Hydranet Web DEX, the world’s first Web3 off-chain DEX for seamless cross-chain trading, is reaching new heights for each passing month. One of the recent milestones included the gas optimization of Hydranet’s Lithium off-chain protocol. Lithium will not only foster sustainable transactions and trading of EVM assets, but also make cross-chain bridging significantly cheaper than many of today’s solutions. With more than $73 billion USD bridged across various blockchains throughout 2023, Hydranet is comfortly positioning itself as one of the cheapest blockchain bridges on the market!
Interested to see how much you could have saved on previous bridge transactions by using the Hydranet Web DEX? Visit Hydranet’s blockchain bridge calculator to get the answer!
Blockchain bridges — What are they?
Before we delve into this article, and to fully appreciate the strides made by Hydranet, it’s essential to understand the concept of blockchain bridges. Looking back at the early stages of the blockchain industry, each blockchain operated independently with no solution to exchange funds or information between them. Although this independence still holds true on a fundamental level, the modern blockchain industry offers solutions that effectively address this challenge, unlocking a new realm of possibilities for decentralized finance, interoperability, and collaboration between diverse blockchain projects. The solutions referred to in this case are commonly known as blockchain bridges.
Blockchain bridges are typically smart contracts running on two independent blockchains, linking them together. When a user wants to transfer funds from one blockchain to another, they initiate a transaction on the source blockchain, which locks their assets in a smart contract. After confirmation, usually involving waiting for a certain number of block confirmations on the source blockchain, funds representing the same value as the locked assets on the source blockchain are unlocked on the destination blockchain. The user is now free to transact on the destination blockchain as they would any other asset. If they wish to move the funds back to the source blockchain, they initiate a similar process but in reverse.
Hydranet Web DEX — A blockchain bridge?
The Hydranet Web DEX differs from essentially all modern trading solutions with its unique use of off-chain protocols such as the Lightning Network for Bitcoin and Hydranet’s Lithium protocol for assets on Ethereum and other sidechains. Its underlying infrastructure, the Hydranet Network, allow these protocols to seamlessly communicate, independently of which blockchain they operate on, whether it’s Ethereum, Arbitrum, Solana, or others, turning it into an excellent blockchain bridge.
A case-study — What’s the big buzz?
So why should crypto traders use the Hydranet Web DEX for their blockchain bridge transactions? This will be answered using a simple comparison of network fees between the Hydranet Web DEX and Stargate. Stargate is a popular blockchain bridge connecting multiple modern blockchains. The comparison will look at bridge transactions of ETH with origin on the Ethereum blockchain and final destination on an arbitrary sidechain. The sidechain network fees are going to be neglected since these are usually significantly smaller than the network fees on the Ethereum blockchain. For simplicity, slippage and trade fees are also going to be neglected, since these are highly influenced by the available liquidity and what bridge operators decide to charge for their service. This will leave the comparison focusing solely on network fees (gas fees).
Bridging ETH or any EVM asset using the Hydranet Web DEX will make use of Hydranet’s Lithium off-chain protocol. Users will need to open a Lithium state channel and deposit ETH into this state channel, which is easily and seamlessly done on the Hydranet Web DEX platform. One unique and thriving feature of the Hydranet Web DEX is that once a Lithium state channel has been opened and funds are held within it, subsequent deposits to this state channel will be cheaper, which give rise to the following two network fees:
- 75,374 gas — Opening and depositing ETH into a Lithium state channel
- 58,310 gas — Depositing ETH into an already open Lithium state channel
Stargate, the candidate in this comparison, does not offer the feature of being cheaper the second time around. Instead, bridge transactions made using the Stargate bridge are faced with the following average network fee for every transaction:
- 388,016 gas
It’s already apparent that Hydranet has a clear advantage in terms of network fees compared to Stargate, but to have the numbers slightly more digestible they can be denoted in USD values assuming the following network conditions:
- Gas price: 20 gwei
- ETH price: $3,000 USD
This will lead to the following USD denoted costs for the Hydranet Web DEX and Stargate respectively:
- Hydranet Web DEX (1st use): $4.52 USD
- Hydranet Web DEX (2nd use): $3.50 USD
- Stargate: $23.28 USD
Compared to Stargate, the Hydranet Web DEX can save users up to 85% in network fees bridging ETH from Ethereum to sidechains, which, given the network conditions above, would equal almost $20 USD!
Stargate is of course not the only blockchain bridge, although given its high network fees, a surprisingly popular one. Other blockchain bridges include Hop, Celer, Wormhole, and others. These examples are not as expensive as Stargate, but are still more expensive than the Hydranet Web DEX, leaving Hydranet in a favorable position as being one of the most cost-effective blockchain bridges in the industry, especially for bridge transactions from Ethereum to sidechains. A comprehensive overview of how the Hydranet Web DEX performs compared to other blockchain bridges is found below. It reveals that Hydranet is more than 6% cheaper than its best performing competitor upon the first use and almost 30% cheaper on subsequent transactions, bridging ETH from Ethereum to a sidechain!
