Redemption path

In order for a bid to pass, it needs to receive at least 5% of the total amount of votes. If it doesn’t, the project doesn’t get any liquidity, the tribute is refunded, and users who voted for that bid don’t receive any voting rewards.

Bidding for liquidity on Hydro can be competitive. At any time during a voting round, projects can increase their tribute in an attempt to attract more votes, which in turn removes votes from other bids. During the final hours of a round, users who voted for a bid that is struggling to maintain 5% must decide whether to stick with that bid in hopes it will pass, or change their vote to another bid that is more likely to pass. This sometimes causes at least one bid to fail to pass, not because 5% of voters weren’t interested in the rewards from it, but because they wanted to avoid receiving nothing if the bid failed.

The “Redemption Path” can help alleviate this. For 24 hours after a voting round ends, if a bid ends up with between 2.5 and 4.99% of votes, the project has the option of adding an amount of additional tribute that results in an APR twice as high as the highest APR that was offered to voters in that round, in order to secure the minimum amount of liquidity they would have received if the bid passed with 5%. Users who voted for the bid will receive half of this tribute, and the other half will be sent to the Hydro treasury.

For example:

• Project A ends up with 4.5% of the voting power at the end of a round
• Project A had provided a $250 tribute, which was giving voters a 12.5% APR
• The highest tribute APR offered in the round was 25%, so Project A needs to offer 50%
• Within 24 hours, Project A decides to use the redemption path
• Project A adds $750 additional tribute to equal $1000 and 50% APR
• The $1000 tribute gets distributed to the voters that backed the bid
• Project A gets liquidity deployed equal to 5% of the voting power in the round

The end result is that bids don’t fail by a very small margin of votes, that liquidity doesn’t go undeployed in a round, and that voters are less likely to switch their votes away from a struggling bid during the final hours of a round.