Hydranet Network

The Hydranet Network serves as the infrastructure behind Hydranet’s off-chain transaction and trading capabilities. Addressing the inefficiencies and constraints of traditional blockchain systems, the Hydranet Network harnesses a network of off-chain nodes and sophisticated protocols to enable rapid, secure, and cost-effective transactions across various blockchain ecosystems.

The Hydranet Network is upheld by an ecosystem involving multiple roles, each contributing to the seamless operation and efficiency of the network. These roles include:

• Titans: The backbone of the network, ensuring its continuous operation and trade capabilities by operating the order book and matchmaking engines.
• Guardians: The protectors of the network, upholding its integrity and security by operating watchtowers to monitor off-chain transactions and penalizes misconduct.
• Lithium Liquidity Providers: LLPs contribute liquidity to the Lithium protocol, enabling other network participants to use it for state channel inbound liquidity. 

HDN token holders have the unique opportunity to run these network roles by collateralizing their tokens. By staking HDN, individuals can become Titans, Guardians, or LLPs, thus contributing to the network's operation and earning rewards for their participation.

The Hydranet Network stands out not only as an innovative off-chain network composed of multiple interconnected nodes but also for its pioneering approach to distributed trade mechanisms. Here is how: Within the Hydranet Network, Titans play a crucial role by managing the decentralized order book and matchmaking engines. However, their primary function is to mediate connections between trading peers (Hydranet wallets). Once a trade connection is established, Titans step aside, allowing the two trading peers to execute an atomic swap directly. This process eliminates the reliance on a centralized entity for trade confirmations, enabling a truly trustless and decentralized trading environment. This distributed mechanism significantly enhances the scalability and efficiency of the network. By decentralizing trade confirmations, Hydranet eliminates bottlenecks associated with traditional centralized and decentralized systems, allowing for an infinitely scalable trading solutions that adapt to user needs while upholding high standards of security and operational integrity.

Titans

Titans take on the responsibility of ensuring the Hydranet Network’s continuous operation. They are comprised of the following components: 

• Full blockchain nodes
• Off-chain nodes (Lightning and Lithium)
• Order book engine
• Matchmaking engine
• Channel rental engine

Titans run full blockchain nodes for all Hydranet-supported blockchains due to the need to engage in multiple on-chain interactions daily. Since other actors in the network establish and manage state channels that remain open with the Titans, maintaining full nodes is essential. Additionally, Titans run off-chain nodes for the Lightning and Lithium networks, allowing them to participate in off-chain transactions.

The order book engine, matchmaking engine and channel rental engine are essential for Hydranet’s off-chain trading capability. The order book engine tracks and controls the trade orders instantiated by Hydranet users. Trade orders are stored locally in every Titan’s database and communicated to connected Hydranet Wallets to be displayed on their exchange interfaces.

The matchmaking engine is responsible to match Hydranet users whenever they post orders on the order book. When a user creates a trade order, the matchmaking engine scans the order book database for a match. If a match is found, the Titan connects the two trading users by sharing their public information with each other, allowing them to complete the trade. If not, the order is stored in the order book database to be displayed on the exchange. 

The channel rental engine can actively be used by connected Hydranet Wallets for them to increase their state channel inbound balances. Upon usage, the Titan will lock funds in a state channel opened by the user and in doing so increase its outbound balance which equivalently increases the user’s inbound balance. 

Titans are enforced to connect with other Titans by opening state channels with, forming the Hydranet Network. In doing so, Hydranet wallets connected with at least one Titan can reach virtually anyone in the network with intermediate Titans acting as routing nodes for their payments. All Titans are furthermore required to connect to well-established Lightning Network nodes for an even larger reach, making it possible for Hydranet users to send Lightning payments to virtually anyone in the Lightning Network. 

Operating a Titan

By collateralizing HDN, token holders will be able to run a Titan in the Hydranet Network. Titans will only be allowed to join and contribute to the network after achieving 99% online time and maintaining active state channels with other actors in the network for more than one (1) week. If the online time falls below 99%, the Titan will be removed from the network, and its collateral unlocked. Malicious Titans, such as those not honest with their income, will get slashed, removed from the network, and its remaining collateral unlocked. 

Titans will generate income in the form of:

• Trade fees - A fee charged for executing buy and sell orders
• Channel rental fees - A fee applied to the rental of liquidity
• Routing fees - Compensation to intermediary nodes (Titans) for forwarding transactios across the network

The income will be sent on a daily basis to a Hydranet DAO distribution address, to be distributed according to the DEX fee distribution model defined in the Hydranet Tokenomics. The Titan must provide proof of payment when sending its daily income and also declare the accumulated value. 

Guardians

Guardians take on the responsibility of upholding the Hydranet Network’s integrity and security. Off-chain transactions are not recorded on the blockchain and therefore lack the associated blockchain confirmation mechanisms. To protect against fraudulent behavior, participants in off-chain transactions must typically stay online continuously to monitor their state channels. Or, they can use watchtower services, which can be operated either by themselves or by third parties. These watchtower services monitor state channels on behalf of users, ensuring that any fraudulent behavior by any state channel participant is detected and penalized.

Guardians run watchtower services for both the Lightning and Lithium networks and actively monitor the behavior of all Hydranet Network participants, whether it's Titans, other Guardians or Hydranet Wallets, to ensure they all comply with the Hydranet Network’s rules. If misconduct is identified, Guardians take appropriate measures to penalize the individual who violates these rules. 

Running a Guardian

By collateralizing HDN, Hydranet token holders will be able to run a Guardian in the Hydranet Network. Guardians 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

Guardians will only be allowed to join and contribute to the Hydranet Network after achieving 99% online time over the course of two (2) weeks. 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 a Hydranet DAO distribution 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, removed from the network, and its remaining collateral will get unlocked.

Lithium Liquidity Providers

Lithium Liquidity Providers (LLPs) supply liquidity to the Lithium protocol, enabling other participants, particularly Hydranet Wallet users, to boost their state channel's inbound liquidity. This process functions similarly to an (off-chain) lending protocol. When individuals deposit funds into the Lithium protocol, they become LLPs, contributing to the protocol's Total Value Locked (TVL). Other users can then rent this liquidity to enhance their inbound channels, allowing them to receive off-chain payments over the Lithium Network.

The Lithium protocol operates Ethereum and other smart contract-based blockchains such as Arbitrum, Optimism, Solana, and more. Comparable functionality exists within the Bitcoin ecosystem with the Lightning Network. In the Lightning Network, actors known as Lightning Service Providers (LSPs) play a similar role as LLPs. LSPs are well-established nodes that facilitate users' connections to the Lightning Network and provide inbound liquidity as a service. If you would like more details, you can read more here.

Running a LLP

By collateralizing HDN, Hydranet token holders will be able to act as a LLP in the Hydranet Network. LLPs will offer state channel inbound liquidity for rental so that Hydranet users can receive assets using the Lithium protocol. 

LLPs will only be allowed to join and contribute to the Hydranet Network after achieving 99% online time for one (1) week. If the online time falls below 99%, they will be removed from the network and get their collateral unlocked. 

LLPs will generate income in the form of rental fees. This income must be sent on a daily basis to a Hydranet DAO distribution address, to later be distributed among the LLPs in the Hydranet Network.