Bring on DOT liquidity! (June 9th to June 15th)

What is up, my friends!

Those who have been in the Web3 space for a while may remember the excitement of DeFi summer in 2020. It can be considered a compelling period where many folks went on-chain and got to experience decentralized finance for the first time. Against the backdrop of COVID, it signified an important milestone from the last crypto bull run.

While decentralized finance systems can offer incredible opportunities, they also come with risks. Liquidity and liquidation are fundamental elements that users need to pay attention to when it comes to balancing the impact of risks with the rewards from the opportunities available.

Fast forward to 2024: ETFs for the top two crypto currencies have been approved and summer has just begun. Yet, the markets have just been hit with major liquidations around DeFi lending giants Curve, as reported by CoinDesk. Amid all the chaos, Polkadot appears to be getting its very own DeFi summer started and perhaps offers some refuge.

In this week’s top story, we will take a closer look at the surge of liquidity as well as the important news shaping Polkadot’s DeFi summer. Given the recently rebranded Hydration has kicked off the incentivisation, we will also provide a featured profile report on them in this week’s edition.

From DeFi incentivisation to content incentivisation, did you catch last week's featured update on bounties that have yielded rewarding content. If participation in content bounties is too soon for you, have you considered contributing to our finders program?

Sharing news also earns rewards and can eventually lead to contributing to this very newsletter. For instance, our finder-turned-writer earned 25.5 DOT from contributions to last week’s featured update and news coverage.

Without further delay, let’s flow on to the week’s stories and news updates.

Dodow, Chief Editor

Top Story of the Week - Summer Rise Liquidity

Written by yay.oi

Howdy yield farmers. It’s time to grab your boots and fire up the tractor because we’re preparing for the summer harvest. We’re all out of scarecrows this year, but don’t worry a fresh batch of Decentralized Voices delegates have been sent out to keep the fields free of rogue whales. There’s no need to worry about liquidity, because some parachains have volunteered to keep the crops hydrated. So, get your seeds ready and LFG -- let's farming go!

With our sights set on a bountiful harvest, let’s examine why liquidity is so important to our ecosystem. At its core, liquidity ensures that we can buy and sell tokens without causing significant price fluctuations. To remain competitive and ensure smooth trading, a decentralized exchange (DEX) needs to maintain robust liquidity pools.

In DeFi, liquidity pools generally make up a large portion of the Total Value Locked (TVL) metric, which many view as an indicator of how healthy and active an ecosystem is. Higher TVLs foster growth and innovation by attracting new users and developers.

This week, Hydration kicked off its Polkadot Hydration campaign, which aims to deepen liquidity in the Omnipool and boost its TVL by $50M. Hydration believes that the influx of capital from their campaign will spill over to the entire ecosystem. The Polkadot community seems to think so too, because they approved proposals for a 1M DOT loan to inject liquidity into the Omnipool and 1M DOT for 12 months of liquidity mining incentives.

With initial incentives of up to 260% paid out in vDOT and HDX, Hydration hit an all-time high TVL of 32M within 24 hours. After a week, their TVL hit 44M overtaking Moonbeam to become the top parachain on Polkadot.

Though Moonbeam is doing its best to keep up, with the launch of their own self-funded liquidity incentive campaign. For their 4.5M GLMR Season 3 ecosystem grants they enlisted DeFI consultants Gauntlet to analyze and advise on the distribution.

On Gauntlet’s advice, and with the community’s approval via governance, 30% was allocated to a DEX (Stellaswap), 25% to a Lending Protocol (Moonwell), 25% for Cross-Chain Interactions (Prime Protocol), and 20% to Innovative Products (Beamswap).

With a smaller budget than Hydration, and some fragmentation of funds due to the distribution, the influx of funds has not been as high on Moonbeam. That said, it’s still early days, and the results so far are still notable. With an 80% APR, Stellaswap, for example, saw a 50% rise in their USDC.xc/USDT.xc stable pool TVL in the first day of the campaign.

That’s not all from Stellaswap, expect an even bigger TVL boost with DOT incentives going live very soon. Polkadot Referendum 580 granted Stellaswap 1M DOT which will be used to incentivize 20 farms. This will result in some tasty yields with some farms receiving GLMR, STELLA, and DOT rewards!

Acala is joining the party on Stellaswap too by incentivizing ACA/LDOT and LDOT/DOT with USD$13,000 of ACA for 3 months with the option to renew. Stay tuned for something else they’ve got up their sleeve in July.

