What Is HydraDX?
HydraDX has been called the, ‘multi-headed monster of liquidity pools.’ Their goal is to completely change how decentralized exchanges operate. DEX’s, like Uniswap are a place where buyers and sellers come together to trade tokens. The DEX is a market and HydraDX aims to be the dominant marketplace.
Uniswap doesn’t own any tokens. Its inventory is supplied by investors who want to collect trading fees on their idle crypto holdings. If you have ETH sitting around in your wallet for example, you can contribute to a DEX liquidity pool and provide ETH for others to buy and sell.
But DEX’s, like Uniswap only accept liquidity contributions from crypto investors in pairs and in equal quantities. As an investor, you’d have to provide an equal amount of ETH and another token, like USDC to Uniswap’s liquidity pool. This makes current DEXs inefficient.
If you had $1000 worth of ETH, you’d also have to provide $1000 USDC to match it. That pool allows investors who visit the DEX to swap USDC for ETH and vice versa. In return, you’d earn a percentage of the trading fees.
If you want to provide only a single token to Uniswap, you can’t.
Unlike current DEXs, the HydraDX protocol will own tokens. It will not rely solely on the contributions of crypto investors and this will allow you to contribute a single token. You won’t be forced to contribute in pairs, like ETH/USDC. You’ll be able to contribute just your idle ETH. HydraDX will also be cross chain, so investors from the various blockchain ecosystems can come together.
HydraDX will have two tokens, HDX for governance and LRNA to pay transaction fees. The protocol will hold 50% of its liquidity in the LRNA token. The other 50% will be any token you can think of, in time. This 50/50 split is controlled by code. If you go to HydraDX and supply $1000 worth of ETH, the protocol will create $1000 worth of LRNA to match it. When you decide to withdraw your $1000 worth of ETH from the HydraDX liquidity pool, it will then destroy $1000 worth of LRNA tokens.
This keeps the supply of HDX governance tokens stable so token holders don’t get diluted, while the supply of LRNA will fluctuate wildly. HDX holders get a cut of the platform’s trading fees, get to vote on where remaining fees go, and get to vote on which assets get added to the platform’s liquidity.
When an investor visits HydraDX to purchase LRNA tokens, the protocol takes possession of whatever token was used to swap for the LRNA. That’s how it builds its own inventory of tokens, which will become huge over time. This is quite different from current DEX’s, like Uniswap and Quickswap. Those DEX’s rely on investors for liquidity and don’t own an inventory of tokens.
HydraDX’s inventory of tokens will have a market value, and that’s what will give the HDX and LRNA tokens their value. As its inventory grows, so too should the value of the HDX and LRNA tokens. This will allow, cheaper, faster, more efficient trades.
The protocol uses two tokens so whales can’t control governance. On other protocols, like Uniswap, liquidity contributors are paid in the UNI token and can then vote on governance proposals. If whales contribute huge amounts to LPs they can then control governance, drain yield reserves and just wreak havoc. The two-token system at HydraDX will prevent this.
HydraDX has chosen Polkadot as its home, because Polkadot was designed to communicate with other blockchains. With mainnet launch just around the corner, now is an excellent time to stake your HDX tokens.
HydraDX HDX Staking Tutorial
Before we get into the nitty gritty, let’s cover a few important basics.
HydraDX uses Polkadot’s Phragmen algorithm and a consensus mechanism called, Nominated Proof of Stake (NPoS). This is a variation of Proof of Stake. According to the HydraDX official documentation, “A central principle of the Nominated Proof-of-Stake (NPoS) consensus mechanism is that equal work brings equal rewards. In other words, since all validator pools essentially carry out the same work, the available base rewards are divided equally among them. This means that validator pools are not rewarded in proportion to their total stake, which is a major difference from traditional PoS networks.”
In plain English this means that if you stake 10,000 HDX with say 10 validator nodes, your 10,000 HDX tokens will be divided up between the 10 validators you nominated. Each active validator could be allocated 1000 of your HDX. Additionally, validator nodes top out at 165 nominators. This prevents any single validator node from becoming too large and dominating the network. The validator nodes share equally and this helps maintain decentralization.
