Welcome!

This User Guide is the primary resource for Hydro, an auction platform for Protocol-Owned Liquidity (PoL) built for the Cosmos Hub.

Hydro is a decentralized platform that enables ATOM stakers to lock their ATOM to gain voting power, and then vote on bids for Protocol-Owned Liquidity (PoL) deployments. Projects submit bids and offer tribute in exchange for liquidity, and users allocate their voting power to the bids they want to support. Hydro’s smart contracts handle the liquidity deployments, and rewards from tribute are distributed back to voters. This creates a transparent, efficient, and community-driven process for managing the Cosmos Hub’s liquidity while generating value for ATOM holders.

As we prepare for Hydro’s full launch, we are initiating a series of Pilot Rounds to ensure that everything is working as expected before re-deploying the complete PoL available to Hydro. The Pilot Rounds aim to test all critical features of Hydro, including the voting mechanism, bidding process, and liquidity deployment. The smaller scale of the Pilot Rounds also provides a better understanding of the bidding dynamics. More generally, it’s an opportunity to fully test the processes, from bid setup to liquidity deployment, including the experience of bidders, voters, and the Hydro committee.

The document below outlines the elements and processes specific to the Pilot Rounds, which will be updated as Hydro progresses toward standard rounds.

Pilot Rounds

Global & Wallet Caps

During pilot rounds, the Hydro committee has set global caps for the maximum PoL deployable in a given round, and the maximum ATOM a single wallet can lock up. These caps ensure balanced participation while testing the platform’s capabilities. Caps will be lifted gradually and removed entirely when regular rounds begin.

PoL Cap

Per Prop 955, the total liquidity rerouted to Hydro is expected to be close to 2.5M ATOM. This does not count the protocol-owned rewards generated during the PoL deployments.

The Hydro committee will soon get custody of these funds. However, to increase confidence in the system, pilot rounds will start with a conservative amount of 200K native ATOM. More liquidity will be added gradually throughout the pilot rounds and beyond.

Tribute Floor

Round 3 introduced the minimum tribute floor: the maximum liquidity a bid can receive is capped by the tribute it distributes to voters. For round 3, bids must allocate at least 0.01% of their requested liquidity as tribute. For example, a tribute of 10 ATOM allows up to 1,000 ATOM in liquidity deployment. This ensures fair contributions and healthy APRs.

Custom Deployment Durations

Round 2 introduced custom deployment durations, with projects able to bid for PoL deployments lasting up to 3 months. This allows projects to secure longer-term liquidity while providing users the flexibility to choose how they allocate their voting power. To learn more about voting eligibility based on PoL duration, visit this section of the Voting docs.

Committee Oversight

During the Pilot Rounds, the Committee will oversee the allocation and deployment processes. It will also be empowered to intervene directly to mitigate potential risks (e.g., smart contract vulnerabilities, DeFi-associated risks). This may include limiting the allocation of any specific bidder if the bid significantly deviates from the committee’s security guidelines.

Tribute Refunds

Hydro’s smart contract has a feature to avoid exporting small winnings, which can be very time-consuming in the absence of the Valence integration (each deployment requires the Hydro committee to coordinate and sign a series of messages). From Round 2 onwards, the contract will refund tribute to bids that receive less than 5% of the votes.

Bid Submissions

During Pilot Rounds, the bid submission process remains streamlined to ensure consistent bid format and structure across all submissions. This allows for a visually appealing user experience and an efficient approval process. Steps include:

1. Projects submit their bid details via GitHub.
2. The Hydro Committee reviews the bid details and provides feedback.
3. The Hydro Committee approves or rejects the bid.
4. Approved bids are submitted to the Hydro contract from a whitelisted address.
5. Once on-chain, projects can start adding tribute to their bids.

Voting Power

From Round 2 onwards, users can lock their staked ATOM for deployment durations of up to 3 months, granting them the flexibility to participate in multi-month deployments. However:

• Users cannot vote for a deployment with a duration longer than their ATOM lockup.
• Voting for a multi-month deployment ties the associated voting power to that bid for the entire duration. To vote in future rounds, users will need to create new lockups.

This system balances user flexibility with the need for effective governance.

Tranches

A tranche is a sub-pool of liquidity within a liquidity bucket, such as a dedicated ICS tranche (reserved for ICS project bids).

There will not be any tranches during the Pilot Rounds. This simplifies the user experience and reduces the workload on the Hydro committee, which is currently operating on a volunteer basis.

We encourage all participants to stay engaged and share feedback as Hydro evolves!