Hydrozoa L2: New R&D and Cool Features

[Proposal setup] Proposal title

Please provide your proposal title

Hydrozoa L2: New R&D and Cool Features

[Proposal Summary] Budget Information

Enter the amount of funding you are requesting in ADA

100000

[Proposal Summary] Time

Please specify how many months you expect your project to last

7

[Proposal Summary] Translation Information

Please indicate if your proposal has been auto-translated

No

Original Language

en

[Proposal Summary] Problem Statement

What is the problem you want to solve?

Hydrozoa MVP (fund 12) validated its design as a lightweight hydra head. Projects are excited to use it as an L2 workhorse, but some of them need the design to be extended with advanced features.

[Proposal Summary] Supporting Documentation

Supporting links

• https://cardano-hydrozoa.github.io/hydrozoa/hydrozoa.pdf
,
• https://github.com/cardano-hydrozoa/hydrozoa
,
• https://milestones.projectcatalyst.io/projects/1200059

[Proposal Summary] Project Dependencies

Does your project have any dependencies on other organizations, technical or otherwise?

No

Describe any dependencies or write 'No dependencies'

No dependencies

[Proposal Summary] Project Open Source

Will your project's outputs be fully open source?

Yes

License and Additional Information

Apache License, Version 2.0 (http://www.apache.org/licenses/LICENSE-2.0)

[Theme Selection] Theme

Please choose the most relevant theme and tag related to the outcomes of your proposal

Layer2

[Campaign Category] Category Questions

Mention your open source license and describe your open source license rationale.

We use the Apache License, Version 2.0 (http://www.apache.org/licenses/LICENSE-2.0)..)..))..)..)))

We have posted the corresponding copyright notice in our repository: https://github.com/cardano-hydrozoa/hydrozoa/blob/main/NOTICE.

How do you make sure your source code is accessible to the public from project start, and people are informed?

We use a single, public Github repository: https://github.com/cardano-hydrozoa/hydrozoa

This is the same repository that we have used since the beginning of the Fund 12 Hydrozoa project, and we have consistently referred to it in every milestone delivery and project-update video.

We also link to it in our socials.

How will you provide high quality documentation?

Our 54-page technical specification for Hydrozoa MVP from Fund 12 is already among the most detailed protocol documents in Cardano.

Furthermore, we will extensively document to a similar level the deliverables of this Fund 14 project.

[Your Project and Solution] Solution

Please describe your proposed solution and how it addresses the problem

As a result of the Hydrozoa fund 12 project (currently completing its final milestone), we have a detailed and well thought-out protocol design validated by a solid prototype. In particular, with our prototype, you can:

• Initialize a multi-party head (i.e. like Hydra) with a single, cheap L1 transaction (~0.19₳ fee).
• Create many pending deposits in parallel for the head (~0.18₳ fee per deposit).
• Use settlement transactions to simultaneously absorb many deposits into L2 and release unlimited withdrawals from L2 (~0.19₳ on average for a typical settlement tx).
• Enjoy rapid L2 transaction confirmation times even if funds are flowing into/out of the head.
• Avoid worry about peer state divergence (impossible by design) and disk usage bloat.
• Dynamically change the set of peers (if they all agree) without closing the head. (This feature is currently being completed in the final F12 milestone)

With these features, Hydrozoa is already enticing for early-adopters to try it — several projects have already privately approached us. However, a wishlist of new features has emerged from some of these projects and the broader Cardano community.

L2 minting/burning.

• Many dApps rely on minting/burning protocol tokens to manage/authenticate their smart contract state.
• Supporting minting/burning on L2 is tricky because it might result in utxos that cannot be withdrawn to L1.
• However, in our concurrent work on Midgard, we have developed a design to safely support this feature, which we believe can be adapted in a straight-forward way to Hydrozoa.

M-of-N consensus.

• Hydra and Hydrozoa's unanimous consensus means that peers have to be connected 24/7 to keep the head open.
• This is a heavy burden for users, but even professional operators would prefer the head to be robust to some peers disconnecting for certain periods of time. This burden would be relieved if Hydrozoa consensus were extended to require less than 100% quorum.
• As we discovered during the fund 12 project, Hydrozoa's design is fairly close to the well-known Raft protocol used in high-assurance distributed systems and databases. Raft supports less than 100% quorum, and we can adapt some of its procedures to safely support a similar quorum in Hydrozoa.

Observer-script architecture

• Hydrozoa's use of post-dated transactions provides the determinism necessary for L2 block production to proceed without waiting for L1.
• However, the need to store these transactions introduces the risk of stranded funds in situations when all the peers and relevant users lose their copies of the post-dated transactions.
• CIP-112 introduces observer scripts and the ability for native scripts to invoke them. We can use these to completely eliminate all post-dated transactions from Hydrozoa's design.
• CIP-112 is expected on Cardano mainnet in early 2026, but its implementation in Cardano ledger is mostly already available, so we can start prototyping a Hydrozoa implementation that makes use of it.

[Your Project and Solution] Impact

Please define the positive impact your project will have on the wider Cardano community

Hydrozoa's features make it very appealing as a simple middleware L2 solution to drive higher throughput, faster finality, and a better user experience for Cardano dApps. If we succeed in this project, Cardano builders will have an off-the-shelf middleware L2 solution that they can easily and confidently integrate into their tech stacks to delight users with experiences previously infeasible in Cardano.

