Proposal for the Migration of LM Campaigns to LYDRA Pairs
Background:
On November 16th we successfully completed the second hard fork that was required before the listing of LYDRA on the Hydra DEX.
The community already voted for the strategy around the HYDRA/LYDRA pool, which will ensure deep liquidity in the most relevant zones and allow for big swaps to take place efficiently. Now it is time to plan ahead for the broader rollout of LYDRA into the Hydra DEX.
Strategy:
One of the main reasons behind the development of LYDRA was for it to act as the core of the Hydra DEX liquidity. This has several advantages over the current HYDRA-based core:
- Lower Opportunity Cost: Adding HYDRA as liquidity to any pool on the DEX comes with a significant opportunity cost that is equal to its staking APR. For example if users are able to achieve staking income of 30%, then in order for a LM campaign to be attractive, it will need to offer 30% + risk premium to cover any potential impermanent loss. With LYDRA on the other hand, the opportunity cost is virtually 0%, which makes it a fundamentally more suiting asset for liquidity provisioning.
→ Capital efficiency of the liquidity mining campaigns is expected to significantly improve, resulting in higher TVL with the same budget
- Dilemma of Choice: With HYDRA at the core of the DEX, users have to choose whether to stake OR provide liquidity. Since both can not be done at the same time, one option is always missed out on. By migrating the pools to LYDRA, users will for the first time have the option to both stake HYDRA and provide liquidity with their LYDRA simultaneously.
→ Optionality for ecosystem participants will increase and open the path towards a higher engagement in the Hydra DeFi
- Demand for LYDRA: Moving to a LYDRA-based liquidity core will also stimulate higher demand for LYDRA, which is expected to benefit HYDRA as well.
→ More demand for LYDRA indirectly translates to more demand for HYDRA through the leveraged staking mechanism
Implementation:
This proposal takes advantage of the existing liquidity mining program that is already in place and running (only listing the pairs including HYDRA):
- 5,000 HYDRA/month for USDC/HYDRA (0.30% fee rate)
- 5,000 HYDRA/month for ETH/HYDRA (0.30% fee rate)
- 5,000 HYDRA/month for WBTC/HYDRA (0.30% fee rate)
By migrating the same campaign structure to LYDRA, we arrive at the following:
- 5,000 HYDRA/month for USDC/LYDRA (0.30% fee rate)
- 5,000 HYDRA/month for ETH/LYDRA (0.30% fee rate)
- 5,000 HYDRA/month for WBTC/LYDRA (0.30% fee rate)
Going forward, new pools to be deployed with LYDRA as the default paired asset, unless stated/argumented otherwise.
Timing:
The migration is proposed to take place on December 16th, which is when the current campaigns expire — under the condition that the main HYDRA/LYDRA pool is deployed in advance.
Summary of Proposal:
- Keeping the existing LM budget structure
- Replacing the HYDRA side of the pools with LYDRA
- New pools to be deployed via LYDRA by default
- Targeting December 16th for the migration