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Hydra: Fast Isomorphic State Channels

March/2021, Financial Cryptography 2021


State channels are an attractive layer-two solution for improving the throughput and latency of blockchains. They offer optimistic offchain settlement of payments and expedient offchain evolution of smart contracts between multiple parties without imposing any additional assumptions beyond those of the underlying blockchain. In the case of disputes, or if a party fails to respond, cryptographic evidence collected in the offchain channel is used to settle the last confirmed state onchain, such that in-progress contracts can be continued under mainchain consensus.

A serious disadvantage present in current layer-two state channel protocols is that existing layer-one smart contract infrastructure and contract code cannot be reused offchain without change.

In this paper, we introduce Hydra, an isomorphic multi-party state channel. Hydra simplifies offchain protocol and smart contract development by directly adopting the layer-one smart contract system, in this way allowing the same code to be used both on- and offchain. Taking advantage of the extended UTxO model, we develop a fast off-chain protocol for evolution of Hydra heads (our isomorphic state channels) that has smaller round complexity than all previous proposals and enables the state channel processing to advance on-demand, concurrently and asynchronously.

We establish strong security properties for the protocol, and we present and evaluate extensive simulation results that demonstrate that Hydra approaches the physical limits of the network in terms of transaction confirmation time and throughput while keeping storage requirements at the lowest possible. Finally, our experimental methodology may be of independent interest in the general context of evaluating consensus protocols.