Disclaimer: The information in this document is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. Please note the more detailed disclaimers at the bottom of this document.
The Hydranet token, called HDX, is a utility and governance token. It can be used for Hydranet DAO governance and a fee reduction on the Hydranet DEX. HDX runs natively on the Arbitrum blockchain with ERC-20 standards.
Holding the HDX token will provide more benefits than the utility and governance features presented above. HDX holders can choose to stake their tokens in return for rewards. How these rewards are distributed to HDX holders will develop with the progression of the Hydranet project. This section has therefore been structured to cover the current state of staking, the near future of reward distributions, and the later future of reward distributions.
1.1 The present
The user can currently choose to stake either sHDX or gHDX here: https://app.hydranet.ai/#/stake.
Staking sHDX and gHDX currently earn ~ 7.5 % APY in HDX and allow the user to participate in the Hydranet governance voting. The current HDX staking emissions are intended to support token holders until the Hydranet DEX starts to generate income. Also, the HDX supply when writing this document is unlimited.
While staking is an engaging feature for holders, it does present some unwanted problems. A high staking percentage will lead to thinner order books and a more volatile price. Moreover, staking on a layer 2-sidechain does not provide any benefits to the network and can only create potential problems down the line, such as inflation or rebase issues.
1.2. The near future
Once the Hydranet DEX starts to generate income, the HDX staking emissions will be reduced to zero to stop further disadvantageous dilution of the HDX token. In the near future, the Hydranet DEX income will be used to improve the liquidity of the HDX token and potentially used for buybacks and burns of the HDX token. 70% of the Hydranet DEX income will be used for this by the multi-sig team. More details are found in section 2.2.
Shortly after the Mainnet launch of the Hydranet DEX, the HDX token can be used to obtain a reduced trading fee on the Hydranet DEX.
As the HDX staking emission stops, the maximum supply of HDX will be reduced to 300 Million HDX. This number will only be reachable by HDX bonds. Every new 5 Million HDX that will be minted by bonds has to be approved via a public community vote first.
Note that the fees used are based on the fee value after deducting the network costs to perform the liquidity improvements (blockchain fees for setting up and maintaining the contracts). The Hydranet DAO can also arrange earlier HDX staking emissions to decrease if decided by a public snapshot vote.
1.3 The later future
Hydranet DAO and community leaders will continually explore the technical and legal feasibility of distributing Hydranet DEX fees in another currency than HDX, for instance, AETH. Until then, increasing the liquidity support will encourage a growing price. Once the Hydranet DAO community is satisfied with the order book liquidity and the circulating supply, the multi-sig team can instruct developers to test and audit different smart contracts for a Hydranet DEX fee distribution model in favor of direct reward.
The multi-sig team plans to remove gHDX and sHDX functions with the new HDX Tokenomics, as they will no longer provide any HDX APY. In the later future, there will potentially be a new token airdrop for HDX, gHDX, and sHDX holders, but this is not actively planned when writing this document.
2. DEX Fees
2.1 Usage Overview
The collected fees from the Hydranet DEX will be converted to Arbitrum Ethereum (aETH) and used in the following pools:
- 70 % to strategic liquidity of HDX tokens (see 2.2)
- 30 % to the Hydranet DAO treasury (see 2.3)
The flagship product, the Hydranet DEX, enables off-chain peer-to-peer trading with a 0.1-1% fee per trade (for taker and maker each). The fees might vary, depending on the trading pairs, trading activities, and referrals. The DEX fees will be collected and managed by the multi-sig team which acts on its own, separately from the DEX team.
2.2 Strategic Liquidity
The multi-sig team will use 70% of the fees generated by the Hydranet DEX to build strategic liquidity for HDX. The objectives of strategic liquidity are:
- deep liquidity in HDX pairs on exchanges
- HDX token purchases (as a result of providing liquidity) and then potentially
- HDX burning and supply reduction
This will be done for the entire price range of HDX. The multi-sig team will also prepare mechanisms to minimize the negative impact of individual dumps by creating a deep price floor. It is achieved by focusing a particular share of these 70% DEX fees on a low-price liquidity pool (LP). Since the HDX price is determined by supply and demand on the open market, this price floor will be dynamic and moved in accordance with the current price of HDX. The tools used for managing the HDX liquidity will be Market Maker bots on orderbook exchanges, e.g. Whitebit and Hydranet DEX, and Liquidity Provider NFTs on Uniswap.
An overall increased liquidity of the HDX token will create an environment where the HDX token can develop freely and make the token more attractive to traders. The mechanism used for dump prevention will furthermore create an extra level of stability for all token holders. When the community is satisfied with the status of the HDX liquidity, any bought-back HDX in this process will be eligible to get burnt.
Any changes made to HDX in the Protocol owned Liquidity (POL) will be presented by the multi-sig team to the community and have to be confirmed by a public snapshot vote. However, to react quickly to changing market circumstances and to add newly acquired DEX fees to the liquidity management tools, the low-price LP will be adjusted by the multi-sig team to the best of their knowledge, without a public snapshot vote. The NFTs used to manage liquidity will always be visible to everyone in the multi-sig wallet: https://debank.com/profile/0xB9eBe487fc454264CbCdDfd19374D4D2353c779d.
2.3 Hydranet DAO Treasury
The multi-sig team will use 30 % of DEX fees in the following ways:
- build the Hydranet DEX client platform and perform upgrades to the system, which includes team recruiting, training, and the development budget.
