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Hop Protocol Review 2024: What We Like & Do Not Like
Swen Keller
- URL: https://app.exchange
- Year Founded: 2021
- Native Token: The Hop Token
- Supported Assets: Ethereum, USDT, USDC, DAI, Polygon, and HOP
- Supported Networks: Ethereum blockchain, Optimism, Arbitrum, Gnosis, and Polygon
- Fees: Minimum fee ($0.25), destination chain tx fee (dynamic gas fees), Bonder fee (0.05-0.30%), Slippage (dynamic), AMM swap fees (0.04%)
Hop Protocol Review: Our Take
Hop Protocol ensures seamless and fast movement of digital assets through sidechains, Layer 2 solutions, and Layer 1 blockchains.
On a larger scope, the protocol’s approach to cross-chain bridging and platform governance could become a base layer for new bridging solutions. And the modifications to its algorithms can birth more alternatives and competitive solutions.
What is Hop Protocol and How Does it Work?
Launched in 2021 by Christopher Winfrey, the Hop Protocol is an intuitive and innovative token bridging application that enables users to seamlessly transfer assets such as USDT, USDC, and MATIC between the L2 and Ethereum Mainnet.
Currently, the Hop Protocol supports Gnosis, Polygon, Ethereum Gnosis, Arbitrium, and Optimism networks.
The Hop Protocol or Hop Bridge provides rewards through liquidity pools like a lot of decentralized exchanges as well.
That said, the goal of the Hop Protocol is to get rid of the concerns faced by crypto investors and traders while bridging Ethereum scaling solutions.
Concerning how it works, the primary utility of the Hop Protocol is its multi-network bridging feature.
The Hop Protocol enables digital assets to be transferred between Ethereum Mainnet, Layer 2 networks, and sidechains.
Hop Bridge also features a universal bridging direction that allows digital assets to be transferred bi-directionally and between selected networks.
That said, Hop Protocol uses a custom token issuance, redemption, and swap algorithm to provide cheap and fast bridging of crypto assets between Layer 2 and singular networks.
The first step to achieving this is the introduction of smart contract tokens called Hop Tokens or Hop Bridge Tokens (hTokens).
hTokens are known as flexible tokens that can be movable and transferable across blockchains. And Hop Protocol users utilize Hop Bridge Token variants when performing conversion transactions.
hTokens reflect true assets that are locked in supported blockchains.
The Token is issued in a ratio of 1:1 with the underlying asset.
So if a crypto investor locks 100 USDT they can mint the exact number of hTokens for the locked asset, which would be 100h USDT.
These issued tokens can be moved to other blockchains supported by the Hop Protocol and then redeemed.
When a transfer command for Hop Bridge
Tokens are given, it will trigger a burning and minting function that burns the hTokens on the origin network and mints the exact number and variant of hTokens on the destination account and blockchain.
These burning and minting transactions are done faster than on regular bridging systems used by a lot of other asset bridging platforms.
That said, after receiving the hTokens users can then proceed to redeem them rather than waiting for the finalization of the bridging process.
Pros
- Quick bridging process
- Supports popular tokens
- An algorithm can be built on it
Cons
- Limited selection of assets
Unique Features
Hop DAO
The Hop DAO governs the day-to-day functions, the ongoing growth, and the direction of the Hop Protocol.
The DAO votes and decides on important aspects of the Hop protocol like the tokens that can be bridged with Hop Bridge, the layer-2 networks and non-Ethereum chains that Hop supports, and the Binder whitelist.
The DAO also oversees the distribution of $HOP incentives, the management of treasury funds, grants for the growth of the Hop ecosystem, Ongoing funding for Hop Labs and other service providers, and the future road map.
To join the Hop DAO and take part in governance with hTokens, you need to delegate your voting power to yourself.
You will need to make an on-chain transaction that costs some gas to join the DAO.
Since the Hop protocol uses the same governance contracts as most DAOs like Compound and Uniswap, you need to hold the token on Ethereum.
Once your tokens have been delegated, you automatically become a Hop delegate.
Cryptocurrencies Available on Hop Protocol
The following cryptocurrencies can be bridged on the Hop protocol USDT, USDC, Ethereum, Dai, hToken, and Polygon (MATIC).
Networks Available on Hop Protocol
Our firsthand investigation into this crypto bridge revealed that Hop Protocol currently supports 5 blockchains.
