Project “Prometheus”

Hydra Interoperable Sharding Architecture

L1 TPS  =  

Concept and Ideation: Nikola Alexandrov

Concept

Hydra proposes a revolutionary approach to scalability and interoperability, focusing on account-level sharding with a proprietary designed CSC (Cross-Shard-Communication) unified interoperability. This novel concept could dramatically transform the blockchain landscape, providing unprecedented flexibility and security, and turning Hydra into a leading project in the field of decentralized scalability.

Account-level sharding is a powerful paradigm, allowing individual blockchain accounts to operate independently across multiple shards while still having the luxury to jump between shards with a seamless user experience and guaranteed finality. This approach enhances the overall efficiency of the blockchain, as it distributes the load evenly across all shards, ensuring optimal performance at all times.

At the heart of HydraChain's vision is the principle of independence. Each shard operates autonomously, managing its transactions and smart contracts, while still benefiting from the strength of the entire network. This independence ensures that each shard can scale according to its needs, without affecting the performance or security of the network.

The concept of modularity is another cornerstone of HydraChain's design. With modularity, the blockchain can easily be expanded by adding new shards, much like building blocks. This allows for seamless scalability, accommodating an ever-growing number of transactions, users, and applications.

Yet, in the midst of all this flexibility and growth, security remains uncompromised. Each shard maintains its own security mechanisms, and thanks to the account-level sharding approach, a potential vulnerability in one shard doesn't spill over into the rest of the network.

Modularity with Fluid Flexibility

HydraChain aims to integrate the capabilities of Cross-Shard Communication (CSC) protocol into its sharded, EVM-compatible blockchain network. Inspired by Cosmos’s CSC, Hydra’s CSC, empowers the connection of different blockchain ecosystems, allowing them to communicate and transact with one another seamlessly.

By integrating CSC into our HydraChain and modifying the protocol, we aim to achieve on-demand account-level scalability and interoperability across multiple independent shards, while preserving the strong security and decentralization properties inherent in blockchain technology.

Architecture

The architecture of HydraChain involves several key components that make it possible for the network to function as a cohesive, interoperable, and scalable system. These components include the shard chains, the CSC protocol with CSC light-client and an underlying economic design.

Shard Chains

Each shard in HydraChain is an independent blockchain, running its own instance of the EVM. The shard chains handle localized transaction processing, allowing for parallel execution of smart contracts and transactions. Each shard chain maintains its own consensus protocol, validator set, and state.

CSC Protocol

The CSC protocol is used to transfer messages between shard chains. Each shard chain runs a CSC module, which communicates with the CSC modules on other shard chains. The CSC module allows for the creation of channels between shard chains, over which messages can be sent and received. It also handles the verification of these messages, using light client proofs to ensure their authenticity.

Modules and Details

The multi-shard HydraChain architecture is composed of multiple modules that are built on top of the existing L1 HydraGon model, each with a specific role:

Consensus Module

Each shard chain runs its own HydraGon consensus module, which is responsible for validating and adding new blocks to the shard chain. The consensus module also maintains the validator set for the shard chain.

EVM Module

The EVM module runs the Ethereum Virtual Machine on each shard chain, allowing for the execution of smart contracts. It is compatible with existing Ethereum tooling and smart contracts.

CSC Module

The CSC module is responsible for handling inter-shard communication. It allows for the creation of channels between shard chains, over which messages can be sent and received. The CSC module also verifies these messages using light client proofs.

Light Client Module

The light client module is a part of the CSC module, and is used to verify the state of other shard chains. It uses light client proofs to ensure the authenticity of messages received from other shard chains. CSC is identical to a cross-chain bridge, with the difference being rooted and secured by the main consensus of the chain.

​CSC ​allow​s​ ​all Hydra shards to communicate with each other securely and efficiently. An integral part of this process is the CSC light client for Hydra, a vital component facilitating the communication between shards.

Without the CSC module, each shard would act like an independent chain, focusing on its own security and governance. The CSC Flow would be as follow:

1. Client Creation: The process begins with the creation of an CSC light client on a Hydra shard. This light client mirrors the state of the target shard, enabling the hosting shard to verify the target shard's state and transactions. The light client is created by providing the consensus state of the target shard, which includes validator set information and other necessary data.
2. Connection Establishment: Once the light client is created, a connection is established between the shards. This involves a handshake process where both shards exchange their light client information and verify each other's consensus state.
3. Channel Opening: After the connection is established, a channel is opened between the shards. The channel represents a logical path for communication, and its opening involves another handshake process to ensure the integrity of the channel.
4. Packet Sending: With the channel open, packets containing data or value can be sent from one shard to another. Each packet is associated with a sequence number, and packets are processed in the order of their sequence numbers.
5. Packet Relaying: The CSC relayer, a separate off-chain process, observes both shards and relays packets between them. When it sees a packet sent on one shard, it submits a proof of that packet to the other shard.
6. Packet Reception: The receiving shard verifies the proof of the packet against its light client and then processes the packet, executing the associated logic or transferring the value.
7. Acknowledgment: Once the packet is processed, an acknowledgment is generated and sent back to the sending shard. This acknowledgment contains the result of the packet's execution, whether successful or an error.
8. Acknowledgment processing: The sending shard processes the acknowledgment, updating its state based on the result. If the packet was part of a transaction, this completes the transaction.

In an infinitely scalable system like Hydra, with unlimited potential shards, interconnectivity presents certain challenges. Not all shards can or should be directly connected to all other shards. Instead, the system will likely develop clusters of shards that are directly connected, with more distant shards reachable through multiple hops. Similar to how nodes interconnect in a single blockchain system.