Market analysis and market potential — What does this mean for Hydranet token holders?
The Hydranet Web DEX is powered by the Hydranet Network, a decentralized infrastructure overseen by Titans and Guardians. These two actors ensure the continuous operation of the DEX by running its limit orderbook, matchmaking engine, and monitoring the behavior of network participants to ensure they comply with the network’s rules. Hydranet token holders can run these actors by collateralizing a specific amount of HDN, and for their services, be eligible to a share of the generated DEX fees. This begs the question — what does the advantageous position of the Hydranet Web DEX hold for Hydranet token holders?
To answer this, we have compiled comprehensive on-chain data from the top blockchain bridges ranging up to 5 years back in time. This means that within this time-frame, every wallet that engaged with any of the studied bridges has its activity logged in our dataset — detailing their bridge frequency, bridged assets, and bridged volume. To gain a grasp of Hydranet’s potential, we are going to look closer at bridge transactions made in December 2023, examining to what extent Hydranet can seize market shares and what potential fee revenue this would entail.
In December 2023, the total USD value of ETH bridged from Ethereum to Arbitrum via the aforementioned bridges reached $250.65 million USD, facilitated by 27,417 unique transactions. With the Hydranet Web DEX offering notably lower network fees compared to essentially all its competitors, there’s an opportunity to capture a fair share of these transactions, assuming users select what blockchain bridge to use solely based on network fees.
To appreciate this advantage, we explored various fee models applicable to bridge transactions and found one that allows Hydranet to remain among the most cost-effective bridges without sacrificing market shares. This model entails a modest trade fee and a flat gas-based service fee which increases for subsequent transactions. Under this model, users consistently pay an equivalent of 80,000 gas 0.01% of the traded volume on their bridge transactions, leaving the Hydranet Web DEX in a competitive position.
Fee model:
- 0.01% — trade fee
- 4,626 gas — service fee (1st use)
- 21,690 gas — service fee (2nd use)
While this model makes a perfect example of how Hydranet can take advantage of its cutting-edge technology, it constitutes by no means a finished fee model to be used on the Hydranet Web DEX.
Applying this fee model, and assuming users select what blockchain bridge to use solely based on cost, the Hydranet Web DEX is expected to capture 86% of all transactions and 13% of the total volume of ETH bridged from Ethereum to Arbitrum in December 2023. Although capturing almost the majority of all transactions, the volume share remains fairly low, indicating that the last few transactions carry a significant portion of the total bridged volume in December 2023. Missing out on this portion is mainly due to the 0.01% trade fee in our fee model in combination with neglecting any fees charged by competitors, which is rather unlikely and will only underestimate the Hydranet Web DEX’s advantage in favor of its competitors.
Now over to the point we have all been waiting for — the fee revenues. Capturing 86% of all transactions and 13% of the total bridged volume during December 2023 would have brought fees equaling more than $30k USD to the Hydranet Network and its contributors. Remember, this is for bridge transactions of ETH from Ethereum to Arbitrum in December alone, which represent merely 0.4% of the total volume bridged throughout 2023. Looking at the entire dataset, which holds data for almost 24 out of the $73 billion USD bridged throughout 2023, the Hydranet Web DEX is looking to capture 67% of all the transactions and 20% of the total bridged volume using the same fee model and still assuming competitors are not applying any fees for their services (unlikely). Capturing these transactions would yield a fee revenue of a staggering $2.4 million USD for the Hydranet Network and its contributors. It is worth emphasizing that this analysis focuses solely on the bridging sector, in the midst of a bear market, leaving the much larger trading sector during a bull market still to explore. This fact underscores the immense opportunities awaiting Hydranet with the success of the Hydranet Web DEX!
While these figures are promising, it’s crucial to acknowledge other relevant factors for capturing market shares, not considered in this analysis. For instance:
- Speed — Transaction execution speed impacts user experience.
- Security and centralization — Platform vulnerability to hacks and any centralized aspects, such as centralized controlled liquidity pools.
- Convenience — How easy the platform is to use, the number of supported chains and assets.
- Total cost of trade — Not only influenced by the trade fee and network fees, but also the available liquidity and its resulting slippage upon individual trades.
- Brand awareness and reputation — User familiarity and platform reputation.
- Other economic incentives — Cash-back based on usage, discounts, airdrops, etc.
The one exchange that outperforms across these metrics is likely to be the most popular. Hydranet is on the verge of excelling in every aspect, creating a unique solution with benefits unseen on the market before. You’re part of this journey, we hope that you’re ready for it!
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