Supported blockchains include the Ethereum blockchain, Polygon, Optimism, Gnosis, and Arbitrum.
Hop Protocol users can send cryptocurrencies between the Ethereum mainnet and L2 Networks.
Hop Protocol Fees
There is no one-size-fits-all fee structure for the Hop Protocol as the overall cost of transactions depends on different factors such as Bonder, destination chain fee, liquidity provider fee, slippage, etc.
Automated Market Maker Fee
Hop Protocol charges 0.04% in AMM fees for L2 to L1 swaps. But for L2 to L2 swaps, users will have to pay 0.08% in swap fees because 2 swaps are involved.
With L2 to L1, only one swap is done.
Slippage
The cost of slippage isn’t fixed and depends on the amount of liquidity in the Hop Protocol and the number of actors arbitraging the pools.
With a higher number of both the costs reduce.
Bonder Fee
The Bonder fee costs 0.05% to 0.30%. This fee changes per digital asset and route and depends on the transaction volume. If there is enough demand for an asset, Bonder fees drop.
Destination Chain Tx Fee (Gas Fees)
The gas cost is factored into the fee paid by the user on the origin chain shown before sending.
Minimum Fee
There is a minimum fee of $0.25 per Hop transfer to prevent spamming.
Is Hop Protocol Safe?
Our meticulous research indicates that Hop Protocol is a secure crypto bridge that ensures safe cross-chain transfers using several security measures and protocols.
Aside from the security measures and protocols, the foundational team behind Hop Protocol has had roles as auditors for leading protocols like DyDx, Augur, Decentraland, and OpenZeppelin. They have also pioneered Authereum, one of the first smart contract wallets in the Ethereum ecosystem.
Hop Protocol has also been audited by leading firms like Solidified and Monoceros Alpha.
CertiK Skynet also provides continuous security insights, security ratings, and comprehensive audits, and hosts bug bounty programs tailored for Hop Protocol.
That said, Hop Protocol is a non-custodial bridge which means that funds from users and LPs in the AMM are not controlled by a single entity.
All contracts are currently managed with multi-signature security paired with a one-day timelock. With the one-day timelock, any changes made to the code are delayed for one day before being implemented. This doesn’t just promote transparency, it also ensures the security of the platform.
It is hard for users’ funds to be lost or stolen because the security of Hop Protocol is equivalent to that of the underlying rollup it supports. The worst that could happen is a delay equal to the exit time of the rollup when the Bonders go offline.
That said, Hop Protocol adds some trust assumptions through the system’s need for a fast arbitrary-messaging-bridge (AMB), which means it is not completely trustless.
To ensure a secure platform and the quick detection of any flaw in the system, Hop Protocol runs a bug bounty program.
Staking Rewards
The Hop Protocol incentivizes users to contribute to the Hop Protocol community by offering rewards to individuals that boost the performance of the protocol and other services provided by Hop.
This is done via staking and rebate programs that reward liquidity providers for locking their tokens on the Automated Market Makers (AMM) that power the Hop Protocol.
As a liquidity provider, you receive staking rewards when you lock your liquidity pool tokens on the platform.
The rewards received differ based on the user’s blockchain network and the APR offered for the digital asset locked.
That said, the staking APR can be as high as 7% and staking rewards are not available on some tokens and blockchains.
Also, based on our first-hand trials with this protocol we can confirm that there are rebate rewards of approximately 80% of the full bridging fees for users that bridge to the Optimism network (destination chain) from the Ethereum chain and other supported sidechains as well as Layer 2 networks.
Hop Protocol Native Token
The Hop Protocol Native Token is the token of the protocol and ecosystem.
hTokens are cross-network bridge tokens transferred from roll-up to roll-up and are claimed on layer-1 for the underlying asset.
It is an intermediary bridge token that enables trustless swaps.
The destination chain user doesn’t need to deal with hTokens directly; they just deal with each roll-up’s canonical token.
Token holders have voting rights and get to decide on important aspects of the protocol.
Hop token was launched in June 2022, it has a total supply of 1 billion tokens and a circulating supply of 38.8 million tokens.
Hop Bridge Token plays an important role in the Hop Protocol ecosystem. It ensures the rapid and efficient transfer of assets across various blockchains. The token empowers the Hop DAO to decide and vote on decisions that shape the future of the ecosystem.