The HydraChain architecture aims to leverage the scalability and interoperability benefits of the CSC protocol, while maintaining compatibility with the EVM and existing Ethereum tooling. By allowing for parallel execution of transactions and smart contracts across multiple independent shard chains, Hydra can achieve high throughput without sacrificing decentralization or security.

Scalability via Cross-Sharding Communication

As emphasized, the CSC (Cross-Shard Communication) module is a key pillar in the architecture of the HydraChain network, enabling seamless communication and transaction execution across different shard chains. The CSC module, implemented on each shard chain, creates and manages communication channels over which messages, such as transaction details, can be securely sent and received between shards. These channels are essentially pathways that facilitate the transfer of assets, data, or any other form of digital value between disparate chains.

HydraChain’s Cross-Shard Communication (CSC) shares the same foundational objective with Cosmos' Inter-Blockchain Communication (IBC): to enable seamless communication between individual blockchains or shards. However, the implementation and design philosophies behind these two systems are distinct. Here's a comparison of the two protocols, highlighting HydraChain's focus on direct shard-to-shard communication.

1. Direct Shard Communication:

• CSC: The primary design principle of CSC is to establish direct communication between shards. This design aims to create a highly interconnected network where each shard has the capability to communicate directly with any other shard, avoiding the need for intermediaries.
• IBC: In Cosmos, IBC is typically used for communication between zones and hubs, and between different hubs. Zones usually don't communicate directly with each other, but instead indirectly via one or more hubs. While IBC itself doesn't inherently prevent direct zone-to-zone communication, the architecture of Cosmos mainly uses hubs for this purpose.

2. Decentralization and Autonomy:

• CSC: CSC emphasizes the independence and autonomy of each shard. Every shard will by default have interconnecting logic, but if it deems it necessary can decide its own connections, governed by a high quorum required DAO vote, and each operates its own consensus, creating a highly modular and flexible system.
• IBC: Cosmos also prioritizes decent​​ralization, but it achieves this with a hub and zone model. The hubs maintain connections with multiple zones and facilitate inter-zone communication.

3. Scalability:

• CSC: In the HydraChain ecosystem, scalability is achieved through the creation of new shards. Each new shard increases the capacity of the network and can communicate directly with existing shards, without adding complexity to the existing shards.
• IBC: Cosmos achieves scalability through the addition of new zones. However, adding a new zone typically means establishing connections with one or more hubs, potentially increasing complexity for the hubs.

4. Security:

• CSC: In HydraChain, all shards share the same security provided by the staked HYDRA. The security of each shard is proportional to the amount of HYDRA and the total value locked (TVL) of assets held by it. This shared security model ensures that the overall security of the system isn't jeopardized even if one shard experiences a problem.
• IBC: In Cosmos, each zone is responsible for its own security. If a zone's security is compromised, the hubs can isolate it to prevent the compromise from affecting other zones.

5. Why Zones aren't Preferable:

• Intermediaries: The u​​se of hubs as intermediaries in Cosmos can add extra steps and complexity to the communication process. With CSC, HydraChain allows for direct communication between shards, reducing latency and potential points of failure.
• Flexibility: Each shard in HydraChain can decide on its connections, allowing for a highly customizable and adaptable network. In contrast, zones in Cosmos mainly communicate with hubs, limiting their potential connections.
• Scalability: Direct shard-to-shard communication can potentially offer better scalability than a hub and zone model. As ea​​ch new shard in HydraChain can directly connect to any other shard, the network can scale without increasing the complexity for existing shards or requiring a significant increase in resources.

In conclusion, HydraChain's CSC and Cosmos' IBC both aim to enable communication between individual blockchains or shards. However, HydraChain's focus on direct shard-to-shard communication, combined with its shared security model, a unified wallet system and the flexibility for each shard to decide its connections, offers a unique approach to achieving scalability, security, and decentralization.

A crucial component of the CSC module is the light client, which verifies the state of other shard chains and authenticates the messages received from them. It uses light client proofs, cryptographic commitments to the state of a blockchain at a certain block height, to ensure the validity and authenticity of these messages.

​The ​light client, enables secure and seamless inter-shard communication. Here's a​ ​flow example, incorporating the consideration of ​the communication and ​gas costs:

1. Light Client Initialization: For Shard A to communicate with Shard B, it first needs to establish a light client for Shard B. This light client is a simplified version of Shard B's blockchain, capable of verifying its state without processing every transaction or block. Shard A initializes the light client for Shard B, providing it with the necessary parameters like the consensus state of Shard B, its recent block hashes, and validators set.
2. Connection Establishment: After setting up the light client, Shard A establishes a connection with Shard B. This connection serves as the communication pathway between the two shards. The connection establishment involves a handshake protocol, where both shards mutually verify each other's state using their respective light clients.
3. State Verification: Shard A's light client for Shard B consistently tracks and verifies Shard B's state by periodically fetching and validating its block headers. It uses light client proofs, cryptographic commitments to the state of Shard B at a specific block height.
4. Message Authentication: When Shard A needs to send a message to Shard B, it packages the message with a proof that the message is valid according to Shard A's state. This proof is generated by Shard A's blockchain and is based on Shard A's state at the block height when the message was created. The generation of this proof involves a gas cost, which is paid in HYDRA by the message sender.
5. Message Reception and Verification: Shard B receives the message along with the proof. Before acting on the message, Shard B's light client for Shard A verifies the proof against its stored state of Shard A. If the proof is valid, Shard B's light client updates its state of Shard A to the block height at which the message was created.
6. Action Execution: Once the message is authenticated, Shard B executes the action requested in the message, such as a transaction, a smart contract execution, or any other blockchain operation. This execution involves a gas cost, but this cost is bilaterally covered by the network as a whole. The HydraChain, 50% of gas fees are burnt, effectively reducing the circulating supply of HYDRA across all shards. This mechanism distributes the value, effectively covering the cost of execution on the receiving shard.
7. Acknowledgment: After executing the action, Shard B sends an acknowledgment back to Shard A, including a proof that the action was executed. Shard A's light client for Shard B verifies this proof before updating its state.