In the DotSama ecosystem ONLY active validators earn block rewards and ONLY the top 64 nominators on each node earn block rewards. Validators compete with each other to make it into the active set. Nominators compete with each other to be in the top 64 spots on each validator node.
Pro Tip: The staking yield is HIGHER with SMALLER nodes and LOWER with LARGER nodes. The system incentivizes stakers to nominate active validators with a smaller HDX stake, so nodes will wind up with a similar total stake. Again, this helps decentralize and strengthen the network.
How to choose HydraDX validators?
Polkadot’s goal is total decentralization. Keep that in mind as you read the bullet points below. This stuff is confusing, so read it several times if you have to. Every ecosystem has its own lingo, so know that to nominate means to stake with a validator.
- Only nominate nodes that have a verified on-chain identity (NOT just an address). The community caught around 10 anonymous nodes stealing block rewards from delegators. They use 0% commission as the bait. They raised their commission to 100% just before signing a block and then immediately lowered it back to 0% to keep deceiving nominators. If the validator only has an address and not a name, keep looking.
- Make sure the nodes you select have a website and email address, in case you need to contact them. If the validator only has a Twitter handle, that’s a hobbyist not a pro, so keep looking.
- Avoid 0% commission nodes for 2 reasons: 0% is the bait that dishonest node operators usually use and 0% commission nodes are likely to become oversubscribed quickly. When your validators become oversubscribed, YOU’LL BE COMPETING with their other nominators to get into the top 64 spots on the node and earn block rewards. If the other nominators on the oversubscribed node have more tokens staked with the node than you, you will be bumped out of earning block rewards. No one will notify you if that happens.
- All nodes eventually become oversubscribed, so check in on your stake from time to time.
- Avoid nominating too many oversubscribed nodes, unless you have an enormous stack of HDX. Once a node has greater than 64 nominators they are oversubscribed. Validator nodes are also capped at 165 nominations. This prevents any single node from becoming too large. Huge nodes are bad for network security.
ONLY THE TOP 64 NOMINATORS ON ANY NODE EARN BLOCK REWARDS. This is a point we wish to emphasize and reemphasize.
If the validator you like is oversubscribed, it’s totally OK to still nominate them. Just remember that the Phragmen algorithm divides your stake up between your active nodes. The smallest stakes on oversubscribed nodes get bumped out of earning block rewards.
What’s the solution? ONLY NOMINATE 1 to 3 NODES, unless you have a huge stack of HDX. On the staking page you can see how many nominators have been bumped from earning rewards in red. Click the red drop down arrow to see the size of their stakes. See the image below.
- Remember, stakers on oversubscribed nodes COMPETE WITH EACH OTHER. Click the drop down arrows next to the nominators on the validator node you’d like to stake with. (Images below) You’ll see the minimum amount you need to stake to be in the top 64 spots and earn block rewards. If the lowest active stake on the oversubscribed node is 2000 HDX for example and you’ve got 25,000 tokens, nominate no more than 10 nodes (25,000/2500=10). It’s much smarter to make sure that your stake would be well above the minimum, so you aren’t in danger of getting bumped from the top 64.
Click the drop down arrows to see how many tokens each person has staked.
- Staking yield is HIGHER with small nodes and LOWER with large nodes (ie: the validator’s total HDX stake). DO NOT NOMINATE THE LARGEST VALIDATORS.
- Nominate one inactive node to help the network decentralize. The system is designed so this won’t negatively affect you, because your entire stack is distributed between your active nodes. But, by nominating an inactive node you give that validator a chance to make it into the active set at some point. AND, once they make it back into the active set they will be your HIGHEST YIELDING node.
Remember, staking yield is HIGHEST with SMALL active nodes and LOWEST with LARGE active nodes. Nominating an inactive node is smart. If the inactive node makes it into the active set, it will have THE HIGHEST YIELD of all active nodes.
