Stargate V2

Overview

Stargate V2 represents a significant evolution of the Stargate protocol’s native asset transfer capabilities, designed to address the growing complexity and liquidity fragmentation within the rapidly expanding omnichain ecosystem. While building upon the foundational success of Stargate V1 – its unified liquidity pools, Delta (Δ) algorithm, and instant guaranteed finality – Stargate V2 introduces optimizations and, critically, the Hydra mechanism.

Hydra specifically aims to extend Stargate’s deep, unified liquidity from established “core” chains to newer L1s and L2s, simplifying onboarding for these ecosystems and reducing friction for users interacting with assets across a wider network.

Stargate V2, incorporating Hydra, reinforces the protocol’s vision as the ‘end game’ for bridging, offering enhanced scalability, capital efficiency, and seamless native asset movement.

Core Principles & Enhancements

Stargate V2 maintains the core tenets of V1 while introducing key improvements:

• Unified Liquidity & Delta Algorithm: Continues to leverage single-asset, cross-chain shared pools managed by the Δ algorithm for transfers between core networks. V2 often includes optimizations to this mechanism for better performance and efficiency.
• Instant Guaranteed Finality: Retains the crucial guarantee, powered by LayerZero messaging, that transfers committed on the source chain are finalized instantly on the destination.
• Native Asset Focus: Prioritizes transfers that result in the user receiving the true native asset on the destination chain whenever possible.
• Hydra for Liquidity Extension: Introduces the Hydra mechanism (detailed below) to bridge native assets from core pools into OFT (Omnichain Fungible Token) representations on newer, “Hydra-enabled” chains, effectively extending liquidity access.
• Improved Efficiency: Aims for potentially lower fees and reduced overhead compared to V1 through smart contract and architectural refinements.

The Hydra Mechanism

Hydra is a key innovation within Stargate V2, designed to seamlessly connect Stargate’s core liquidity network with emerging blockchain ecosystems.

How it Works:

1. Lock on Core Chain: When a user bridges a native asset (e.g., USDC) from a core Stargate chain (like Arbitrum, where Stargate has deep native USDC pools) to a Hydra-enabled chain (e.g., Chain X), the native USDC is locked within Stargate’s V2 pool contract on Arbitrum.
2. Mint OFT on Hydra Chain: Simultaneously, via LayerZero messaging, an equivalent amount of a corresponding OFT representation (e.g., USDC.e – compliant with Circle’s standard for bridged USDC) is minted on the destination Chain X.
3. Horizontal Composability: This newly minted USDC.e on Chain X is an OFT. It can be freely transferred to any other current or future Hydra-enabled chain (e.g., Chain Y) using standard OFT burn (on Chain X) and mint (on Chain Y) mechanics.
4. Global Redeemability: Critically, any holder of the Hydra OFT asset (USDC.e on Chain X or Chain Y) can bridge it back to any core Stargate chain (e.g., Optimism). This involves burning the USDC.e on the source Hydra chain and unlocking the equivalent amount of the original native asset (USDC) from Stargate’s core pool on the destination core chain (Optimism). The underlying native asset is always redeemable.

Example Flow:

1. User bridges native USDC from Optimism (core) to Arbitrum (core) via standard Stargate V2 native transfer (Lock/Unlock).
2. User bridges native USDC from Arbitrum (core) to Chain X (Hydra): USDC is locked on Arbitrum, USDC.e (OFT) is minted on Chain X.
3. User bridges USDC.e from Chain X (Hydra) to Chain Y (Hydra): USDC.e is burned on Chain X, USDC.e is minted on Chain Y.
4. User bridges USDC.e from Chain Y (Hydra) to Optimism (core): USDC.e is burned on Chain Y, native USDC is unlocked on Optimism.

Supported Assets (Hydra)

Stargate V2’s Hydra mechanism initially supports key bridged assets, such as:

• USDC.e (Compliant with Circle’s standard for bridged USDC)
• USDT / WETH (Or similar widely used representations)

These Hydra assets are designed to be horizontally composable across all Hydra-enabled chains and globally redeemable for their native counterparts on core Stargate chains.

Messaging Protocol

Stargate V2 and the Hydra mechanism predominantly utilize LayerZero as the underlying omnichain messaging protocol to facilitate both the optimized native pool transfers and the OFT operations (mint/burn/messaging) required for Hydra.

Further Reading