Things could be heating up this summer at Astar with a proposed burn of 350 million ASTR. The benefits of a boost in token value and staking rewards could overflow into Arthswap just in time to take advantage of some of their high-yielding new pools.

Moonbeam is not sitting on the sidelines waiting for higher TVLs to attract new developers, they have proactively allocated USD $13M to a new innovation fund. With it they aim to advance the key areas of gaming, real-world assets, and their canary network Moonriver.

The rejuvenation of DeFi Moonriver is a key feature of the Moonrise roadmap, with Beamswap receiving a USD $100K grant to develop a concentrated liquidity AMM. Once it’s up and running you can look forward to an injection of USD $1.5M MOVR for liquidity and activity boosting initiatives.

Also, regarding Beamswap, they have just announced they will be issuing 5K daily incentives on their perp implementation, Beamex, as part of Moonbeam Season 3 ecosystem grants.

Meanwhile, Bifrost, who we can thank for minting those juicy vDOT rewards on Hydration, is out there attracting new community operators, projects, and KOLs to share in its vToken minting rewards. Successful applicants receive a share of minting rewards issued using exclusive vToken minting links.

With all this talk of capital influx, the real question is, where will it all come from? While on-ramping from Centralized Exchanges offers an easy route, fundamentally it clashes with DeFi’s nature of being decentralized.

On-ramping to Asset Hub via Ramp was recently facilitated by Velocity Labs, and wallets such as NovaWallet and Talisman have agreements with on-ramps such as Banxa. However, a much bigger capital influx is likely to come from bridges.

Pendulum’s Spacewalk bridge to Stellar offers some beneficial on-ramping enhancements. Stellar’s focus on international payments means that they offer a wide selection of stablecoins and a global network of fiat on ramps supporting numerous currencies.

The Spacewalk bridge uses a vault system similar to Interlay’s iBTC. Since its launch, Pendulum has struggled to keep the vaults collateralized causing the bridge to repeatedly max out capacity. That shouldn’t be a problem this summer thanks to a 50,000 DOT collateral injection from the Polkadot treasury.

Spacewalk is just a drop in the ocean compared to what’s possible from the world’s biggest DeFi ecosystem. With a TVL of $64B, Ethereum presents a massive opportunity for capital inflow, and with Snowbridge, the trustless bridge to Ethereum, expected to go live this coming week, that capital can flow a whole lot easier.

The bridging doesn’t end there, because Polkadot could soon be theoretically bridged to all chains. The mainnet launch of Hyperbridge, the universally interoperable bridge secured by Polkadot, is expected this June.

There are even more enhancements in the works over on Polkadot OpenGov. Firstly, Referendum 851 proposes to fix the maximum supply of DOT at 2.91B. This could benefit the ecosystem by providing some fiscal certainty and allaying fears of overdilution.

Referendum 857 aims to reduce the Asset Hub USDT/USDC existential deposits to 0.01. This is the first of three planned Asset Hub tweaks. Next will be to reduce Asset Hub fees by a factor of 10, followed by reducing blocktimes to less than 1s. Tweaks such as these not only streamline the inflow of capital, they also position Polkadot as a more competitive chain for cheap and fast stablecoin transfers.

So, with all of our DOTs in a row in June, could this be the start of Polkadot’s own DeFi summer? The catalyst for 2020’s DeFi surge is often attributed to the launch of Compound Finance’s COMP token and their innovations in yield farming.

Incentive campaigns are a good start and we’ve already seen a nice boost to the ecosystem, but what’s really needed is a defining moment. Snowbridge and Hyperbridge might be it. Not only are they facilitating capital flow, they introduce levels of cross-chain interoperability, scalability, and security that offer real opportunities for game changing innovation.

In the meantime, enjoy the summer vibes and of course those yields, degens!

Featured Report - Time for Hydration!

Written by Sanchez

Liquidity is the lifeblood of decentralized finance (DeFi), indicating how easily one token can be swapped for another. The DeFi sector, with over $20 billion in total value locked on decentralized exchanges (DEXs), still suffers from the inefficiency of liquidity caused by its fragmentation across different chains. This is likely to worsen as the crypto industry expands.

Liquidity fragmentation hinders the optimal utilization of liquidity. Small trades can cause significant price impacts and slippage, leading to price discrepancies for a token across different exchanges. Additionally, users face higher trade fees as the system hops through various liquidity pools to facilitate a trade. Those who try different chains for better trading results end up paying more transaction fees than if they had traded on just one platform.