- for Hydranet branding and marketing, including continuous promotion and education of Hydranet and blockchain innovations in industry mediums. A sufficient budget for various advertisement activities, to help Hydranet become popular among investors, and to attract active users to the platform.
- pay for Referrals (distributed by Influencers).
- reserve for any emergency or unexpected situation that might come up.
3. Additional Plans
3.1 Special DEX NFTs
Please note: The implementation of DEX NFTs has no date yet. Currently, this has to be seen as a work-in-progress proposal.
Special DEX NFTs (DNFTs) would be an interesting tool with utility for Hydranet DAO and Hydranet DEX users. For Hydranet DEX users, the possible benefits of DNFTs could be discounted trading fees for certain periods. The DNFT would serve as proof for the user to obtain the benefit. For Hydranet DAO, the DNFTs could serve as a means to raise capital without selling bonds and thereby inflating the token.
Specific DNFT attributes and qualifications need to be discussed further. But they could be any combination of the following, with further room to expand on ideas into the future:
- A minimum number of staked HDX held to be eligible for DNFTs
- Options for Resale: an open, accessible DNFT marketplace would increase their value and provide them more appeal.
- Minimum Turnover: The holder has to trade on the DEX, either for a certain amount of time or up to a certain amount in the capital, before trading fee discounts activate.
- Resale Taxation: When, and if, the DNFTs are resold, a small tax can be charged and paid to Hydranet DAO. This would create another income stream for Hydranet DAO and could be added to the holder share of the Hydranet DEX income.
- Trading fee discount specifics.
- Limitations on specialty NFTs: Limits and issuance amounts, as well as timing, need to be the subject of a more detailed and thorough investigation from our internal teams and outward contributions from the community.
Proposals and demonstrations spurred on by the community are integral to this idea, as is community voting. These special NFTs have a relevant impact on all stakeholders. Certainly, there is a risk in giving too much power to DNFTs (namely, detracting from standard incentives and harming the platform).
3.2 HDX as Listing fee
Another option that is currently getting explored is taking HDX as a listing fee. If a team wants to list a new token on the Hydranet DEX, they would have to apply and pay a listing fee to Hydranet DAO and provide the necessary liquidity for their token. The received HDX can then be used for liquidity, payments, or burning of the HDX token.
4. HDX Supply
4.1 HDX Distribution
Snapshot of the supply distribution at the end of 2022:
- 101 Million: Community from XSN (Stakenet) swap
- 8 Million: Protocol-owned Liquidity (POL) for Exchanges (managed by multi-sig)
- 15 Million: Treasury for Team vestings for 2-3 years (managed by multi-sig)
- 42 Million HDX: staking rewards, distributed to all stakers since the token launch
4.2 HDX Emissions:
Currently, staking emissions are circa 11.5 Million HDX per year. The current staking emissions support token holders until the Hydranet DEX is launched on Mainnet. As the HDX token is secured by the proof-of-stake Ethereum chain and its Arbitrum scaling solution, HDX doesn't need staking rewards and these will therefore vanish once the Hydranet DEX starts to generate income
The staking emissions are managed by the multisig team after confirmation through public governance votes where every user can vote. Past votes can be seen and interacted with here: https://snapshot.org/#/hydranet.eth/
Users can buy HDX bonds with DAI or wETH, to support the DAO directly. All acquired funds go into the multi-sig treasury and are used for paying servers, marketing activities, and developers. When available, bonds can be bought here: https://app.hydranet.ai/#/bonds
5.1 Arbitrum Network Info
Network Name: Arb1
Chain ID: 42161
Currency Symbol: ETH
Block Explorer URL: https://arbiscan.io/
5.2 HDX Token Info
Attributes of HDX token:
- the main token of the Hydranet DAO
- token on exchanges
- voting rights
- reduced fees on Hydranet DEX
- possibility to stake
- smart-contract: 0xF4fe727C855c2D395852ca43F645caB4b504Af23
Treasury address: https://debank.com/profile/0xc5888c4c261a1c5e8745eb1977eb54fcb21d2a28
POL address: https://debank.com/profile/0xB9eBe487fc454264CbCdDfd19374D4D2353c779d
The Hydranet DAO will continually try to improve these HDX tokenomics, propose more features and adjust to new legal insights. Also, if the HDX ecosystem grows and new products or players enter, the HDX tokenomics might be subject to bigger updates.
The Hydranet DAO reserves the right to propose a change to the fee usage to the community if they feel that it is in the best interests of the community. Corresponding investigations are planned. The burden sharing of any future trade fee discounts and/or referrals will be made in particular about a fair distribution of the associated benefits.
No financial advice
The information contained in this document is not intended as, and shall not be understood or construed as, financial advice. The Hydranet DAO are not attorneys, accountants, or financial advisors, nor are they claiming themselves to be and the information contained in this document is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.
They have done their best to ensure that the information provided in this document is accurate and provides valuable information. Regardless of anything to the contrary, nothing available on or through this document should be understood as a recommendation that you should not consult with a financial professional to address your particular information. The Hydranet DAO expressly recommends that you seek advice from a professional.
The Hydranet DAO wants to state explicitly that US residents are not allowed to buy or interact with the HDX token.
The involved teams shall not be held liable or responsible for any errors or omissions on this document or for any damage you may suffer as a result of failing to seek competent financial advice from a professional who is familiar with your situation.