This process illustrates how light clients and the CSC module ensure secure and verifiable communication between shards in HydraChain.

The use of light client proofs allows for a lightweight yet robust verification mechanism, ensuring that all inter-shard messages are authentic and valid according to the state of the originating shard.

Cross-Shard Gas Cost

HydraGon’s approach of burning 50% of gas fees, empowers the whole design, because the gas costs associated with these operations are systematically distributed across the network, demonstrating the ecosystem's collective support for inter-shard communication and joint cooperation towards a stronger network effect.

In this same context, this is a comparison of the flow of Cross-Shard Communication (CSC) in HydraChain with Inter-Blockchain Communication (IBC) in Cosmos, highlighting how the 50% gas burn in HydraChain simplifies the process and enhances the shared economy.

1. Transaction Initiation: Similar to Cosmos's IBC, a user on Shard A initiates a transaction to be sent to Shard B. The transaction fee is included in HYDRA, the native token across all shards.
2. Transaction Processing: Shard A processes the transaction, deducting the gas fee from the user's account. The transaction, along with proof of its validity, is packaged into a CSC message.
3. Packet Creation: A CSC packet is created, containing the transaction data. This packet, unlike in IBC, also includes information about the gas fees burnt on Shard A. At this point, it will be taken into consideration the number of shard-hops and the total gas needed by accounting for each shard. Then the user would pay the entire amount in the sending shard which will result in a much higher net burn.
4. Packet Sending: The CSC packet is sent from Shard A to Shard B via the established light client connection.
5. Packet Reception: Shard B receives the CSC packet and verifies its authenticity using the light client of Shard A. Once the packet is authenticated, Shard B prepares to execute the transaction.
6. Gas Payment on Shard B: In HydraChain, the execution of the transaction on Shard B also incurs a gas cost. However, instead of requiring a separate payment as in Cosmos's IBC, this cost is accounted for by the network as a whole by validating the burn transaction executed on Shard A. Here's how:

• 50% of the gas fees paid on Shard A are burnt. This burning reduces the circulating supply of HYDRA, creating a deflationary effect that increases the value of the remaining HYDRA tokens.
• This increase in value effectively covers the gas cost on Shard B. Therefore, unlike in Cosmos's IBC, there's no need for the user or a relayer to pay additional gas fees on Shard B.

7. Transaction Execution: Once the gas payment is secured, Shard B executes the transaction.

By burning a large portion of the gas fees, HydraChain's CSC creates a shared economic effect across all shards. This approach simplifies the transaction process compared to Cosmos's IBC, as it removes the need for a separate gas payment on the receiving shard. Furthermore, it reinforces the shared security model of HydraChain, as the value distributed by the gas burn is shared across all shards, enhancing the overall security and resilience of the network.

​Same Wallet, Single Experience

A notable advantage of this protocol is the elimination of the requirement for users to hold HYDRA, the native token, on the receiving shard to cover gas costs. This convenience fosters fluidity in transactions and enhances user experience significantly.

Take an example of a user who wishes to execute an arbitrage trade spanning multiple shards. The user, holding assets primarily on Shard A, identifies an opportunity to buy an asset at a lower price on Shard B and sell it at a higher price on Shard C. Traditionally, with protocols like Cosmos's IBC, the user would need to hold HYDRA on both Shard B and Shard C to cover the gas costs of the transactions.

However, with HydraChain's CSC and due to the shared underlying asset, the user only needs to pay the transaction fee in HYDRA on Shard A, the originating shard. When the transaction is processed on Shard A, 50% of the gas fee is burnt, creating a deflationary effect. This burn effectively increases the value of the remaining HYDRA across all shards, including Shard B and Shard C. Thus, the gas cost for executing the transactions on Shard B and Shard C is essentially covered by the network as a whole, not by the user directly.

Upon successful execution of the arbitrage trade, as a final hop, the user can then move the profit back to Shard A, without needing to hold any additional HYDRA on Shard B or Shard C. This allows the user to comfortably and conveniently execute multi-shard swaps and arbitrage trades, without the necessity to maintain assets on multiple shards or worry about individual gas costs on each shard.

This seamless and efficient experience is a significant enhancement that HydraChain's CSC brings to the table, making it a preferable choice for users conducting multi-shard operations and fostering liquidity singularity across all shards.

HydraGon’s L1 Consensus and the unique economy behind it, play a substantial effect on the whole model, because it ensures network security is not compromised due to lower direct net fees paid on Shard B and Shard C. This is so because the stakers are secured via their individual positions which are not impacted by the fees paid.

The CSC Sentinels

The conceptualization of our new Sentinel design for the Cross-Shard Communication (CSC) model is based on the defender mechanism utilized in the Hydra/Ethereum cross-chain bridge.

The Defender nodes, as part of the existing Hydra/Ethereum bridge, are envisaged to function as a vital layer of security. They are designed to independently monitor lock-up activities on each chain, ensuring the integrity of observer votes. In case of a discrepancy, the Defenders have the authority to veto a transaction through a “cancel” vote, thus providing an additional layer of security against potential attacks.

