Inter Protocol x Hydro: Deepening Cosmos Liquidity and Enhancing Network Effects

February 05 ,2025

We’re excited to announce that Inter Protocol successfully participated in the third round of Hydro, gaining overwhelming support and securing an allocation of 50,000 ATOM. Our next goal is to lead the deployment of this liquidity in a way that boosts ATOM staking, enhances its capital efficiency, and strengthens IST’s presence throughout the Interchain. Let’s break this all down. 

What is Hydro?

Incubated by Informal, the Hydro Protocol-Owned Liquidity (PoL) program is an innovative mechanism for distributing Cosmos Hub’s ATOM liquidity through community engagement. It is a cross-chain auction platform, designed to efficiently deploy the idle ATOM liquidity. It allows for blockchains, roll-ups, and various crypto protocols to bid for a portion of the Cosmos Hub community pool, with community voting determining the winners.

What Problem Does Hydro Solve? 

The lack of easily accessible liquidity has long been a burning concern across Cosmos. At the same time, idle capital has been abundantly available in many of the interchain’s community pools. Hydro bridges the gap and democratizes access to funds via a dynamic and competitive process. By replacing the old Cosmos Hub governance system, Hydro aims to facilitate and streamline capital allocation. 

How does Hydro work?

Hydro distributes liquidity through sequential rounds in which projects attract user votes by offering tributes. Tributes are project-specific incentives voters receive on top of their staking rewards. Here’s a step-by-step guide:

  1. Rounds: Initially, each Hydro round was set to last a month. However, since Hydro is still in an experimental phase, attempting to optimize parameters and process, in Round 2 it introduced custom deployment durations, with projects able to bid for PoL deployments lasting up to 3 months. Both the participants and the available ATOM amount to be distributed in each round are announced in advance. 

  2. Participants: To ensure funds are not misused, Hydro requires potential participants to go through a whitelisting process, before submitting their bids. Accordingly, reputable protocols that have been active on the market for longer and have undergone audits are prioritized. Eventually, that process will become permissionless.

  3. Tributes: In each round, bidders compete for votes by offering tributes: incentives to gain community support, offered in project-specific assets. Projects can adjust their tributes based on competition and specific needs. When the round ends, the tributes are shared between the users who voted for a particular project.

  4. Voters: The voting power in Hydro is in the hands of ATOM stakers, who lock their ATOM to vote on bids for PoL deployments. In addition to staking rewards, voters earn tributes. While users can only vote for one project per round, they are free to switch votes to support the highest tribute at any time.

Hydro Rounds

The first pilot round of the Interchain liquidity allocator welcomed 8 participants, including Shade, Nolus, Drop, and Neptune, competing for a PoL allocation of 200,000 ATOM. In Pilot Round 2, Shade and Drop bid again, but so did Stride and Mars Protocol, too. The PoL available here amounted to 500,000 ATOM.

In Hydro Round 3, Inter Protocol and Amulet were the only new kinds on the block, accompanied by the veterans Stride, Nolus, Drop, and Neptune. Once again, they competed for a portion of a 500,000 ATOM allocation. Round 4 kicks off on February 5, 2025.

Inter Protocol’s Hydro Bid 

The Inter Protocol team appreciates Hydro’s potential to establish a flexible and resilient DeFi ecosystem by offering a transparent, community-driven framework for liquidity allocation. We decided to set a Hydro bid forth with two main objectives in mind:

  • Putting Cosmos’ idle ATOM liquidity to work, in order to generate value and yield;

  • Supercharging the Inter Stable Token (IST) through locking additional funds as collateral and deepening IST pools.

What’s more, with the aim of engaging Agoric’s community, validators, and delegators with this proposal, we took the strategic decision to denominate Inter Protocol’s tribute in Agoric’s native BLD token. We firmly believe that the success of Inter Protocol will inevitably contribute to Agoric’s growth and BLD’s value amplification. 

Deployment Plan

To achieve the goals outlined above, we have constructed a sophisticated deployment plan for the ATOM deposit we’ll get allocated. It consists of three elements:

  1. Stake our ATOM allocation on Stride and collect ATOM LSTs;

  2. Deposit the stATOM LSTs into an Inter Protocol vault to mint IST;

  3. Provide the IST liquidity to an Osmosis supercharged pool to 

 By leveraging Stride’s and Osmosis’ infrastructure, we aim to achieve seamless integration and generate yield. The 50,000 ATOM allocation will be deployed for 90 days with conservative collateralization ratios to mitigate market downturn risks.

As a result, we expect an increased capital efficiency, earning a projected yield of 18-22% APY on deposited ATOM via yield from staking, Inter Protocol vaults, and LP rewards and fees. It will therefore deepen liquidity in the greater Cosmos ecosystem, and enhance ecosystem use and network effects. 

Looking Forward

Liquidity is a critical pillar of any successful DeFi ecosystem, and Cosmos has faced significant challenges in this area. Hydro addresses this issue by providing access to liquidity while promoting community-driven governance, fostering innovation, and ensuring long-term sustainability.

We are grateful to ATOM stakers for supporting IST, the first decentralized stable token for the Interchain. As stablecoins gain prominence in global finance, the utility of IST will continue to grow.

We look forward to strengthening partnerships and seeing the benefits of enhanced network effects. Once our requested liquidity is allocated, we plan to participate in future Hydro rounds to continue driving progress in the Cosmos ecosystem.