- Write down or copy the names and wallet addresses of the nodes you’d like to nominate.
How to Become a Nominator and Stake Your HDX
Nominators help secure the network by staking their tokens with validator nodes. You “nominate” validators to represent your stake and in so doing earn more HDX. Remember, every token is a “vote.” When you stake your tokens you assign your token’s voting rights to your validator. Those voting rights allow your validator to sign blocks and vote on network proposals for you.
- Make sure you’ve installed the Polkadot JS browser extension and have funded your wallet with your HDX tokens. Open up the Polkadot JS browser extension, click the 3 dots to the right of your wallet address, click the drop down box and select HydraDX Snakenet, or “Allow use on any chain.”
Then, navigate to the staking page. It will look like the image below.
2. Select “Account Actions” and you’re ready to bond funds so that you can stake. See the image below.
3. Click the + Stash button and fill in the required fields.
Select your account with HDX tokens as “stash” and “controller.” Until mainnet goes live (March of 2022), your stash account and controller account will be the same, so you can ignore the warning. This is because transfers are prohibited during testnet.
Once mainnet is live your stash account must be different from your controller account. This helps to protect your stash. Click the drop down box and select the wallet that’s holding your HDX tokens.
Stash Account: Think of this as your savings account, or cold account. This is where your block rewards go.
Controller Account: Think of this is your checking account, or hot account. You need a small amount of HDX in the controller account to pay for fees. This is the account that signs transactions.
Payment Destination: This should be your stash account, considered your savings. This is where you’d like staking rewards to be deposited. Also, select your stash account and whether or not you’d like to automatically reinvest your block rewards.
Value Bonded: Enter the amount of tokens you’d like to stake. Do NOT bond all your tokens. BE SURE TO LEAVE AT LEAST 10 HDX TOKENS TO PAY FOR FUTURE FEES. You’ll need a little HDX to claim your block rewards.
Now you’re ready to nominate validators!
4. Click the + Nominator button and a large box pops up. See the image below. This is where you stake your bonded funds to your chosen validator or validators.
5. Navigate to the “Staking Overview” page (image below) Scroll down the list and check out the validators you have to choose from. Only nominate 1 to 3 validators, because only the top 64 largest staking positions on any node earn block rewards. You may nominate up to 16 validators to help the network decentralize, but that’s only recommended for those with enormous stacks of HDX (6-figures or more).
Remember, if you stake 10,000 HDX with say 5 active validator nodes, each active validator might then be allocated 2000 of your HDX. The Phragmen algorithm decides how many of your tokens to place with each node you’ve nominated.
This is important to understand, because you don’t want your stake spread too thin by the Phragmen algorithm. Otherwise you won’t have enough tokens staked on each node and you may get bumped from the top 64 spots and not earn block rewards.
6. Navigate back to “Account Actions” on the staking page. Then click the 3 dots to the right of your wallet info. A drop down box will appear and select “set nominees.” See the image below.
7. Enter the name or wallet address for each validator you’d like to nominate into the search box. (BLOCKS UNITED 7JLU869sNxmmS4BTjtcFzhyJXUzi9U5G7aRbvMV2M7ZixV6u). You’ll then see that node appear in the left window pane called, “candidate accounts.”
Click on the validator you’d like to nominate in the “candidate accounts” box and they’ll instantly be moved into the right pane called, “nominated accounts.”
When you’re finished click, “Nominate” in the lower corner and sign the transaction. See the image below.
8. Navigate back to the “Account Actions” page and you’ll see your nominations to the right of your wallet. See the image below.
HDX Staking Guide
Polkadot/Kusama ecosystem staking is more complicated than other blockchains. So, to summarize:
- DO NOT bond all your HDX. Leave a few tokens to pay for transactions, like claiming rewards.
- Only nominate nodes with a verified on-chain identity, a website, and a way to contact them.
- Nodes top out and have a maximum of 165 nominations. This prevents nodes from becoming too large and dominating the network.