Hydration, formerly known as HydraDx, offers an innovative solution to liquidity fragmentation with its Omnipool. The Omnipool is a novel concept that combines all token assets into a single trading pool, as assets are supplied singly. This is unlike the usual XYK pools, where tokens are supplied in pairs and can only be traded against the tokens they are paired with.

Co-founded by Jakub Gregus and Jakub Panik, and built by the Galactic Council, the first notable appearance of Hydration was in 2021 when the team held an LBP on Balancer. This was the most successful LBP on Balancer in 2021, with over 22 million DAI raised from an impressive 87% of the xHDX tokens sold.

Next up was the Canary Network approach, which follows how early projects within the ecosystem evolved, by launching on Kusama before launching on Polkadot. This saw the launch of Basilisk, which unlike the approach taken by other projects was not a like for like clone.

Although similar to Hydra and considered a DEX appchain, Basilisk focuses on frictionless liquidity bootstrapping. It was responsible for the LBP of Tinkernet, the canary chain of InvArch. Check out our newsletter from October 2022, where we cover the LBP and get into the unique experimental aspects on how the LBP worked.

You could make the case that Basilisk embraces the experimental nature of Kusama, as notable experimentation was done with NFTs, being able to do swaps using KSM instead of first needing BSX, and more.

When it was time for the Polkadot auctions, Hydration entered the second batch of auctions and received over 2.4 million DOT in crowdloan contributions, winning the 9th parachain auction. Their unusual incentive mechanism for crowdloan contributions set the stage for a thrilling process as users scrambled to contribute their DOT before Hydration reached a 15% lead over competitors, to guarantee maximum rewards.

After winning a parachain slot, Hydration launched its Omnipool in January 2023. This was about a year after extensive researching, refinement and development of the Omnipool. The team initially proposed using a one-token model where the HDX token would pair with all assets in the Omnipool.

On evaluating the potential effects of a fluctating token supply on the governance of Hydration, the team decided to adopt a two-token model. This model incorporated both HDX and LHDX (later rebranded to LRNA) and also limited the influence on rewarding systems, ensuring the efficient functioning of the Omnipool.

Hydration’s approach unifies liquidity across the Omnipool, making top ecosystem tokens like GLMR, ASTR, BNC, CFG, PHALA, KILT tradable against each other. This makes the liquidity supplied more efficient, reduces the need for multiple hops to facilitate a swap, and enables trading at low to zero slippage.

To achieve this level of efficiency in a flexible single giant pool, Hydration uses LRNA, a proprietary hub token. All assets in the Omnipool are paired against LRNA, which is minted when assets are supplied and burnt when liquidity is removed from the Omnipool to maintain its value.

Pairing assets with LRNA means that potential impermanent loss (IL) would depend on the disparity in price change between LRNA and the assets. Hydration utilizes fees and distribution mechanisms to preserve the price of LRNA, reducing the possibility of IL.

For users, Hydration offers a superior experience allowing the ease of trading assets with minimal price impact, ensuring they get the best for their trades. Thus, offering a one-stop shop for trading assets at the best prices, removing the need for seeking pools with sufficient liquidity on different DEXs.

It also enables parties with sizable assets, such as foundations for projects, to manage efficiently the use of their liquidity and treasury. Projects only need to provide liquidity for a single asset, unlike the XYK model and the liquidity provided by projects earns trading fees.

This provides the opportunity for projects to spend less tokens incentivizing liquidity mining, and such allocations can be utilized elsewhere. That said, projects who want to incentivize users can do this via hydrated farms.

Hydrated farms are time-weighted, meaning the earning APR for a liquidity provider increases the longer their liquidity remains in the pool. Additionally, liquidity bootstrapping pools (LBPs) are also on offer for projects looking to bootstrap liquidity for their tokens.

Throughout 2023, the team launched several new features, including a dollar-cost averaging tool (DCA) for all tokens. The DCA tooling has been widely accepted by the Polkadot ecosystem, as it has been used to DCA 469,000 DOT worth $2.6 million, into stables for salary payments for the Polkadot Fellowship.

Another unique feature is the yield DCA. This enables the conversion of DOT staking rewards into stables or any token of your choice. It applies to vDOT, the receipt token for DOT liquid staked on Bifrost. Using this feature, the staking rewards accrued by a users vDOT will be DCAed into a token of their choice.

Other additions include OTC trading, which allows fee-free trades of unofficially tradable tokens, and bonds that enable Hydration to acquire protocol-owned liquidity (POL).

The release of these features usually requires governance approval from the community. Beyond being used for paying transaction fees, HDX serves as the governance token for Hydration. Users can participate in Hydration’s governance using the HDX tokens. Furthermore, Hydration went on to introduce staking of HDX tokens, where staked tokens can also be used for governance.