This novel approach to enhancing the safety of cross-chain transactions has inspired us to adapt and refine this concept for our multi-sharded HydraChain in the form of Sentinels. The Sentinels in our proposed CSC model are intended to perform a similar role to the Defenders but within the context of a more complex, multi-sharded environment. They are envisioned to oversee and validate transactions between shards, serving as a safety net to ensure the integrity of cross-shard operations.

The transition from the idea of Defenders to the concept of Sentinels represents an evolution. While the Defender architecture is being tested in the Hydra/Ethereum bridge, its promising design has already sparked the blueprint for the Sentinel design in our CSC model.​​

A Sentinel is a validator from a third shard chain, different from the two participating in a transaction, which passively observes the transaction details. This Sentinel serves as an independent third-party authority that can verify the transaction's authenticity and integrity, providing an additional layer of security.

The Sentinel's role is purely observational; it does not participate in the transaction or the consensus process of the transactional shards. If any discrepancy or fraudulent activity is detected by a Sentinel, it has the authority to object the transaction. A Sentinel found to be faulty, be it through malicious intent or incompetence, would be subject to severe slashing, a penalty that reduces their staked assets, thereby discouraging dishonest or negligent behavior.

Incorporating Sentinels in the CSC module architecture helps to enhance the overall security of the HydraChain network, ensuring that transactions are thoroughly vetted and validated, even as the network scales horizontally with multiple shards.

Here's how this could potentially work:

1. Transaction Initiation and Verification: As mentioned before, a transaction is initiated from Shard 1 to Shard 2, and it's verified by Shard 1's validators.
2. Sentinel Assignment: Instead of assigning a single Sentinel, all validators of Shard 3 are potentially Sentinels for the transaction.
3. Optional Sentinel Verification: Any Shard 3 validator can independently verify the transaction by querying both Shard 1 and Shard 2. It's not mandatory for every validator to do this, but there's an incentive (the bounty) for identifying problematic transactions.
4. Transaction Commitment or Rejection: If a validator from Shard 3 identifies a problem with the transaction, they can object it. This would prevent the transaction from being committed and would trigger a bounty payout. If no validator objects the transaction within a certain time window, the transaction is committed on both Shard 1 and Shard 2.
5. Bounty Payouts and Inflation: Bounties are paid out to validators who successfully identify and object problematic transactions. The bounty pool could be inflated over time, up to a maximum ceiling, to incentivize validators to continue performing this role.

A few potential advantages of this model are:

• Increased Security: With more validators checking each transaction, the chance of catching problematic transactions increases.
• Redundancy: Even if some validators are compromised or offline, others can still perform the sentinel role.
• Incentivization: The bounty system incentivizes validators to perform their role diligently.

A few challenges and considerations could be:

• Performance: Although the system won't slow down unless a transaction is objected, the increased communication between shards could still impact network performance.
• False Positives: Malicious or compromised validators might object legitimate transactions to claim the bounty. The system would need a mechanism to prevent or penalize false positives.
• Inflation Management: The system needs to carefully manage the inflation of the bounty pool to prevent overinflation and to ensure there's always enough incentive for validators to perform the sentinel role.

Example of 3-Hop DEX Swap Across Shards

• Consider an example where a user wants to swap token A for token D, but there are no direct liquidity pools for this pair. However, there are liquidity pools for A-B, B-C, and C-D on shards 1, 2, and 3, respectively. The user will need to make a 3-hop swap: A to B, B to C, and finally C to D.

• The user initiates the transaction on shard 1, swapping token A for token B. This transaction is validated and mined by the validators of shard 1, who receive the gas fees for all swaps across all shards. 50% of the total fees are burnt, which ensures the underlying HYDRA on all shards capitalize on the transaction cost. Once the first swap is complete, the result - token B - is transferred to shard 2 via the CSC bridge.

• On shard 2, token B is swapped for token C, with the validators of shard 2 validating and mining this transaction. The gas fees for this transaction are covered in full and validated through the burn transaction. Token C is then transferred to shard 3 via the CSC bridge.

• Finally, on shard 3, token C is swapped for token D. The validators of shard 3 validate and mine this transaction, again benefiting from the shared economic burn. The final result, token D, is then transferred back to the user's wallet, which can be on any shard.

• The integrity of the process is ensured by the validators of each shard, who validate and mine each transaction. Additionally, the CSC bridge ensures the secure and reliable transfer of tokens between shards, maintaining the coherence of the user's operations across multiple shards.

​Let's consider the multi-hop DEX swap example again: swapping token A for token D through intermediate tokens B and C on shards 1, 2, and 3, respectively. This process will be carried out over several blocks across the three shards.

The user initiates the swap on shard 1, swapping token A for token B. This transaction is included in the next block mined by the validators of shard 1. Once this block is confirmed, the newly obtained token B is prepared for transfer to shard 2 via the CSC bridge.

However, unlike a simple on-chain transaction, a CSC transfer involves two distinct steps: a packet of data (representing the token B) is first committed to the source blockchain (shard 1), and then it's proven to the destination blockchain (shard 2). This process may span multiple blocks on both shards, depending on the speed of block production and the time needed for cross-chain communication. In general, the uniform 2 sec block time of HydraGon L1 will enable a fast procurement of the cross-shard swap with minimum block slippage.

Once shard 2 receives and verifies the CSC packet, the swap from token B to token C is initiated and included in the next block on shard 2. The process repeats for the transfer of token C to shard 3, and the final swap from token C to token D.