- Staking APY is HIGHER with smaller nodes and LOWER with larger nodes. This keeps the network decentralized. Large nodes have high total stake and small nodes have low total stake.
- Every 24 hours (1 era) the Phragmen algorithm decides which validator nodes will be in the ACTIVE SET and earn block rewards. INACTIVE nodes do not earn block rewards.
- Your entire stake is split between the ACTIVE nodes you’ve nominated, so nominating an INACTIVE node does not hurt you. You’ll earn block rewards as long as you have at least 1 active node. Example: If you nominated 4 nodes and 3 are inactive, ALL of your tokens are allocated to the 1 active node and you’ll earn block rewards.
- Only the top 64 nominators earn block rewards. The smallest stakes on the oversubscribed node will be dropped from the active set and won’t earn rewards. A maroon icon with a scale in a circle denotes oversubscribed nodes. Stakers on oversubscribed nodes COMPETE WITH EACH OTHER to earn block rewards. Click here to view the active set.
Nominating fewer validator nodes is the solution. You’ll then have a larger stake with each one. Click the drop down arrow next to a validator’s top 64 nominators, so you can see how much each person is staking.
- When a node you’ve nominated becomes oversubscribed, make sure your stake is well above the lowest of the 64 active nominators. That way you won’t have to worry about getting bumped out of earning rewards.
ALL NODES can easily become oversubscribed. It’s normal, because each node is only allowed to have 165 nominations. Don’t stress if your nominated nodes become oversubscribed. Simply renominate fewer nodes. (Please continue to stake with us at Blocks United)
https://hydradx.documento.cz/#/validators is a good resource to check out too.
- The larger your bag of HDX, the more validators you should nominate. Large stakes can nominate up to 16 validators (100k HDX or more). Small stakes should nominate fewer validators, maybe 1 to 3.
- Stake with the small to medium sized nodes in the active set of validators, based on the total number of tokens staked on the node. This will get you the highest yield. Go back and read #4 again.
- Avoid 0% commission nodes, because they’re likely to become oversubscribed quickly and then you might not earn block rewards. Plus, 0% commission is the bait that dishonest node operators use.
Take pride in paying your validator. It will generally buy you reliability, honesty and support. You want your validators to run the best equipment. Paying commission allows them to buy it.
- Nominate 1 inactive node. This does NOT penalize you in any way, because your entire stake is divided up between the active nodes. Please re-read #6 in this list. Click here to view the inactive set of validators.
Please know that it takes 28 days to unbond your tokens. Once unbonded, your HDX tokens cannot be transferred or withdrawn until the launch of HydraDX mainnet, which should be in March 2022.
The Polkadot ecosystem is more complicated than other blockchains. Additionally, the Polkadot JS browser extension isn’t user-friendly, like other wallets. So, don’t be disappointed if you don’t understand right away and need to re-read the HydraDX HDX staking tutorial above.
In a nutshell, Polkadot wants to be decentralized and doesn’t want any validator nodes being substantially larger than their counterparts. Huge nodes are bad for network security, so the system encourages you to nominate multiple nodes and even inactive nodes.
Blocks United validator address: 7JLU869sNxmmS4BTjtcFzhyJXUzi9U5G7aRbvMV2M7ZixV6u
We’ve self-staked 90,000 HDX tokens. We’ve got skin in the game. We care.
Our commission is currently a super reasonable 3%.
We use a high performance dedicated server, hosted in a data center that runs 24/7/365.
COMPOUND YOUR CRYPTO and grab one of our nominator spots!
Click here to view the official HydraDX documentation.
If you have questions or need any guidance at all, please fill out the contact form on our homepage and we’ll do our best to get back to you within a couple hours.
The Blocks United Promises
- To be ethical and trustworthy
- To charge reasonable commission, so you can get the highest yield
- 100% uptime. Our validator nodes run 24/7/365
- Aligning our values with our delegators
- Responding to delegator questions and inquiries in a timely manner
- Contributing to the communities we validate for