Hyphen enables instant and cheaper token transfers across different blockchains. It especially solves the pain point of getting your funds from Layer2 to Layer1 blockchains. If you transfer your funds via Layer2 native bridges it might take you from 40 min to 7 days to get your funds on Layer1. For example, it takes around 40-50 min to get your ERC20 tokens from Polygon Network to Ethereum via their native bridge.
Hyphen provides cheaper and instant transfer of funds by maintaining tokens liquidity on both sides of the chains and instantly transferring tokens on the second chain after accepting tokens on the first chain. The pools are designed in such a way that it incentivizes people to balance the pools if there is an imbalance due to one-sided demand.
If Alice wants to transfer tokens across chains then she'll be charged a dynamic transfer fee, part of which goes to Liquidity Providers, and the transfers transaction fee is also deducted from the tokens being transferred in the same currency. For example, if Alice is transferring 500 USDC from Polygon to Ethereum and the transfer transaction on Ethereum takes a $10 USD gas fee, then she will get 489.5 USDC on Ethereum.
How does it work?
Biconomy has deployed LiquidityPool contracts on all supported chains where the entire Liquidity will be stored. We have off-chain servers, aka Executor Nodes, running, that are constantly monitoring these smart contracts for any incoming deposit transactions.
Executor Nodes has two main components: Watch Tower and Executors
Watch Tower monitors LiquidityPool smart contract to listen for any incoming deposit transaction on all the chains. Once it finds any deposit transaction it notifies the Executor component about the same.
The Executor verifies the incoming deposit and initiates a transfer transaction on the other chain. The other chain id, receiver address and the amount to be transferred are part of the deposit transaction only.
The LiquidityProvider fee and transfer transaction fee is deducted on-chain on LiquidityPool smart contract only. Only Executors have the right to transfer funds from the LiquidityPool contract.
Dynamic Transfer Fee
Hyphen implements a dynamic transfer fee mechanism that makes the transfer fee variable and it depends on the total liquidity supplied (SL) by the Liquidity Providers and available liquidity(L) in the pools. There is an equilibrium transfer fee, F(e), which is currently set as 0.1% which is charged when a cross chain transfer brings the destination pool in a state where L = SL. Most of the time either the transfer fee will be higher or less than F(e).
You can read more about the dynamic fee mechanism here.
Hyphen pools are designed in such a way that it incentivizes people to rebalance the pools in case of an imbalance in liquidity. It maintains an Incentive Pool (IP) which is gradually filled as the pool becomes empty due to more one-sided demand. When a user makes a transfer and deposits in a pool that is low in available liquidity (hence a high Incentive Pool), some part of the Incentive Pool is given as a reward in the deposit transaction hence incentivizing the user to do this transfer.
When this reward given on the source chain becomes more than the transfer fee on the destination chain, this transfer becomes profitable for the user.
On some super rare occasions, your Hyphen transfer might get stuck and not reach you even after 10 minutes, even though your deposit transaction went through. Don't worry, your funds are always safe! We've listened to our community, and now you can push the transaction through yourself on the destination chain! Just paste your source transaction hash and source chain here and you'll get your exit transaction. Happy Bridging!