This includes adding supported chains, setting bridging fees, and deciding on other operational details that can affect the ecosystem.
Governance of the Hop ecosystem is only open to hToken holders who stake their tokens.
Aside from governance, a major use of hTokens is liquidity provision.
Both Liquidity providers and Bonders add liquidity to the Hop Protocol using Hop Token. A Bonder provides up-front liquidity on the destination rollup to enable instant transfers between rollups and sidechains. HOP token is used as collateral to ensure that users receive their assets almost immediately on the destination chain even if there is a delay in settling the actual cross-chain transfer.
Every Bonder must stake the Hop token. The stake is treated like credit and subtracted when individual transfers are bonded and re-credited when transfers are settled.
To become a bonder, you must be whitelisted by the HOP bridge smart contract.
As already stated, liquidity providers are also required to add hTokens or the equivalent native tokens into the Hop AMM liquidity pools.
If you deposit hTokens into the liquidity pools you will receive slightly more positive slippage than when you deposit native assets.
This is because there are fewer hTokens in the AMM than native tokens.
Once you have deposited the tokens into the pool, you will receive LP tokens which represent your ownership share of the pool.
Liquidity providers and Bonders receive hTokens as compensation for their service.
This incentivizes them to keep providing liquidity and also helps boost the efficiency of cross-chain transfers.
Aside from being used as an incentive, Hop Token also acts as a deterrent for Bonders and liquidity providers. Bonders and liquidity providers who fail to perform their duties or engage in malicious actions will have a portion of their HOP slashed.
HOP Token Distribution
As stated earlier, HOP has an initial supply of 1 billion tokens. This is how the tokens were distributed:
8% distributed in Airdrop to early network participants (0.05% of this was allocated to external Hop contributors)
60.5% to the Hop DAO Treasury
22.45% to the initial development team (3-year vesting, 1-year cliff)
6.25% to investors (3 year vesting, 1 year cliff)
2.8% Saved for Future Team Members
Since the initial distribution of the token. The Hop DAO has allocated some tokens from the DAO treasury to various initiatives including the formation of a grant committee, a delegate incentivization program, and a liquidity mining campaign to incentivize liquidity in the Hop Protocol AMM.
How to Get hTokens
hTokens can be minted.
To mint the token, you need to lock your asset in the Hop Protocol contract on the Ethereum mainnet.
Once this is done, the protocol will mint the equivalent amount of hTokens on your preferred destination chain.
If you do not want to mint HOP on the Ethereum mainnet, you can buy the token directly from the AMM by going to the “Convert” section and selecting the “via AMM” option.
This method may, however, be more expensive than minting.
The only way to receive Hop tokens at a guaranteed 1:1 ratio is by minting them on the Hop Bridge.
That said, hTokens can be traded on decentralized exchanges like Uniswap V3 and Velodrome Finance.
The most popular exchange where Hop is traded is Velodrome Finance v2. The most active trading pair for Hop according to Coin Market Cap is HOP/WETH.
Things We Do Not Like about Hop Bridge Protocol
Our hands-on experience with the Hop Protocol revealed that the primary problem with the protocol is that in certain instances the user on the destination chain receives hTokens rather than native tokens (hUSDT instead of USDC).
This happens because the final swap at the destination chain times out after a particular deadline, which means the Hop token does not get converted into the Automated Market Makers of the destination chain.
In such situations, the user needs to convert their Hop Tokens manually, which may not be convenient.
Final Thoughts
The Hop Protocol is a scalable rollup-to-rollup general token bridge. It enables seamless traversing of digital assets and through Layer 2 solutions, sidechains, and Layer 1 chains through a flexible Hop Token algorithm.
However, there are problems such as the destination chain receiving Hop Tokens and not native tokens but these can easily be solved via manual conversions.
Looking at different cross-chain bridges can help you a lot. After this review, why not read our Portal Bridge Breakdown for more insights?
FAQ
Most frequent questions and answers
Hop supports Layer 2, Layer 1 Ethereum, and sidechains.
Hop is a multi-chain bridge that connects Ethereum and Layer 2 networks.
This depends on the origin and destination chain but typically 12 to 60 minutes.
Yes, the Hop Token (hToken). This is the governance token of the Hop Protocol.
We always try to provide the most accurate information available, and make sure our team follow through.
If you want to know more about our Crypto Exchanges Review Methodology follow the link below
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