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$ADA: SundaeSwap Calls Hydra Demo ‘Important Milestone’ in Cardano’s ‘Scaling Journey’

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On Friday (October 14), SundaeSwap Labs, the startup behind the highly popular Cardano-powered decentralized exchange and automated liquidity provision protocol SundaeSwap, announced that they had reached an important milestone.

SundaeSwap is backed by cFund (“an early-stage sector agnostic venture firm in the Blockchain industry anchored by IOHK and managed by Wave Financial”); Alameda Research (the quantitative cryptocurrency trading firm and liquidity provider founded by FTX CEO Sam Bankman-Fried); and Double Peak Group (“a family office focused on investments in the digital asset and blockchain space”).

On 20 January 2022, SundaeSwap Labs announced that swapping had gone live on the mainnet version of SundaeSwap.

Before we look at what SundaeSwap Labs said yesterday about Hydra, it is worth taking a look at what Input Output Global (“IOG”), the blockchain technology firm responsible for Cardano’s R&D, has said about layer 2 (L2) scaling solution Hydra, which should launch in H1 2023.

In a blog post published on 17 September 2021, Sebastien Nagel, Software Engineering Lead at IOG, said that one of the exciting developments enabled by the Alonzo upgrade was “Hydra, a key layer 2 solution to further improve Cardano’s scalability layering a new protocol on top of the existing layer 1 blockchain.”

According to Nagel, here are the concerns that Hydra aims to address:

“In a blockchain network, a consensus algorithm creates a secure and trustless environment by ensuring agreement on a transaction history. Cardano uses Ouroboros, an efficient proof-of-stake consensus algorithm, for this very purpose. But Cardano also, just like any permissionless blockchain, faces challenges when trying to scale to achieve the throughput required to support applications in the real world, including payment, identification, game, or mobile services…

Cardano transactions incur fees. The people who run the network (in the case of Cardano, the stake pool operator community) need to be rewarded appropriately for the part they play, so fees need to be set at a sustainable level. Users want to pay fees they deem acceptable. In addition, the blockchain needs to be protected against Denial-of-Service (DoS) attacks, for example.

Fees can therefore not be set so low as to open up undue risk – DoS events must be made prohibitively costly to a potential attacker. Storage is also a concern, as an ever-growing transaction history can lead to storage problems. Effectively, the most successful blockchains risk becoming ‘victims’ of that very success.

On September 21, IOG Co-Founder and CEO Charles Hoskinson commented on Hydra during an interview with “Cheeky Nick”, a co-host of the YouTube series “Cheeky Crypto”.

The IOG CEO said:

So when you look at things like Mithril, Hydra, you know these are extensions of known concepts. Mithril is a threshold signature idea and they construct these proof certificates and then when you do transactions, they’re paired with proof certificates, and it gives you the inclusive accountability… it’s not a new idea. It’s like 10 years of talking about this stuff we just implemented. It’s a lot of hard cryptography to implement, but once it’s done, it’s done. And it’s more about how you distribute the certificates and build them.

Hydra Is everything Lightning wanted to be when it grows up… The hard part is the fact that Bitcoin is not programmable. So 95% of your effort is trying to figure out how do you get a model that’s not designed for this to work with this…

With the extended UTXO and Plutus, there’s enough there that you can build rich, isomorphic, state channels. So basically, you can take state and assets and you can batch and bundle them together and put them into a layer two solution and then you can use it for micro transactions, you can use it for a smart contracts…

But then you can build modules on top of it to do specific applications, like DEXes, voting, these sets of things, and in particular one area I’m very interested to use Hydra in 2023 is to reuse that technology for you to do all the stuff we’re doing right now with Catalyst and voting…

What if you could do it all off-chain in a layer two network that batches and bundles and then it creates an aggregate that you put on chain that’s a small data payload, but then you can verify at any given time that those votes were counted correctly. Well, that’s what Hydra does in a nutshell, and it can do it for a smart contract. It can do it for a payment. It can do it for an asset.

What we thought was really important is to treat Hydra like an applied research program. So what we did is we got a small team, we got DApp developers like SundaeSwap and others, and we said, ‘build it with us, so as we build, you integrate and we talk back and forth, and we de-risk parts of the protocol, and then we have a 3-4 week release cycle’.

So if you go to the Hydra’s GitHub repository, the entire release schedule is there on the project page. And you see the releases that we’ve done and the capabilities these release have, and we will work our way up over a reasonable period of time to a 1.0. That’s a good foundation for a DApp developer to take and integrate into their infrastructure for a lot of the off-chain stuff that they do.

Now, who will run that infrastructure? Well, the way we designed it, stake pool operators can and the developers themselves can and other people can and it just becomes another augmentation to Cardano. And what’s cool is [that] it’s a foundation for other protocols, like a tail protocol for micro transactions or a voting protocol or these types of things… And you kind of know that you get a lot of guarantees with this system.

So, it’s slow to start because you have to do a lot of applied research, but once that research is over and done, and you have a strong foundation, it’s easy for people to take it and build apps on top of it into other tools like Mithril that you have as you think about how do I build an ecosystem around this.

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Well, yesterday SundaeSwap Labs showed off their first demo of SundaeSwap on Hydra, and then earlier today Hoskinson said he was very glad to see this demo.

Here is what SundaeSwap Labs CTO had to say about this demo:

Another person to congratulate the SundaeSwap team was Sebastien Nagel, IOG’s Software Engineering Lead:

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