Crypto Exchange Bridges: Protocol HOP
Hop Protocol was introduced in July 2021 and acts as a generic token bridge for quick, inexpensive transfers across Ethereum rollups and side chains. As of Q3 2022, Hop will enable transferable tokens for ETH, WBTC, WMATIC, DAI, USDC, and USDT. Hop will also connect Ethereum mainnet to Arbitrum, Optimism, Polygon, and Gnosis (formerly xDai).
Hop uses a system of Automated Market Makers (AMMs) and h-tokens, an asset developed as a bridging token, to enable transfers between Ethereum and its numerous rollups and sidechains. The creation of stable, liquid markets for h-tokens with their original assets is made possible by the usage of AMMs.
In essence, the h-tokens serve as an effective medium of trade for the underlying assets. In order to create h-tokens, the original asset must be locked in the Hop bridge smart contract on Ethereum, after which h-tokens must be created on the destination chain. These h-Tokens are exchangeable for the canonical asset on all of Ethereum’s supported L2s. Only LPs and Bonders interact with h-tokens, not end users.
More About HOP
To ensure liquidity on the destination rollup, a Bonder must place collateral as credit for transfers. They offer liquidity on the destination chain so that users can move money instantly rather than having to wait a few days if they utilize native rollup bridges. They accept a modest charge (0.02%) in exchange.
Hop uses a DAO and HOP token to decentralize the administration of its protocol. It has a total supply of 1 billion HOP tokens, which are distributed as follows:
- 8% of the total airdrop went to early network users.
- To the Hop DAO Treasury, 60.5%
- To the original development team, 22.45% (3-year vesting, 1-year cliff)
- 8% set aside for potential teammates
- To investors: 6.25% (3-year vesting, 1-year cliff)
As the protocol’s treasury will likely get the vast majority of HOP tokens, Hop will most likely conduct an aggressive incentive program in the future to reward users and protocols. Hop only started covering Optimism’s bridging fees last week!
Trust and Security Assumptions
Hop only focuses on rollups. Which can choose a riskier strategy in comparison to cross-chain solutions that connect L1 to L1. The market for using several settings is bigger, but using extra-trusted persons (multi-sig holders/network validators) comes with new costs and hazards. Hop is placing a direct wager on the Ethereum ecosystem with the goal of dominating the rollup-to-rollup transfer market.
Keep in mind that, as opposed to independent validators, only the people directly involved in the bridge transaction can validate it. Comparatively speaking, Hop is just as secure as the underlying L2 solutions. Additionally, only when bridging takes place are bridge users in danger. A user is no longer vulnerable to any Hop concerns. This is when it is transfer is successful to the L2.
Hop is also able to limit risk to specific networks, doing away with the risk of contagion that many general-purpose cross-chain bridges carry. They essentially use a hub-and-spoke architecture, with the Ethereum mainnet acting as the core hub. One Ethereum contract handles the settlement of all transactions. This contract can keep track of each network’s balances. It also stops the impact for users on one network by a vulnerability on another. Users will then have to wait until the rollup’s exit time if Bonders are not available. As long as the Bonders are supplying liquidity, it can typically offer almost instantaneous money transfers.