In fact, Hydration uses a one-of-a-kind governance incentivisation mechanism that rewards active governance participation. Active participants in governance who also have their HDX staked receive points, ensuring they receive staking rewards faster.Therefore, the higher the governance locks for votes and the more you participate, the earlier you can claim your staking rewards.

The staking rewards primarily come from the LP fees of trading HDX. Following the approval of referenda 67, over 22 million HDX tokens were allocated to boost the staking rewards APR for the first year.

In 2024, the team introduced EVM support, allowing users to interact with Hydration using an EVM wallet. This enables the transfer of tokens to and from Ethereum. An added feature expected soon will allow users from EVM to pay transaction fees with any token they have available on Hydration, similarly to what is available to Polkadot users.

The team has also released isolated pools, welcoming memecoins and degens on Hydration. The shitcoin casino as it has been called offers isolated pools which are traditional XYK pools for tokens that cannot be included in the Omnipool. If you’re a fan of Gavun Wud, DOTA and many more memecoins, or you’re a degen at heart, Hydration opens the gates to you.

Welcoming you through those gates this summer is the new look on Hydration, reminiscent of the perfect summer getaway. With a perfect blend of colours, the site teases Hydration’s recently announced money market and the Hollar stablecoin, which will be over-collateralized and mintable with any of the basket of assets supported on Hydration.

On the recent Kusmarian episode of Space Monkeys, Ben McMahon (Lolmcshizz) revealed the new money market will be a fork of Aave V3 with added features like the order batching where transactions for trades, liquidations, limit orders and DCA’s are batched in a block and resolved.

The unresolved trades are then sent to the omnipool. An example of this is a user trading X token for Y while another user does the opposite. If these transactions are in the same block, the trades are resolved and any parts unresolved are then taken care of in the Omnipool. This has the advantage of making trades faster and is important particularly for liquidations in time of much traffic.

The introduction of the money market and Hollar transforms Hydration from just a DEX to a fully-fledged DeFi hub, providing what’s considered the holy trinity of DeFi services for users inside and outside Polkadot. The recent rebranding was deemed necessary to accommodate this transformation to a more robust protocol.

Cycling back, the problem of liquidity fragmentation occurs in many decentralized exchanges with the liquidity being spread across different liquidity pools, each consisting of a pair of tokens. This is further exacerbated with the launch of new chains, with each one looking to boost their liquidity. Bridges offering wrapped tokens also contribute to this fragmentation, as the wrapped tokens offered by one bridge are not integrated by others.

The approach with the Omnipool resolves this fragmentation, meaning that users can access the best prices for tokens, low slippage all in one place. Put that together with the expansion of the DeFi services on Hydration, you can see the monster it will become.

With support for EVM already available, the integration of more chains and trustless bridges such as Snowfork and Hyperbridge will increase the number of tokens housed in the Omnipool. Being that the Omnipool becomes more efficient as the liquidity increases, this will only draw in more projects and users.

The first step in this move is growing the liquidity on Polkadot. Hydration received 1 million DOT for liquidity and another 1 million DOT for liquidity incentives for its Hydration campaign from the Polkadot treasury.

Currently, it’s Hydration time as the campaign seems to be hitting the mark with users as farming pools offer enticing APRs. So far, the TVL on Hydration has hit a new all-time high of over $43 million and continues to rise daily. It’s all looking promising in the long road to fixing fragmentation and providing efficient liquidity across the paraverse and beyond.

General News

Written by Dodow

• Integritee has started a bug bounty program with Immunefi, offering rewards of up to 10K USD worth of TEER tokens.
• Polytope Labs has teased the evaluation period for funding through Polimec for Hyperbridge is coming soon.
• More Peaq partnerships this week as they welcome AI agent co-ownership platform Olas, AI agent payment protocol Nevermined. Furthermore, there’s a partnership with Particle Network to bring wallet abstraction into the Peaqoverse.
• Season 2 of Crust’s Gateway Collection Program has started.
• Nova Wallet’s version update provides support for metadata, Kusama’s recent runtime upgrade, and more.
• The Moonbeam foundation has allocated funds totalling 13 million USD towards innovation development of Gaming, RWA, and Moonriver. A partnership with N3MUS for mainstream gaming has already been confirmed.
• Frequency has explained their recent spike in activity is due to the migration of social graphs (DSNP) from social network partner, MeWe.
• Moonbeam is now integrated with Secret Network and will provide a confidential computing layer, which could unlock all sorts of opportunities with development on Moonbeam.
• OriginTrail has been selected for European Blockchain Sandbox’s 2nd cohort.
• DKG paranets and Initial Paranet Offerings (IPOs) have been introduced by OriginTrail. Paranets on NeuroWeb.AI are on-chain autonomous AI systems that establish knowledge graphs. The IPO is the mechanism to launch an initial set of knowledge assets with determined incentivisation.
• Subsocial’s Grillapp has introduced new content policies to address issues such as spam, plagiarism, trolling, and hate.
• Things are getting on in the Peaqosystem, as autonomous robotics DePIN XMaquina partners with decentralized agricultural marketplace Farmsent to serve traceable coffee at its Robo-Cafes.
• Polkadot slot auction 71 has been won by Crust Network with a self-funded bid of 222 DOT.