In terms of error handling and reversions, atomic swaps or atomic cross-chain transactions (ACCTs) could be leveraged. In this model, a transaction either happens completely or doesn't happen at all. If a swap fails at any point in the process, all preceding operations are rolled back to ensure the user isn't unfairly penalized. For example, if the transfer of token B to C fails on shard 2, the transaction on shard 1 (A to B) can be reverted.

Moreover, to ensure that the price impact threshold isn't exceeded, the system could implement a check before each swap. If the projected price impact of the swap exceeds a predefined threshold, the transaction could be halted and rolled back.

This approach would require more sophisticated cross-shard coordination and advanced smart contract capabilities, but it's feasible with careful design and implementation where a final validation on the end shard would require an authenticated and validated state of the preceding shard.

Unique Validator Sets and Security Inheritance

As mentioned, HydraChain's architecture allows each shard to have its own unique set of validators, each with their own unique load and economic protection. This means that each shard operates independently and is protected by its validators, who have a vested interest in maintaining the shard's integrity and security.

When transferring assets between shards via the CSC bridge, the system ensures that the asset's integrity is preserved. The validators of the sending shard initiate the transfer, and the validators of the receiving shard validate and accept the incoming asset.

In addition to their roles in their respective shards, validators from non-participating shards can also serve as sentinels, passively monitoring transactions and potentially raising objections. This gives HydraChain's CSC the ability to inherit the security of the strongest shard.

The sentinel role adds an additional layer of security to the network. Even if the validators of a shard were to act maliciously, the sentinels from other shards could detect this and raise an alarm. This system thus leverages the collective security of the entire network, enhancing the robustness and reliability of the CSC bridge.

The L2 Dilemma

​In the world of blockchain, two dominant approaches to scalability have emerged: Layer 2 (L2) solutions built on top of existing Layer 1 (L1) protocols and horizontal sharding models. The former leverages the security and decentralization of established L1 chains, adding a secondary layer to improve throughput and reduce costs. The latter divides the network into smaller pieces, or shards, each capable of processing transactions and smart contracts independently, thus increasing the network's overall capacity. A Cross-Shard Communication (CSC) protocol bridges these shards, allowing them to function as one interoperable ecosystem.

The Hydra Chain is an exemplar of the horizontal sharding model, capitalizing on the strengths of CSC to enable seamless cross-shard communication. We''ll compare this approach to L2 solutions, focusing on the unique strengths and benefits of Hydra's CSC model.

1. Horizontal Scalability: Unlike L2 solutions, which are intrinsically dependent on their underlying L1 for security and finality, the Hydra Chain's horizontal sharding model allows each shard to operate independently, processing its own transactions and maintaining its own ledger. This means the network's capacity can be increased simply by adding more shards, offering truly horizontal scalability.
2. Security and Decentralization: L2 solutions often compromise on decentralization and security to achieve scalability. In contrast, each shard in the Hydra Chain is secured by its own set of validators, preserving the network's overall security and decentralization. Furthermore, with the introduction of the sentinel role, the system's CSC inherits the security of the strongest shard, creating a robust and secure network.
3. Interoperability: The Hydra Chain's CSC protocol enables fluid interoperability between shards, allowing assets and data to be transferred seamlessly. This is a marked improvement over L2 solutions, which often struggle with interoperability issues due to their tight coupling with their underlying L1.
4. Efficiency: The Hydra Chain's horizontal sharding model reduces the load on individual validators, as they only need to validate transactions for their respective shard. This is in stark contrast to L2 solutions, where validators must process transactions for the entire network, leading to congestion and inefficiencies.
5. User Experience: The Hydra Chain provides a consistent user experience across all shards. Thanks to the CSC protocol, users can interact with any shard using a single private key, and transactions are processed in a predictable and reliable manner. L2 solutions, on the other hand, often require users to manage multiple wallets and navigate complex transaction processes.

In conclusion, while L2 solutions offer an immediate and practical solution to the scalability issues plaguing existing L1 blockchains, they come with their own set of challenges and compromises. On the other hand, Hydra's horizontal sharding model, combined with an efficient EVM CSC protocol and a unified EVM standardized wallet, offers a more balanced and sustainable approach to blockchain scalability. It not only increases the network's capacity but also maintains high levels of security, decentralization, and user-friendliness – qualities that are crucial for the long-term success and adoption of blockchain technology.

“To Solana or not to Solana”

​Solana has quickly risen in popularity due to its impressive scalability and speed and has become a benchmark for high-performance, boasting capabilities of processing over 50,000 transactions per second (TPS). However, Hydra Chain's model brings unique attributes to the table, especially when it comes to security and decentralization. In comparing these two, we can identify several areas where Hydra offers a more balanced approach.

