Hydro is a network layer protocol for high performance decentralized exchanges and marketplaces with built-in incentives for coordination. The Hydro Protocol (HOT) defines the rules for executing decentralized orders and provides the mechanism for order matching. Hydro utilizes 'Federated Liquidity Pools' (FLP) to address the issue of liquidity sharing among various decentralized exchanges.
Decentralized exchanges offer trustless non-custodial trading, improved transparency, and ability to share order books. Despite these advantages, decentralized exchanges today account for a negligible percentage of the overall cryptocurrency transaction volume. Reasons for lack of adoption include high technical barrier to entry, performance and usability issues, availability, and lack of incentives for coordination. Hydro is a middleware layer on top of an incentive system for decentralized exchanges.