HDN Tokenomics

Disclaimer: The proposals and projections in this document are built upon estimations deemed reasonable at the time of writing and exist for discussion purposes. The numbers are subject to change, depending on participation levels and other factors that can’t be known until the network is tested in practice. 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.

1. Introduction

The HDN token is a utility and governance token used by the Hydranet DAO . It can be used for Hydranet DAO governance, trading fee reduction on the Hydranet DEX, and as necessary collateral to run important services of the Hydranet DEX Network and its ecosystem. HDN runs natively on the Arbitrum One blockchain with ERC-20 standards.

The HDN smart contract , deployed in July 2023, has implemented a maximum supply of 300 Million HDN. This number will only be reachable through HDN bonds. Every new 5 Million HDN made available for bonds must be approved via a DAO governance vote first. 

Hydranet DAO and community leaders will continuously explore the technical and legal feasibility of offering as many HDN use cases as possible. 

2. HDN Use Cases

Owning HDN tokens provides rewarding opportunities and responsibilities. It enables holders to operate Hydranet DEX hubs and watchtowers, act as Lithium Liquidity Providers, benefit from reduced trading fees on the Hydranet DEX, and to actively participate in the Hydranet DAO governance.

2.1 Collateral for Hydranet DEX roles: Hubs, Watchtowers and LLPs

To facilitate expansion and decentralization of the Hydranet DEX, it is planned to establish a network of Hubs and Watchtowers. Hubs, referred to as Titans, will work to decentralize the DEX and will provide order book and routing services for all DEX participants. Watchtowers, referred to as Guardians, will monitor the DEX as well as provide other monitoring services to ensure that all participants act with good conduct. HDN holders will be able to run these services by collateralizing different amounts of HDN. Doing so will make them eligible for a share of the DEX fees as payment for their services and expenses. The fees collected by the Hydranet DEX will be converted to a stablecoin on Arbitrum. Every 30 days, earnings will be distributed.

HDN Collateral Overview

  • Titans: 1.000.000 HDN
  • Guardian : 120.000 HDN
  • Lithium Liquidity providers (LLPs)
  • Guardian : 50.000 HDN

The ultimate objective is to establish a scenario in which the greater the amount of HDN you possess, the higher your profits ascend, all the while avoiding any undue inflation of your HDN.

2.1.1 HDN as HUB Collateral: Titans

By collateralizing 1.000.000 (1 million) HDN, token holders will be able to run a Hub in the Hydranet Network known as a "Titan". Titans will only be allowed to join and contribute to the network after achieving 99% online time and maintaining active state channels with other peers in the network for more than a week. If the online time falls below 99%, the Hub will be removed from the network, and its remaining collateral unlocked. If Guardians detect a malicious Hub, the Hub will get slashed, removed from the network, and its remaining collateral unlocked. Titans will generate income in the form of:

  • Trading fees (hosting the order book and routing payments between trading peers)
  • Liquidity rental fees (funding of state channels)

This income will, daily, be sent to the Hydranet multi-sig address to be distributed according to the DEX fee distribution model (see 3.1). The Hub must provide proof of payment when sending its daily income and also declare the accumulated value. A high percentage of the accrued fees will be divided between the hubs, accounting for online time, volume, fees, and other reputation factors.

2.1.2 HDN as Watchtower Collateral: Guardians

By collateralizing an amount of 120.000 HDN , token holders will be able to run "Guardians" that will offer the following services:

  • Monitor the state channels in the Lightning & Lithium networks as Watchtowers
  • Monitor Hydranet Titans (Hubs) and their daily reports
  • Safeguard traders

The Guardians’ quantity will be larger in comparison to Hubs’ and the necessary HDN needs to be fully collateralized for two weeks before the Guardian can start getting compensated for its role in maintaining network integrity and security. Guardians will be paid a proportionate share of the Hydranet DEX Fees for its services.

Guardians need to be online at least 99% of the time, as being offline would weaken the monitoring of Hubs and users. To ensure such behavior, they must lock a medium amount of HDN as security collateral. If the online time falls below 99%, they will be removed from the network, and their collateral will be unlocked.

If a Guardian identifies fraudulent behavior, it will punish the one responsible and receive a reward for doing so . This reward must be submitted to the multi-sig address within 10 days, along with proof of the payment. If the reward is delayed, or if the Guardian falsely tries to punish an actor, the Guardian will get slashed, and removed from the network, and its remaining collateral will get unlocked.

