Hydrating through the Winter
A Proposal to Update the HDX Tokenomics
Regardless of which part of the globe you are at, winter has been with us for a long time. Transitioning away from money printers going brrr, no one can predict how long the new brrr caused by freezing markets will last.
A big part of our tribe members became Hydraheads in February 2021 following the successful HDX LBP which helped us raise ~22M DAI of initial POL. Having exceeded our wildest expectations, the 5% of the HDX supply which we had reserved for the LBP all of a sudden implied an HDX FDV of $800M. This motivated us to launch a proposal for sustainable growth, the subject of which was to triple all pre-crowdloan HDX balances (excluding the team and investors allocation). After passing a democracy vote, the proposal was executed in December 2021.
The adoption of the 3x proposal pushed down the HDX FDV to a projected $265M, with the only diluted allo being the one of team & investors. Another important consequence of the referendum was the growth of the voting power of our tribe - Hydraheads can now outvote the HydraDX team in any referendum, which we believe is an essential prerequisite for decentralization.
Today we stand at a point where we are ready to release the multi-headed liquidity monster into the wild. Just before we launch the HydraDX Omnipool, we would like to table one more referendum for your consideration which would modify the HDX tokenomics:
Reduce the allocation for Growth (LM rewards, bonds etc.) from 5,295,662,772 HDX to 1,795,662,772 HDX, resulting in a reduction of the total HDX supply cap from 10 Billion HDX to 6.5 Billion HDX.
If adopted, the proposal will push down the FDV of HDX down to a projected $174M. This would put it under the current FDV of other projects which are leading the Polkadot space. All of this could be achieved while maintaining the original price from the HDX LBP conducted in February 2021 ($0.0267 after the 3x), which is the price against which the biggest part of our tribe of Hydraheads was onboarded.
The proposal is now undergoing a vote by the HydraDX Council. If adopted, it will soon become a public referendum in which every HDX hodler can vote.
The proposal to reduce the HDX allocation for Growth is a manifestation of our pursuit of sustainable protocol design. Back when we were designing the original tokenomics, overly generous allocations for staking and/or liquidity mining were the industry standard. In most cases, lucrative APYs fuelled short-term adoption only to leave projects in oblivion later on.
Today we believe that high inflationary rewards are a thing of the past. Our expectation is that the next bull run will punish short-sighted opportunism in favor of rewarding the ones who are here for the long run. Against this background, we now view the 55% of the HDX supply which is reserved for Growth (Liquidity Mining, Bonds etc.) as excessive and perhaps even wasteful.
If the proposal is adopted, the HydraDX Protocol would still have 30% at its disposal to pursue growth initiatives. A small part of this will be used as Liquidity Mining rewards to attract initial liquidity. However, the importance of LM rewards declines as we reposition ourselves and our value proposition.
We will soon publish a dedicated post on this, but why not already leak some alpha. Once the Omnipool is live, anyone will be welcome to provide liquidity up to the respective TVL caps which are defined per asset. However, our main target for LPing is not retail. The main value proposition of the HydraDX Omnipool actually lays in the B2B segment. Leveraging certain unique features, the Omnipool and its ability to scale up and down with movements of the moon (just like the ocean) is much better suited to host liquidity from treasuries of other projects and DAOs.
Picture this: Polkadot project Z provides liquidity from its treasury to the HydraDX Omnipool via XCM. Thanks to single-sided LPing, it only needs to provide its own token and it will gain instant exposure to all other assets in the Omnipool. Trustlessly, without reliance on third parties and hidden costs for market makers, while earning rewards from fees. The accumulated rewards can be swapped (DCA-ed) into any other asset, thereby building up diversified POL.
Amazing stuff is just around the corner.
Do you really think you’re ready for the HydraDX Omnipool?
In winter and summer,
Hydration is never a bummer.
– The HydraDX Team