Interview with Lito Coen, Head of Growth at Hop Protocol
In this series, we break down the business of a crypto project and learn about the drivers behind the data you see on Token Terminal's charts.
Watch the full interview on YouTube, listen to the audio version on any podcast platform, or read the write-up below.
Below is a write-up of our discussion about the current state of Hop Protocol with Head of Growth Lito Coen (edited for clarity).
This interview was recorded on September 21st. Some information has been updated to reflect the current state of Hop Protocol.
Q: Could you give a quick intro to Hop Protocol for anyone not yet familiar?
Hop is a multi-chain bridge that connects different scaling solutions to Ethereum. This allows users to transfer their assets between networks seamlessly.
As we know, Ethereum is scaling through layer two roll-ups, which provide cheaper transactions to end users without significantly changing the trust assumptions of Ethereum. However, these roll ups come at the cost of fragmenting the user experience because users now have assets on multiple networks that aren't connected to each other.
Hop solves this problem by allowing users to send their tokens between networks in minutes. For example, a user can send ETH from Optimism to Arbitrum, or from Arbitrum directly to Ethereum Mainnet in a few minutes. In this way, we are abstracting away the fact that these roll ups are different networks and making it feel like one single thing. This is already useful today, but we plan to make it even better in the future.
Q: Could you explain what a Bonder is, and what their role is within the Hop ecosystem?
Hop enables instant or near-instant token transfers between networks by having a market maker, known as a bonder, provide liquidity for the user upfront. Normally, transferring tokens between networks is not instant, but Hop achieves this by having the bonder underwrite the transfer and provide the user with the tokens upfront in exchange for a small fee. The bonder is later reimbursed through a settlement system that has been built by Hop. In short, the bonder is a market maker and an important actor in the Hop system.
Q: Can anyone become a bonder or do you have some sort of selection process in place?
Right now, with the current architecture of Hop, we have one bonder per asset. We have five assets at the moment, so that means we have five bonders. We've chosen these bonders carefully because they need to provide a significant amount of capital to do the job. You can't just do it with a hundred dollars or something; you need to have millions. Additionally, you need to be technical and run a server process to do it. For these reasons, the bonders we have today are entities that are close to the Hop protocol.
In the next version of Hop, we're looking to expand this role, make it permissionless, and allow anyone to join the network as a bonder. From a user perspective, the bonder doesn't have any privileged role. The bonder doesn't take custody of user funds at any point in time. They're really just providing liquidity. The worst thing they can do is delay a transfer by deciding not to bond it for the user. In that case, the user would still get their funds at the destination chain, but just later.
The bonder doesn't have control of any user assets and can't do anything malicious. It's not introducing any centralization to the protocol, but the role is permissioned, if that makes sense.
Q: Looking at the revenue share chart below, what parties does your supply side include, and does Hop intend on eventually capturing any portion of fees?
Currently, all fees paid by users go to liquidity providers and bonders. The supply side is made up of what we call passive and active liquidity. Passive liquidity is provided by LPs in curve-like AMMs that we have on each scaling solution. These AMMs allow LPs to provide so-called hTokens and the canonical token, like normal Optimism USDC paired with Hop USDC. Basically, they can stake this liquidity and then receive a fee for every transfer that happens through Hop.
The second form of liquidity is called active liquidity because it's not as easy as providing liquidity in an AMM. Here, you actually need to do something. Both of these actors take a fee on each bridge transfer, and there are no other fees.
Volume is the north star metric for us, as we want to grow the protocol as much as possible. It's similar to Uniswap, or even Amazon in the traditional world. They just wanted to grow as much as possible and undercut all the competitors on fees because that's what matters to users. We think about this in a similar way.
That being said, Hop is a DAO, and for us it's not a meme. It's actually run by a DAO. The founding team doesn't have any voting power at the moment, and any fees that could be introduced at any point should make sense for the community to accept. We have some ideas on what a good value capture model could be, and I think there will be some discussions about this starting soon.
Q: What are Hop's current growth drivers, and are you facing any specific challenges?
Like most crypto projects, the biggest growth drivers and challenges we face are mostly market-related. Hop does well when the market is hot and people are active on-chain, transferring assets left and right because there are so many arbitrage opportunities and speculation. However, when the market cools down, our volumes go down too.