Guardians split the watchtower earnings at the end of 30 days, and also share a small percentage of the routing and orderbook fees collected by the Titans, as they are necessary to ensure correct behavior. The earnings will be divided evenly between the guardians, accounting for online time and other reputation factors.

2.1.3 HDN as Collateral for Lithium Liquidity Providers: LLPs

HDN holders can also become Lithium Liquidity Providers (LLPs) and provide Lithium channel rental liquidity so that Hydranet Web Wallet and DEX users can receive assets on the supported Lithium chains (currently limited to EVM-compatible blockchains, but also Solana and more chains seem to be possible).

LLPs will:

  • Offer channel rental liquidity for Lithium inbound capacities
  • Receive rental fees for providing Lithium channel liquidity (no DEX fees)

LLPs need to be online at least 99% of the time, as being offline would make the rented capacity non-usable and result in failed swaps and a poor user experience. To ensure such behavior, they must lock 50.000 HDN as security collateral. If the online time falls below 99%, they will be removed from the network, and get their collateral unlocked.

Note: Given the great possibility of providing permissionless Lithium channel rental liquidity, the DEX channel rental limits can be increased heavily or even removed once implemented. This is because the available liquidity will not depend on the Titans anymore but on numerous individuals offering their assets to provide liquidity.

2.2 HDN for trading fee reduction

By holding a specific amount of HDN in their Hydranet DEX wallet, users can enjoy a corresponding percentage reduction in trading fees when transacting on the Hydranet DEX platform.

Amount of HDN

Fee reduction in %

5000 - 25.000

2.5 %

25.001 - 75.000

5 %

75.001 - 150.000

10 %

150.001 - 250.000

15 %

250.001 - 500.000

20 %

more than 500.000

25 %

Please note: The Hydranet DAO reserves the right to adjust the system and its numbers. Small changes (below 25%) may be deployed without another DAO vote to ensure the profitability of the Hydranet DEX. Bigger changes will be subject to DAO votes.

2.3 HDN DAO Governance 

HDN is a unique governance token that empowers its holders with voting rights within a decentralized autonomous organization (DAO). Utilizing snapshot technology, each HDN token represents a single vote, ensuring a fair and democratic decision-making process for the DAO's community-driven operations. Votes can be seen and interacted with here: https://snapshot.org/#/hydranet.eth/ 

A reputation system supporting the HDN DAO governance is being researched and discussed at the moment, and will be presented to the community once it’s more mature.

2.4 Additional plans: HDN as Listing fee

Another option currently being explored is taking HDN 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 HDN can then be used for liquidity, payments, or removing HDN tokens from the circulating supply.

3. Hydranet DEX Fees

In the near future, the Hydranet DEX fees will be used to reward Titans and Guardians for their services and improve the liquidity of the HDN token.

Implementing a fee distribution system where participants can gain from the DEX's fees without needing to operate Titans or Guardians could incentivize broader engagement, including from those with smaller holdings. When individuals or entities engage by leveraging their collateral, they're more likely to frequently engage with the platform, advocate for it on social media, and introduce new traders.

Reward Sharing: Titans should allocate a certain percentage of their fees to those who delegate tokens to them, with the distribution proportionate to the number of tokens delegated. This approach motivates a wider range of users to become involved with a titan indirectly, sharing in the network's overall success.

Initial: Allocate 60% of the fees collected in the pool to the delegators (i.e., HDN token holders). This strategy allows Titans to remain competitive by offering them the flexibility to adjust their share of the rewards, thereby potentially reducing their portion to attract more delegators.

DEX Daily
Volume USD

Total daily fees
(0.2%) USD


Shared Pool%






70.00 %

0.00 %

30.00 %

0.00 %

0.00 %



30.00 %


10.00 %

22.00 %

8.00 %



30.00 %


8.00 %

23.00 %

9.00 %



25.00 %

30.00 %

6.00 %

19.00 %

20.00 %



25.00 %

30.00 %

4.00 %

18.00 %

23.00 %



20.00 %

25.00 %

4.00 %

16.00 %

35.00 %



20.00 %


4.00 %

14.00 %

37.00 %



20.00 %


4.00 %

12.00 %

39.00 %





4.00 %

10.00 %

51.00 %



20.00 %


6.00 %

55.00 %

The ultimate objective is to establish a scenario in which the greater the amount of HDN you possess, the higher your profits ascend, all the while avoiding any undue inflation of your HDN.

