Cardano Launches First Hydra Head For L2 Scaling, But Why Is ADA Dropping?

The first Cardano Hydra Head is now live on the mainnet, but this is not preventing bears from pinning down ADA, the native currency of Cardano, going by its performance on the daily chart.

According to Cardano documentation, Hydra Head will be the first in a suite of protocols that will help the smart contracting platform further process more transactions. 

This is vital considering Cardano’s gradual enhancement of its mainnet to eventually handle enterprise-grade DApps demanding higher throughput. 

Observers note that the release of the first layer-2 Hydra Head is a milestone in the current Basho State in Cardano, where scaling and network enhancement is a priority.

Hydra is a family of layer 2 protocols designed to make #Cardano more scalable and adaptable for various use cases that require fast and cheap transactions. The first Hydra head recently opened on mainnet.

This video is a great starting point for exploring the current release,… pic.twitter.com/g1moYifGNj

— Input Output (@InputOutputHK) May 4, 2023

The Hydra Head, now live on mainnet, provides what platform developers describe as a “secure isomorphic state channel” that works off-chain, connecting participants. Notably, transactions sent within a Head are settled instantly. 

Hydra uses the same architecture as the Bitcoin Lightning Network (LN) that also uses channels. Like the LN, those keen on using the Hydra Head must first deposit funds. Researchers said these Heads could be connected in the future, effectively forming a network.

While this development is bullish in the long term, ADA prices are falling when writing in early May 2023. This could be because though Cardano promises to surpass Ethereum as the home of DApps, offering better scaling and decentralization, activity is still relatively low. 

DeFiLlama data, for example, shows that the total value locked (TVL) in Cardano is $152.74m while Ethereum manages $28.61 billion. 

Moreover, Unlike Ethereum, which supported smart contracting immediately after launching, Cardano’s smart contracting came years later during the Goguen Stage. 

ADA is down 15% from April 2023 peaks when writing and under pressure on the last trading day. The coin is also trailing Bitcoin and Ethereum in the past 24 hours. 

At the same time, CoinMarketCap data shows a sharp contraction in trading volumes. To illustrate, ADA’s trading volumes in the previous 24 hours stand at $163,490,485, down 36%. 

This general drop in prices and trading volumes is despite Input Output Hong Kong (IOHK) releasing the first Hydra Head on the Cardano mainnet on May 4. 

Like Ethereum, Cardano supports smart contracting and a wide range of decentralized applications (DApps). However, the lead developer, IOHK, is desirous of further enhancing throughput through off-chain means, with the deployment of Hydra Heads a vital tool in this drive.