allows users to “set it and forget it” and take advantage of an auto-compounding feature to maximize their staking yields and amplify their rewards with INJ assets, without having to go through the inconvenience of claiming and re-staking their INJ rewards.

Let us do the work for you. It’ll save you mindshare, time and not to mention, even the transaction fees.

The $HDRO Tokens

The best way to get involved with Hydro Protocol is to mint your INJ, and be a holder of the HDRO token. The value capture for the HDRO token is directly tied to the success of Hydro Protocol, which means that the more LSD is minted on Hydro, the more value is captured for HDRO token.

The TGE for HDRO tokens will likely be on Injective’s main launchpad, Mito Finance in Q1 of 2024.

The HDRO value is maintained by fees generated by the three features. Using these revenue figures, Hydro Protocol:

  • Uses up to 70% to maintain the value of HDRO sustainably on the open market
  • Uses up to 30% to reward HDRO stakers

This inherent value capture mechanism will continue to help HDRO accrue in value, and therefore add additional demand for the HDRO token. The 30% revenue share to HDRO stakers also incentivizes users to stake their HDRO for more share of the revenue. This helps the HDRO remain deflationary.

Other Utility of HDRO Tokens:
Other utility of HDRO token include the active participation in HDRO Wars (refer to RYA Section above) HDRO holders can participate in voting for component changes (rebalancing) of different assets and yield measures with their HDRO tokens. Naturally, any projects who wish their assets to be considered as part of the RYA can also use HDRO to vote on the asset admission voting process.

HDRO stakers can also participate in other governance processes

The Roadmap : THE WEN WEN WEN

We are now at the eve of 2024. Well done, Hydro Ninjas. You have successfully passed another tough year out of the rut. With the bright future that is at hand in 2024 for us (macro, crypto, Hydro), here’s what some of our updated roadmap looks like

2024 Q1: The Launch Phase

  • THE MAINNET: We’re Launching. And soon! By mid-Jan 2024, you will be able to mint your hINJ! We’ll focus on growing our TVL
  • Public Sale : The Injective Core launchpad is also going live on Mainnet. We will conduct our public token sale after we launch our mainnet. This is your first chance to purchase HDRO
  • TGE : Afterwards, the HDRO token will be born!
  • CEX : We are in conversations with top-tier exchanges to list on TGE

2024 Q2 : The Building Phase

  • We will continue to build the LSDFi Ecosystem on Injective
  • The RYAs will also come into fruition
  • We will continue to partner with other projects within and outside the Injective Network so that our HDRO holders benefit monetarily from a utility standpoint

That’s it for now, Hydro Ninjas! So grab a drink, bring on the holiday cheer, and welcome the New Year with expectations of fun with Hydro Protocol in 2024. We’re at full speed come January. We thank the Hydro Community and the Injective Ecosystem lovers for the support. Come and join us!

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