1. Decentralization and Security: While Solana's single-chain design allows for high-speed transactions, it raises concerns about decentralization and security. Solana's proof-of-history consensus relies on a few select high-performance nodes, which could potentially become centralization points. On the other hand, Hydra's model is inherently more decentralized and secure. Each shard in the Hydra Chain is secured by its own set of validators, ensuring no single point of failure. Moreover, with the sentinel role, the system's CSC inherits the security of the strongest shard, adding an extra layer of security.
2. Sustainable Scalability: Solana's impressive TPS is achieved through a single, highly optimized blockchain, which can lead to hardware limitations in the long run. As transaction volumes grow, only those with the most advanced hardware will be able to participate as validators, potentially leading to centralization. Hydra, with its sharding model, offers more sustainable scalability. The network's capacity can be increased simply by adding more shards, each operating independently. This allows a broader range of hardware to participate in the network, promoting decentralization.
3. Interoperability: Solana operates as a standalone blockchain, which can limit its interoperability with other networks. Hydra, on the other hand, leverages a CSC protocol and EVM, allowing seamless interoperability between its shards and potentially with other CSC-enabled blockchains. This enhances the network's flexibility, fostering a more interconnected and cooperative blockchain ecosystem.
4. ​Infinite vs. Finite Scaling: The scalability model adopted by Solana, though highly effective in processing high TPS, faces potential bottlenecks when the load increases exponentially. As the system grows, so does the stress on the network, necessitating high-end hardware and potentially leading to centralization. On the other hand, Hydra's model offers infinite scaling. Thanks to its sharding architecture, Hydra can add more shards as the network grows, allowing the system to scale indefinitely without increasing the load on any single shard. This flexibility ensures Hydra's scalability model remains resilient, efficient, and decentralized, even under heavy transactional loads.
5. Dynamic Load Balancing: In contrast to Solana, which must contend with a rising load stress as TPS increases, Hydra's sharding model offers a dynamic load balancing solution. Each shard handles its own transactions, ensuring that no single shard experiences an unmanageable load. This way, Hydra avoids the exponential stress increase associated with scaling a single-chain model like Solana, ensuring a smooth, efficient operation even under heavy network use.

While Solana's high-speed, single-chain design has its merits, it could potentially lead to issues of centralization and limited interoperability. On the contrary, Hydra's sharded, CSC-enabled model offers a robust, secure, and decentralized network that can scale sustainably. For instance a 20 shard ecosystem would translate to 80,000 tps capacity which would dwarf the peak capacity of Solana while still allowing for further horizontal scaling and without any sacrifice of decentralization.

Furthermore, Hydra's interoperability enhances its potential for integration and cooperation within the broader blockchain ecosystem. These factors make the Hydra model a promising approach for the future of scalable, secure blockchain networks.

Development Modularity and Project Compatibility

Hydra's architecture is designed with modularity in mind, promoting flexibility and ease of development. The current Hydra model is already 80% compatible with the new model, providing a solid foundation for the system's evolution. The CSC protocol, a core component of the system, is an established technology, which allows for efficient development and integration.

The sharding approach further enhances this modularity, as each shard can be developed and improved independently. Developers can focus on a single shard, optimizing its performance and functionality without disrupting the rest of the network. This approach also allows for the incorporation of specialized shards, each designed for a specific use-case or application.

This modular design extends beyond the network's architecture. The EVM compatibility ensures developers can leverage existing tools, libraries, and smart contracts, further accelerating the development process. This compatibility also promotes a seamless transition for applications migrating to Hydra from other EVM-compatible chains, fostering a more inclusive, accessible ecosystem.

Unique Exponentiation Formula and Security

Hydra employs a unique exponentiation formula to balance the voting power of validators, using the equation: Balance ^0.5 = Voting Power. This formula ensures that the voting power isn't directly proportional to the balance, preventing the concentration of power in the hands of a few wealthy nodes.

The formula enables individual shards, which act independently in terms of BFT, to aim in achieving a matching level of the Nakamoto coefficient across the entire system, ensuring there are no significant discrepancies in security between shards. Even if a shard has fewer validators with higher concentration, the formula ensures that they have proportionate voting power, maintaining a balanced security level across the network.

This approach strengthens the overall network security and works in a symbiotic way, both on the individual shard level, as well as on the systemic level.

The formula reduces the likelihood of a single validator or a small group of validators dominating the network, promoting decentralization. In turn, the improved decentralization enhances network resilience, as it's harder for malicious actors to compromise a large number of distributed nodes.

Hydra's unique exponentiation formula is a key aspect of its strategy to maintain a secure, decentralized, and balanced network. By ensuring a fair distribution of voting power among validators, Hydra promotes a robust, resilient blockchain ecosystem where all participants have a voice.​​

Road-Map

​The development of HydraChain can be planned in two distinct phases - each stage meticulously designed to build on top of the preceding one, resulting in a robust and scalable blockchain ecosystem.

Phase 1: Development of Hydra and HydraGon L1 Consensus

The first phase focuses on building Hydra as a standalone Layer 1 (L1) blockchain. Leveraging the Ethereum Virtual Machine (EVM), compatible with Ethereum-based applications, Web 3.0, and EVM tooling.

Hydra’s core is the HydraGon Consensus - a unique blend of cutting-edge blockchain consensus mechanisms. This consensus model applies an exponentiation formula, where validator voting power is computed using the formula Balance ^0.5, resulting in a fairer, more democratic, and secure consensus environment.

This formula helps level the playing field, preventing a monopoly of power and offering protection against a wide range of potential threats.

The HydraGon Consensus also integrates a unique market aware economic design together with protocol-level liquid staking through LYDRA and an exponential vesting formula.

Phase 2: Horizontal Scalability with Sharding

Phase 2 marks another significant leap in HydraChain's evolution, introducing a scalable sharding mechanism that exponentially increases network throughput.

In this phase, the Hydra network evolves from a standalone L1 blockchain to a multi-shard system. Each shard operates independently, allowing parallel processing of transactions and smart contracts, thereby significantly enhancing the network's performance.

To illustrate the potential, consider a HydraChain setup of 20 shards, each capable of processing 4000 transactions per second (TPS). Instead of having a single chain handle all transactions, we distribute the load across these 20 shards. As a result, each shard processes its share of transactions concurrently, resulting in a combined network throughput of an astonishing 80,000 TPS (20 shards x 4000 TPS per shard).

This horizontal scaling approach offers a significant advantage over blockchains that aim to achieve high TPS rates on a single chain. It eliminates the bottleneck caused by the sequential processing of transactions and reduces the stress on individual validators, resulting in a highly scalable and efficient system.

