Decentralized finance (DeFi) is probably one of the most popular use cases for blockchain-based applications. Within the Polkadot ecosystem, several rollups (parachains) have focused specifically on DeFi. Among them, Hydration stands out with a robust suite of tools designed to help you get the most out of your assets, offering advanced and diverse options for swapping, borrowing, and managing your DeFi strategies on Polkadot.


ℹ️ INFO

Hydration is built and maintained by an independent development team. If you have questions, run into technical issues, or simply want to learn more, we recommend visiting their official documentation or joining their Discord server. It's the best place to get direct support, share feedback, and stay updated on new features.


Keep reading to discover how Hydration is contributing to DeFi in the Polkadot ecosystem and what it can offer you as a user.


TABLE OF CONTENTS

What's Hydration?


Hydration (formerly known as HydraDX) has established itself as one of the leading DeFi hubs in the Polkadot ecosystem. It goes beyond the standard trading tools offered by most DeFi protocols, delivering advanced features and extensive integration with other Polkadot rollups to bring other networks' assets to Hydration (e.g., vDOT from Bifrost). This allows users to increase the use cases for DOT and many other assets in the ecosystem.


Key offerings like Omnipool, advanced strategies such as automatic DCA or OTC, and the ability to lend and borrow assets are just some of the powerful tools Hydration provides, each explained in more detail below.

Omnipool


The Hydration Omnipool combines the liquidity of multiple assets into a single automated market maker (AMM) pool. This innovative design uses H2O as a central “hub” token for all trades, removing the issue of fragmented liquidity and allowing liquidity providers to contribute using a single token rather than needing to pair every asset in the pool.


By concentrating liquidity, the Omnipool helps reduce slippage (the difference between the expected and actual trade price) and cuts down the number of steps needed to swap one asset for another.


⚠️ ATTENTION

While the Omnipool architecture is designed to minimize slippage, it cannot eliminate it entirely, some risk always remains.

Additionally, supplying liquidity to any pool carries the potential for impermanent loss. Make sure you fully understand these risks before providing liquidity.


In addition to the Omnipool, Hydration also offers other types of pools, such as the classic XYK pools with other fee structures and asset pairings, as well as stablepools optimized for efficient swapping of stablecoins.

DCA and OTC


Thanks to liquidity pools, any Hydration user can swap one asset for another available one. While this is a basic feature on any DeFi platform, some users may need ways to swap assets that aren't available in any pool or where the price isn't favorable. For these users, Hydration offers a way to automate trades through Dollar-Cost Averaging (DCA) or to create single trades for others to fill using over-the-counter (OTC) trades.


DCA is a trading strategy for users who want to make recurring trades over time. It can help smooth out the impact of price volatility and reduce the slippage that might occur when placing a large trade all at once.



Hydration offers two types of DCA options, Hydration DCA and Split Trade (Easy DCA):

  • Hydration DCA allows users to set a fixed amount and frequency for recurring trades using the Omnipool.
  • Split Trade (Easy DCA) focuses on reducing slippage by automatically splitting a single trade into multiple smaller ones, ensuring that estimated slippage remains below 0.1%.

Lending and Borrowing


Another key feature in the DeFi space is the ability to lend and borrow assets, which opens the door to more advanced financial strategies tailored to your risk tolerance.


Hydration makes this possible through a modified version of AAVE v3, offering users a simple and intuitive interface to supply assets, earn interest, and borrow against their deposits.


‼️ IMPORTANT

Borrowing funds involves the risk of liquidation of your collateral funds, especially if their value drops significantly. Make sure you're familiar with how risk management works, including factors like Loan-to-Value (LTV) ratio, the health factor of your position, and market volatility, to help protect your assets and avoid potential losses.


When you supply an approved asset to the lending pool, you'll start earning a variable APR based on market conditions. Once your assets are deposited as collateral, you can borrow from the pool's available assets, paying a variable interest rate on what you borrow.

Other DeFi tools


Hydration is an active team constantly developing new strategies and products for its users. From DAO-focused treasury management tools to innovative assets like GIGADOT, which accrues rewards from multiple sources, Hydration continues to expand its offering.


You can always explore the latest features and updates in their official documentation.