NFT & DEFI News

Written by Dodow

• Blockchain Gamer has reported that Mythical’s NFL Rivals has surpassed $1 million in NFT trading volume.
• Spacers NFT, a collection on Moonbeam that unlocks the Subsocial ecosystem, has provided an update. Currently, progress is held back due to insufficient product foundations, which they plan to address by building other ecosystem products to attain a larger user base.
• As the build-to-earn period comes to a close, those who staked with Astar Degens (AD) are set to get a bonus 20% distribution of the rewards earned by the dApp. Anyone who has staked with AD will need to make sure they have set up their Astar Pass, which binds the user's substrate account to their EVM account.
• Youdles open their public mint on Singular. You can purchase and customize yours using the 9 slots and 300 plus items.
• XChimpz, an OG Kusama NFT collection that has migrated to Astar, has released a video demonstrating their modular NFTs supported by RMRK tech and NFT wizard Tricky.
• Moonbeam S3 Ecosystem Grants have been approved, with 4.5 GLMR allocated between Stellaswap, Moonwell, Prime Protocol, and Beamswap. Subsequently Stellaswap announces their liquidity incentivisation campaign will start on June 14th.
• The much anticipated Polkadot Hydration campaign kicked off on June 10th, and in less than 24 hours, the Omnipool reached a new all time high of USD$32M TVL.
• Thanks to Centrifuge governance, we get an injection of CFG liquidity into the Hydration Omnipool.
• It looks like a new liquid staked version of Moonbeam's GLMR token will be launched as part of a 1.35M GLMR incentivisation on Stellaswap.
• Ahead of the Season 3 ecosystem grants, Beamswap’s decentralized perpetual exchange, Beamex, has surpassed 90M in volume.
• Darwinia's Ring token is now tradable on Hydration.
• Juicy GLMR incentives go live on a few pools on Stellaswap.

Governance & Events News

Written by Dodow

• OpenGov referendum 857 is the first of a series to tweak Asset Hub and help make Polkadot competitive in the stablecoins market.
• Bifrost launches a vToken Reward-Share Program. Successful applications via Bifrost OpenGov become collaborator channels who receive special links for minting vTokens. A share of the reward fees are collected when users mint vTokens using these links.
• Crust’s monthly community call took place on June 13th.
• The DeFi Guy hosts TVVIN to discuss tokenized precious metals coming to Polkadot, on June 12th.
• There was a Polkadot meetup on June 14th hosted by Apillon, featuring speakers from Deutsche Telekom, Oasis Network, and Flare.
• Polkadot Insider hosted Braille on June 12th to discuss the #52 Polkadot UX Bounty proposal.
• Check out the recording from June 13th where LAOS Network hosts a selection of speakers to cover barriers for games to integrate NFTs.
• Phala was involved in a space hosted by Mind Network to discuss LLM and AI Agents on June 13h.
• Snowbridge, a trustless bridge between Polkadot and Ethereum, is coming. Learn more about it in this session on June 13th.
• Nyx Carbon gets into why they chose Peaq Network in an X space on June 13th.
• Check out the first episode of Appchains Unlocked by Tanssi, recorded on June 13th.
• Ajuna hosted a community AMA on June 13th.
• Speakers from new projects raising funds through Polimec were featured on an X space hosted by Polkaworld on June 14th. There was representation from Polimec, Polytope Labs, Xcavate, and Gotem DAO.

That is all for this week. If you enjoyed the newsletter, please share it. You can subscribe on Substack to receive an email when next week's edition is ready. And if you're participating in creator staking on Subsocial, you can interact to increase your rewards — perhaps a good two-for-one deal by providing feedback or comments.

Awesome cover art created by Dodow.