How Hydro Works

In an automated marketplace, the ability to stand out through providing valuable offers is essential. Buyers benefit from high-quality offers, while excellent Magma sellers attract more interest. This guide outlines how Magma sellers can increase the value of their offers in Hydro by improving specific metrics.

Metrics

The following metrics are used to evaluate each offer. Each metric contributes to a comprehensive score that reflects the competitiveness and appeal of an offer.

Cost of Offer

The cost of an offer is a linear function of it's fee rate and base fee.

cost = f_r*c + f_b

where:

$f_r$ is the fee rate of the offer.
$f_b$ is the base fee, of the offer.
$c$ is the capacity of the channel being purchased.

APR of Offer

The APR of an offer is its cost with respect to duration.

\text{APR} = \text{Periodic Rate} \times \text{Compounding Periods per Year}

For example, suppose the cost of a channel offer is 1% of its capacity for a 12,690 block (~3 month) lease. There would be 4 compounding periods per year. Then the APR would be:

\text{APR} = 1\% \times 4 = 4\%

Note: This gives the nominal APR, as there is no compounding effect.

Seller Reputation

Reputation scores are performance-based metrics on previous Magma orders. To get a more in-depth explanation, please visit this page.

Node Position

Node position is determined by eigenvector centrality ranking. Eigenvector centrality measures a node's importance based on its connections to other important nodes. In a network, nodes with high eigenvector centrality are connected to many influential nodes, not just many nodes in general. It’s widely used in social networks, web search, and identifying influential nodes in various types of networks. This metric is sourced from SparkSeer (opens in a new tab), formerly LNnodeinsight.

Percentiles

Offers from different Magma sellers are evaluated using percentiles, enabling direct comparison between like metrics. For instance, if a Magma seller’s eigenvector centrality rank is higher than 99% of other sellers, that seller is in the 99th percentile for that factor. Each factor is scaled from 1 to 100, with adjustments based on whether higher or lower values are desirable.

For factors where high values are beneficial, such as seller reputation, higher percentiles reflect a stronger offer. For factors where lower values are preferable, such as cost, scores are inverted so that lower costs correspond to higher percentiles. This adjustment standardizes the value measurement across all factors, making it easy to compare offers.

How Magma Sellers can make valuable Offers

It’s essential to understand that the metrics of each offer are normalized against all other offers. This approach motivates sellers to improve their metrics relative to others, ultimately benefiting the buyer through increased competition. To maximize the value of an offer, improvements across all metrics should be considered.

Key ways to enhance an offer’s value:

Lower the offer’s fee rate and base fee.
Extend the offer duration.
Increase the offer's maximum capacity.
Uphold promises regarding channel duration and fee policies.
Fulfill new orders promptly.
Increase the number of channels on the node.
Reduce the node’s distance to influential nodes in the network.

How to Use Hydro Plans