A new generation of point-of-sale systems (like RareEvo's L2 vending machine), L2 gaming, micropayments, bridges, DEXs, oracles, and governance systems will elevate Cardano's value for the real world.

[Your Project and Solution] Capabilities & Feasibility

What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

We have designed and implemented the Hydrozoa protocol from a vague idea to the promising MVP prototype it is now. As reported in our F12 milestone reports, we have done so with good planning, transparency, technical competency, and a thorough attention to detail.

• https://milestones.projectcatalyst.io/projects/1200059/milestones/1/poa-1
• https://milestones.projectcatalyst.io/projects/1200059/milestones/2/poa-2
• https://milestones.projectcatalyst.io/projects/1200059/milestones/3/poa-3
• https://milestones.projectcatalyst.io/projects/1200059/milestones/4/poa-4

We will bring the same professionalism to this F14 project. Furthermore, we will leverage our team's extensive experience with advanced protocol design in Cardano.

The project is quite feasible:

• Hydrozoa's baseline design and architecture is well-understood and mature.
• We have conducted preliminary work to assess the basic feasibility of each feature.
• As evidenced by Hydrozoa itself, a radical re-imagining of Hydra that creatively solves many of the obstacles that arose during design implementation, we are capable of handling the advanced features targeted by this F14 project.

[Milestones] Project Milestones

Milestone Title

L2 minting/burning

Milestone Outputs

1. Specification of token minting/burning on Hydrozoa, indicating which L2 utxos can still be withdrawn to L1.
2. Prototype of token minting/burning on Hydrozoa.
3. Documentation of token minting/burning on Hydrozoa.

Acceptance Criteria

1. Specification of token minting/burning on Hydrozoa, indicating which L2 utxos can still be withdrawn to L1.
2. Prototype of token minting/burning on Hydrozoa.
3. Documentation of token minting/burning on Hydrozoa.

Evidence of Completion

The proof of achievement:

1. Links to the open-source project repository and project board.
2. Links to a brief video describing the outputs delivered in this milestone.

Delivery Month

2

Cost

30000

Progress

30 %

Milestone Title

M-of-N consensus

Milestone Outputs

1. Specification of the M-of-N consensus protocol in Hydrozoa.
2. Analysis comparing Raft + Hydrozoa and adapting relevant features from Raft to Hydrozoa.
3. Prototype of Hydrozoa M-of-N consensus.
4. Documentation

Acceptance Criteria

1. M-of-N consensus protocol specification describes how it is safe.
2. Hydrozoa/raft comparative analysis describes which Raft procedures can be brought to Hydrozoa and how.
3. Prototype implements the specified M-of-N hydrozoa consensus protocol.
4. Documentation describes the prototype and its operation.

Evidence of Completion

The proof of achievement

1. Links to the open-source project repository and project board.
2. Links to a brief video describing the outputs delivered in this milestone.

Delivery Month

4

Cost

30000

Progress

30 %

Milestone Title

Observer-script architecture

Milestone Outputs

1. Specification of the observer-script architecture of Hydrozoa, eliminating post-dated transactions.
2. Prototype of observer-script architecture of Hydrozoa.
3. Documentation of observer-script prototype of Hydrozoa.

Acceptance Criteria

1. Specification of the observer-script architecture of Hydrozoa, eliminating post-dated transactions.
2. Prototype of observer-script architecture of Hydrozoa.
3. Documentation of observer-script prototype of Hydrozoa.

Evidence of Completion

The proof of achievement

1. Links to the open-source project repository and project board.
2. Links to a brief video describing the outputs delivered in this milestone.

Delivery Month

6

Cost

25000

Progress

90 %

Milestone Title

Polish and completion

Milestone Outputs

1. Close-out report and video for this milestone.
2. Final improvements and polish to project features. We intentionally reserve this output in the final milestone because Hydrozoa interfaces should be polished and convenient. :)
3. Final documentation.

Acceptance Criteria

1. Close-out report and video meet Catalyst's requirements for such deliverables in projects of this Catalyst category.
2. Project documentation describes all the advanced features developed in this project for Hydrozoa.

Evidence of Completion

The proof of achievement

1. Links to the open-source project repository and project board.
2. Links to a brief closeout report and video describing the outputs delivered in this project.

Delivery Month

7

Cost

15000

Progress

100 %

[Final Pitch] Budget & Costs

Please provide a cost breakdown of the proposed work and resources

• Subtotal expected hours: 1,620 hr
• Contingency budget (10%): 162 hr
• Total hours: 1,782 hr
• Hourly rate: 75 USD/hr
• Total fiat: 133,650 USD
• Expected ADA price: 0.75 USD/ADA
• Total ADA: 100,237.50 ADA

[Final Pitch] Value for Money

How does the cost of the project represent value for the Cardano ecosystem?

The costs described in this proposal's budget breakdown have been developed based on a detailed plan of the activities required to achieve the milestones. We have high confidence in the comprehensiveness and accurate sizing of these activities, as we have engaged in very similar projects at the complexity level and subject domain in the past.

The ADA amounts for the developers on the team are commensurate with the amount of effort that the team members will contribute to the project. They are consistent with those that we and our fellow developers in the smart contracts and dApp sector have used in past projects to provide high-quality services, with a proven track record of delivering projects despite the complexity of viable applications in this space. This requires experts on staff with a diverse range of niche skill sets and deep knowledge of the Cardano and L2 protocols, the EUTXO model, and the modern practices of dApp design.

[Required Acknowledgements] Consent & Confirmation

Terms and Conditions:

Yes