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HydraDX AMA, January 2022
Omnipool design, (L)HDX
Q: Does the introduction of LHDX change the value proposition of HDX? Is the value of HDX being diluted?
A: As we have stated in the previous announcement, all available LHDX will initially be owned by the Omnipool. The LHDX token will be used by the protocol (the protocol is owned by HDX holders, so we own it all together) to match the liquidity provisioned and will help us become a more flexible and secure protocol. This increases the value of HDX since its supply cap will not change, and there is much more overall utility and security with the LHDX creation.
Q: So, wen LHDX Airdrop?
A: No Airdrop, LHDX will be owned by the protocol, which is owned by HDX holders, so we just increased the security, flexibility, and overall value of our HDX token by using LHDX to solve a specific purpose. In a way you can think of it as a new layer of functionality that we all now own a piece of and have governance over.
Q: What are the incentives to buy and hold HDX?
A: Why would you buy and hold any start-up token if they were not increasing your overall value by continuing to innovate and develop, ship, and update your protocol? We are doing just that with LHDX and when you understand it on a more technical level you can see that our ethos for HDX to have REAL governance is what's driving this project. Now HDX has real governance of the LHDX in the protocol and will later decide what fees are generated, how much, who they go to, and what assets can enter the Omnipool.
Q: Relationship between HDX and LHDX?
A: HDX > LHDX. HDX owns all initial LHDX (which is protocol owned) and HDX will make the decisions on how LHDX is used (governance).
Q: Why is liquidity mining rewarding people with HDX?
A: We believe that rewarding liquidity providers with HDX will incentivize them to be long-term users and continue to bring value to our platform.
Q: Use Cases, are there fewer use cases for HDX now?
A: No, only more opportunities for HDX and the protocol to innovate. HDX will always remain the main token since it controls how the protocol adapts and grows over time.
Q: Will HDX as a governance token be worthless like so many others in DeFi?
A: Not at all. Let us remind you that governance and openness are very much the lifeblood of our project. Already today, the community of token holders that obtained their HDX during the LBP event can outvote the founders via on-chain voting. HDX holders will continue using our parliamentary democracy system to elect wise council members and utilize on-chain voting to determine the future of the Omnipool and the protocol itself.
Governance on Substrate-based chains is particularly powerful. Anyone can initiate a referendum which will get executed if it receives sufficient backing. This includes runtime upgrades. Conversely, this power leads to a bigger risk of manipulation from bad actors. In other words, “with great power comes great responsibility”. The introduction of LHDX helps us prevent attacks on the protocol by allowing for our HDX hodlers to own the governance, protocol, and Omnipool assets, instead of outside whales.
Q: What about governance is important?
A: Everything. Along with the council, HDX holders will decide what assets to hold in the Omnipool, when and if fees are distributed, and how we move forward. Keep in mind for now we are not saying that all fees will be going to HDX holders. Distributed fees likely will go into buying back the token or other work-arounds since regulators view this as a dividend and could designate HDX as a security if not handled properly. This nuance is an important distinction for us to make and as we get closer to this reality we will have more in depth ideas about how we grow and distribute that growth.
Q: Explain how protocol-owned liquidity benefits HDX holders? What are the reasons to hold?
A: The protocol owns the LHDX and all of the assets within the protocol. This increases the long term value of the protocol because HDX is the governance token that will guide all future use-cases. We recommend reading our blog posts in the future as we get into more technical examples.
Q: Why do you think the introduction of LHDX caused such turbulence in the socials?
A: To be honest, we didn't expect this uproar about what actually happens to be an enhancement to the protocol. The reason why this bullish news was perceived wrong by a part of the community is perhaps the bad timing of the blog post, as well as insufficient explanation of the relationship with HDX (the reason why we did this AMA).
To address this in the longer term, we are continuously working on improving our communication as we scale and grow.