​​Sample road-map for implementation

1. ​CSC Module Development with Lightweight client integration: The first milestone still involves the development of a Hydra-compatible CSC module. This is the centerpiece for the multi-shard system, enabling secure and effective communication between different shards.

2. Multi-Shard Infrastructure Setup: Once the CSC module is integrated, the next milestone is to create and configure additional shards. The new shards will be set up and the infrastructure will be developed to ensure each shard can function independently while communicating effectively via the CSC module.

3. CSC Transaction Protocol Development: With the CSC module in place and multiple shards set up, the next step is to develop a transaction protocol that can manage and execute transactions across multiple shards. This involves defining how transactions are formatted, validated, and executed when they are sent from one shard to another.

4. CSC Transaction Protocol Testing: After the transaction protocol has been developed, the next milestone is to conduct thorough testing. This will involve sending transactions across shards in various scenarios and under different loads to ensure that the protocol can handle the demands of the network.

5. Sentinel Role Implementation: The sentinel role, acting as an additional security layer, is then implemented. Sentinels, validators from non-participating shards, will observe and possibly object to transactions, adding an extra level of scrutiny and security.

6. CSC Performance Optimization: With the CSC transaction protocol in place and the sentinel roles implemented, the next milestone is to optimize the performance of the CSC. This may involve tuning the parameters of the CSC, improving the efficiency of the transaction protocol, or enhancing the communication between shards.

7. Stress Testing and Security Audits: The final milestone involves thorough stress testing and security audits of the entire system. This will ensure the robustness, security, and efficiency of the multi-shard HydraChain system before it is released.

​​Launching a New Shard on HydraChain Flow

Deploying a new shard on HydraChain would be a relatively straightforward and permissionless process.

1. Deploy the Network: The first step is to deploy a new network for the shard. This involves setting up the shard's infrastructure including its nodes and consensus protocol. The shard will function as a standalone network, independently handling transactions and smart contracts. It would require its own validator set, each of which needs to be set up with the necessary software and hardware.

2. Register with the RPC Layer: After the shard's network is established, it needs to be registered with the HydraChain's Remote Procedure Call (RPC) layer. The RPC layer is a crucial component of HydraChain that facilitates communication between the shards. It routes calls to the appropriate shard and ensures that data can be exchanged seamlessly and efficiently across the network. It is also fully compatible (and identical to all standard EVM calls). It would need to contain rapid indexing of all transactions on shards, which is why there could be a default list of supported shards as a start.

3. Bridge HYDRA to the New Network: The third step is to bridge the HYDRA token to the new network. This is necessary to seed a minimum of three core nodes with at least 30,000 HYDRA (10,000 per node). These core nodes are crucial for maintaining the integrity and security of the new shard. They validate transactions, propose new blocks, and participate in the consensus protocol.

4. Objective and Verifiable Security: The security of the new shard is objective and can be verified by anyone. This means that the strength of the security measures in place on the shard can be independently assessed. Shards with weak security levels will likely be avoided by users and developers, as they pose a higher risk. On the other hand, strong shards, possibly deployed by application-specific projects with their own tokens, will be more attractive due to their robust security mechanisms.

5. Open-Source Community and Permissionless Validators: The final step is to foster an open-source community around the new shard. Anyone can become a validator in a permissionless way, provided there are available seats within the 150-slot limit. This democratizes the process of maintaining the network and encourages a diverse range of participants. The 150-slots limit could also naturally promote multi-shard ecosystem, as community members who have the economic capability, but lack the seat, are likely to be motivated to deploy their own shard and create incentives for users to join it. The staking would be equal among all shards, because the migration of HYDRA via CSC would immediately reflect the circulating supply on the sending shard.

Economic And Security Symbiosis

​​HydraChain's ​Cross-Shard Communication (​CSC) model, combined with the Ethereum wallet standard and the powerful HydraGon L1 Consensus, represents a major step forward in blockchain scalability and user experience. This framework ensures that the overall security of the economy is distributed across multiple shards, while providing a seamless user experience. In this system, all shards bridging the same asset contribute to the security and robustness of that asset's economic activity.

• Distributed Security: In a sharded blockchain environment, each shard operates as an independent blockchain with its own consensus mechanism and validator set. When multiple shards bridge the same asset, they collectively contribute to the security of that asset. Even if one shard experiences an issue, the other shards continue to secure the asset, ensuring the integrity of the overall system.
• Fault Tolerance: This distributed security also provides a high level of fault tolerance. As each shard operates independently, a problem on one shard does not affect the operations on other shards. This means that users can continue to transact with their assets on other shards even if one shard experiences downtime or other issues.
• Scalability: Sharding inherently provides scalability, as each shard can process transactions independently and in parallel with others. When multiple shards bridge the same asset, they can collectively handle a larger volume of transactions for that asset. This allows the system to scale with the demand, providing a smooth experience even as the number of transactions grows.
• Seamless User Experience: The use of a unified Ethereum wallet standard across all shards ensures a seamless user experience. Regardless of which shard they are transacting on, users can use the same Ethereum-compatible wallet. This eliminates the need for users to manage multiple wallets or navigate different interfaces, simplifying the user experience.

​​Consider a scenario where there are two distinct blockchains, each anchored by their own native assets - let's name them Chain A and Chain B. Both chains offer similar features and functionalities. However, let's say Chain B undergoes a severe attack, causing a significant devaluation of its native asset. Under such circumstances, Chain B's security could be threatened due to the loss of its native asset's value, potentially leading to a systemic collapse. Chain A would remain unaffected, but users and developers associated with Chain B would endure substantial losses.