So, like most of the crypto space, we're hoping for more use cases, better applications, more users, Which will all drive more volume to Hop. As for chaIlenges other than the market environment, I can't think of anything particular at the moment.
Q: What would be Hop's main value proposition that you want to emphasize to users?
Without a doubt, security is the biggest factor. Hop was built by three engineer founders who were also ex-auditors. They audited some of the most popular projects on Ethereum, like dYdX and Open Zeppelin. In 2018, they started building a smart contract wallet called Authereum. That's a complex piece of architecture to build, and they gained valuable experience from it. They encountered the scalability issue firsthand and pivoted to building Hop. They built Hop with security in mind, and we've had a good track record so far. Many bridges that took shortcuts have been hacked, but Hop hasn't.
A user who bridges through Hop doesn't face any custody risk, and LPs providing liquidity in an AMM on any given network aren't exposed to risks on other networks. This isolation of risk per network makes Hop stand out.
Nothing is more important than security when it comes to bridges. We believe the bridge that manages to be safe forever will outcompete all others in the long run. The user experience is also good, with people giving positive feedback on how easy it is to transfer assets between networks. That's another USP for Hop.
Q: What is your stance on cross-chain vs multi-chain discussion? Do you think there will be a time where Hop is bridging assets between different L1s?
Right now we’re mainly focused on the Ethereum ecosystem because our architecture is built with security in mind. We can offer a very high level of security for networks that are anchored to Ethereum in some way. This anchoring is typically through some native messenger bridge, which is what Hop needs in order to work for that network. In separate L1s, it is not possible to use Hop. So we prefer to focus on L2s, and perhaps zk-rollups in the future. Eventually, if it’s profitable to expand to other L1s in a trustless way, I’m sure the community would also want to pursue that.
Q: How much of your activity is driven by retail users? Furthermore, how much of your usage is driven by partnerships like the Coinbase Wallet integration that was recently announced?
The vast majority of our users are retail investors. We actually like this because some of our competitors have a few "whales" that make up the bulk of their volume. Our user base is much more evenly distributed.
Most of our users interact with Hop directly through our user interface, but we also see market makers and arbitrageurs using our platform. These are larger wallets that move assets around for market making activities and to rebalance their portfolios. In some cases, our Hop tokens may trade at a premium or discount to their canonical counterparts. In these cases, we see actors step in to bring the prices back to peg because it's essentially risk-free and easy to do.
We also see around 3-5% of our volume coming from third-party apps like Coinbase Wallet that have integrated the Hop bridge into their user interfaces to make it easier for users to interact with the application. We think this will continue to grow as it improves the user onboarding experience.
Q: Can you describe how you approached structuring the HOP airdrop? More specifically, how you ensured a healthy distribution of tokens and removed sybil attackers?
Airdrops are difficult to do because they are often gamed. For example, Uniswap's airdrop, where they gave 400 UNI tokens to every address that had done a swap on Uniswap, would not be feasible anymore. This is because people split their activities across many different wallets. This makes it hard to reward a large number of people, with low eligibility requirements. The lower the requirements, the easier it is to game the system.
An easy way for Hop to distribute tokens would have been to give them to liquidity providers, but this is not the kind of distribution we wanted as our goal is to build a large, decentralized community. Instead, we focused on rewarding bridge users with a minimum of two transactions and $1,000 in volume.
We also made the process transparent and open source, allowing anyone to become a sybil hunter and submit their findings on GitHub. This was successful and we've seen other projects adopt this strategy as well.
Q: What can we expect to see from Hop next? What's on your mid- to long-term roadmap?
I can't disclose everything because the founders have some things up their sleeves that they will present to the community when the time is right. But there are a few things that are public and anyone can explore on our governance forum.
One of these things is the deployment of an incentive reward system for people who bridge into Optimism. The Hop DAO received 1 million OP tokens from the original Optimism airdrop, which is close to $1 million in value. We plan to use these tokens to make bridging into Optimism cheaper by giving users 80% of their fees back in OP tokens. This should translate into higher volumes.
We also have other proposals, such as an SNX bridge and discussions around adding new networks and liquidity mining rewards for people who provide liquidity in the AMMs. This will give deeper liquidity and make transferring assets cheaper.
The interview concluded.
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