3.1 Overview

The Hydranet DAO's flagship product enables off-chain peer-to-peer trading with a fee range from - 0.05 to + 2% fee per trade. The fees may vary depending on the trading pairs, trading activities, and referrals. DEX fees will be collected by the Hubs and then sent to a multi-sig address managed by the multi-sig, which acts as a representative of the Hydranet DAO until all flows are working automatically using smart contracts and AI.

3.2 Strategic Liquidity

The multi-sig team will use the fees generated by the Hydranet DEX to build strategic liquidity for HDN. The objectives of strategic liquidity are:

  • Deep liquidity in HDN pairs on exchanges
  • HDN token purchases (as a result of providing liquidity) and therefore
  • Reducing the circulating supply (burning of HDN)

This will be done for the entire HDN price range. 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 DEX fees on a low-price liquidity pool (LP) or limit orders. Since the HDN price is determined by supply and demand on the open market, this price floor will be dynamic and move in accordance with the current price of HDN. The tools used for managing the HDN liquidity will be Market Maker bots on orderbook exchanges, e.g. Hydranet DEX and centralized, and Liquidity Provider NFTs on decentralized exchanges.

An overall increased liquidity of the HDN token will create an environment where the HDN 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 HDN liquidity,  any bought-back HDN in this process will be eligible to be moved into the HDN Vault.

To react quickly to changing market circumstances and add newly acquired DEX fees to the liquidity management tools, the multi-sig team will adjust the low-price LP 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:


3.3 Hydranet DAO Treasury

The multi-sig team will use DEX fees in the following ways:

  • To build the Hydranet DEX client platform and perform upgrades to the system, which includes team recruiting, training, the development budget, legal expenses, and operational expenses. 
  • 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 attract active users to the platform. 
  • To pay for Referrals (distributed by Influencers).
  • Reserve for any emergency or unexpected situation that might arise.

4. HDN Supply

4.1 HDN Distribution

Snapshot of the HDN supply distribution in November 2023:

  • 125 Million: Vault (Holding all non-circulating supply of HDN to be used at the discretion of the DAO)
  • 6 Million: DAO Protocol-owned Liquidity (POL) (Holding liquidity assets of the DAO, used for providing liquidity on exchanges): 
  • 8 Million: DAO Treasury (Holding all treasury assets of the DAO, used for paying services, external devs, team members, and marketing expenses)
  • 161 Million: Hydranet Community 

4.2 HDN Emissions

Every new 5 Million HDN made available for bonds must be approved via a public community vote first.

Users can buy HDN bonds with different Arbitrum assets to directly support the DAO and its development. All acquired funds go into the multi-sig treasury and are used to pay servers, market activities, developers, and other operating expenses. When available, bonds can be bought here: bonds.hydranet.ai

5. Additional Info

5.1 Arbitrum Network Info 

Network Name: Arb1
RPC: https://arb1.arbitrum.io/rpc
Chain ID: 42161
Currency Symbol: ETH
Block Explorer URL: https://arbiscan.io/

5.2 HDN Token Info

Smart-contract: 0x3404149e9EE6f17Fb41DB1Ce593ee48FBDcD9506

HDN vault address:Debank

Treasury address: Debank

POL address:Debank

The Hydranet DAO will continually try to improve these HDN tokenomics, propose more features, and adjust to new legal insights. Smaller adjustments will be implemented without prior notice, like fixing typos, improving grammar, or reflecting the latest DAO votes. Also, if the HDN ecosystem grows and new products or players enter, the HDN tokenomics might be subject to bigger updates.


Legal reservation

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 community's best interests. Corresponding investigations are planned. The burden sharing of future trade fee discounts and/or referrals will be made, particularly 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.

Hydranet does not engage in United States markets. Hydranet DAO reserves the right to refuse services to any user, country, jurisdiction, or group that conflicts with Anti-Money Laundering (AML) regulations or is identified as supporting terrorist activities

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.

Voted in: December 6, 2023, Snapshot

Updated: December 8, 2023

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