Now, picture a similar situation in a sharded blockchain ecosystem like HydraChain, where every shard is fortified by the same staked asset - HYDRA. In this setting, each shard operates autonomously but benefits from the collective security ensured by HYDRA. Imagine a situation where a particular shard is subjected to an attack or serious issue. In this instance, the security of the impacted shard would be backed by the collective security ensured by HYDRA staked across all shards, thanks to HydraGon's exponentiating formula that effectively distributes the security.

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The shared security model implies that even if a single shard encounters a problem, the overall security of the system wouldn't be jeopardized to the same extent as in the example of independent chains. Moreover, the security of the affected shard can be promptly reinforced by redirecting additional HYDRA to it from other shards. This capacity to dynamically adjust security resources across shards equips the system with high resilience against potential attacks or failures.

The users and developers on the affected shard might still experience some disruption, but a total collapse of the shard could likely be averted, courtesy of the shared security model. Additionally, the network of Sentinels - independent watchdogs tasked with monitoring the activities and decisions on each shard - further strengthens this security arrangement. In case of any discrepancies or malicious activities, the Sentinels can intervene with CSC propagated transaction, ensuring security of the affected shard does not spillover and cause an exacerbated impact on other shards.

Furthermore, the economic impact of any issue on the affected shard would be dispersed among all HYDRA holders, instead of being solely borne by the users of the affected shard. This further dilutes the potential impact of any one shard's failure.

In essence, the shared security model of HydraChain provides an inherent system-wide safety net that bolsters resilience and prevents the total collapse of any one shard. This results in a more robust and secure environment for users and developers, thereby illustrating the power and potential of HydraChain's distributed economic design.

​​Balancing Individual Risk and Reward: Proportional Security Model

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HydraChain’s design ensures that the individual risk carried by each shard is proportionate to the amount of HYDRA and the total value locked (TVL) of assets held by it. This structure aligns the risk and reward mechanisms, making the system fair and balanced. Each shard, while independent, shares in the collective security provided by the staked HYDRA across the entire ecosystem. The more HYDRA and assets a shard holds, the higher the security it needs to maintain, and correspondingly, the higher the risk it carries.

This risk proportionality also implies that the creation of a new shard doesn't inherently increase systemic risk. Instead, it can be seen as a net positive event for the ecosystem. When a new shard is created and HYDRA is bridged to it, the circulating supply of HYDRA in the originating shard decreases. This reduction in supply has a balancing effect on the risk profile of the original shard while also seeding the new shard with the necessary security provisions.

HydraChain's consensus mechanism, HydraGon, further complements this design by controlling individual staking positions at the account level. This fine-grained control allows for a precise and flexible distribution of rewards based on each account's stake. It not only ensures a fair allocation of rewards but also mitigates the risk of centralization of power and resources.

The combination of account-level staking and risk proportionality also leads to a unique systemic supply and inflation model. The total circulating supply of HYDRA across all shards forms the systemic supply, while the inflation of HYDRA is determined collectively by all the shards. This model, powered by HydraGon's consensus, ensures a balanced distribution of new HYDRA tokens based on the total value locked in each shard.

In essence, HydraChain's design ​aims to ​strike a symbiosis between individual risk, reward, and security. It creates an environment where the growth of the ecosystem and the creation of new shards contribute to the overall health and resilience of the system rather than increasing systemic risk. The result is a robust, scalable, and flexible blockchain ecosystem that is well-equipped to adapt to changing needs and circumstances while providing a secure and rewarding experience for all participants

Concept Conclusive Statement

The proposed concept draws inspiration from the successes and limitations of existing distributed ledger technologies. Its design harnesses the strengths of established blockchain architectures while offering innovative solutions to their inherent challenges.

The bedrock of HydraChain's sharding design is the modularity of present Ethereum Virtual Machine (EVM) chains and their unique interconnectivity via the underlying economic layers and unified wallet experience..

The EVM, by virtue of its Turing completeness and wide developer base, has emerged as a universal standard for decentralized applications. However, the multitude of EVM chains, each operating under different brands, has led to a highly fragmented ecosystem. HydraChain addresses this by offering a unified platform where each EVM-compatible shard retains its own security while being part of a larger, interconnected network.

HydraChain also draws inspiration from the success of blockchain bridges in connecting isolated EVM chains and facilitating Web 3.0 interactions. These bridges, through custom RPCs, have enabled a unified wallet experience across different blockchains, breaking down barriers and paving the way for seamless interoperability. This design takes this a step further with its Cross-Shard Communication (CSC), allowing for direct and efficient communication between shards within the same ecosystem without users needing to worry about gas costs on receiving shards.

The learning upon and adoption of the Inter-Blockchain Communication (IBC) protocol by the Cosmos ecosystem is another key influence on HydraChain. IBC, by allowing different blockchains to communicate at the consensus level, has revolutionized the way blockchains interact. HydraChain's CSC is a testament to the success of IBC but goes a step further by establishing direct connections between shards, bypassing the need for a relay chain and thereby enhancing efficiency and flexibility.

And another key motivation behind the design is to counter the diluting economic effect observed in the relationship between Layer 1 (L1) and Layer 2 (L2) chains. In the current landscape, L2 solutions often benefit from the lack of scalability of L1 chains, creating a dependency that is not conducive to the long-term health and resilience of the ecosystem. HydraChain, with its scalable and interoperable shards, offers a balanced approach where each shard contributes to and benefits from the network's overall health, eliminating unhealthy dependencies.​​

The concept also strongly lies on the unique economic design and technical architecture of the HydraGon L1 consensus which unlocks unique synergies strengthening the shared design among all shards.