dYdX secures the top spot in decentralized perpetual contracts. What has dYdX Chain done right?

Author: Jiang Haibo, PANews

The competition in decentralized perpetual contracts is becoming increasingly fierce. dYdX has always been the leader in this track, and its recent transaction volume has firmly established itself as the leader.

According to Token Terminal data, on January 24, 2024, when only considering the data of the second layer of Starkware (dYdX v3), the trading volume of dYdX significantly exceeded other derivatives protocols. At present, the trading volume of dYdX v4 has been equal to that of v3, and it is possible to develop further with the support of incentives.

The v4 version of dYdX, also known as dYdX Chain, was officially released on October 26, 2023. This version is fully decentralized and includes features such as the order book and matching engine. At the same time, it began distributing transaction fees to stakers of DYDX tokens.

Completely decentralized dYdX Chain

dYdX is a well-known decentralized perpetual contract exchange, founded in 2017, founded by Antonio Juliano. When the exchange was founded, it received $2 million in seed round investment from well-known venture capital institutions Andreessen Horowitz and Polychain. Before founding dYdX, Antonio Juliano worked at Coinbase and developed a decentralized search engine, albeit with a smaller user base.

Initially, dYdX’s products were based on the margin trading protocol (v1 and v2), allowing users to conduct leveraged trading of cryptocurrencies by borrowing funds. However, this product suffers from inefficiency and high gas fees on the Ethereum network.

Since version v3, dYdX has adopted an order book-based trading system. After building a second-layer Ethereum product with Starkware and issuing DYDX tokens, its transaction volume increased significantly. By July 14, 2023, the total transaction volume has exceeded 1 trillion US dollars.

The currently officially promoted dYdX Chain is an independent blockchain that uses Cosmos SDK and Tendermint PoS consensus protocol. It will be launched on October 26, 2023 and supports 2,000 transactions per second.

Although dYdX v3 can also support high-performance perpetual contract transactions, v4 truly achieves complete decentralization. In v3, dYdX Trading, an entity company, runs the trading order book and charges transaction fees. The currencies listed are also centrally determined by the development team. In v4, the front-end of dYdX is run by dYdX Operations SubDAO, the order book and matching engine are managed by active validators scattered around the world, and the online currencies are also determined by on-chain governance.

All fees have been allocated to stakers and validators

As for the income distribution that everyone is most concerned about, all fees generated on dYdX Chain are currently allocated to validators and stakers. The fees here include two parts, mainly transaction fees denominated in USDC, and gas fees denominated in DYDX or USDC.

The fees will gradually accumulate according to the block, and a block will be generated in an average of 1.08 seconds, which requires users to collect it manually. Since the rewards mainly come from USDC, they will not be affected by market fluctuations even if they are not received in time.

According to Mintscan data, a total of 2.51 million USDC and 126 DYDX have been distributed in rewards in the past 30 days, of which validators will charge a commission of 5%-100%. Users pledge DYDX to active verification through Keplr or other wallets Participants will receive rewards, and there are currently 60 active validators.

As of January 24, in the past 30 days, the daily staking yield ranged from 6.2% to 29.06%, and the average staking yield was 14.97%. There is currently $212 million worth of DYDX staked, which has remained stable over the past month.

Hardware wallet Ledger has also been integrated with Keplr. Users who put funds in Ledger can also connect to the Cosmos application through Keplr to perform operations such as staking. You can check Ledger's official guide.

In addition, due to the large market value and influence of DYDX itself, Stride, the leading liquidity staking service provider in the Cosmos ecosystem, has also launched DYDX’s liquidity staking service. Users who stake DYDX through Stride will receive stDYDX, and the staking rewards will be automatically reinvested, thereby obtaining more DYDX when redeeming. If you hold stDYDX in the early stage, you can also receive STRD airdrops.

Multiple measures to stimulate the growth of dYdX Chain transaction volume

dYdX official website data shows that some data of v4 have surpassed v3. In the past 24 hours, the transaction volume of dYdX v4 was 688 million US dollars, and v3 was 546 million U.S. dollars; the number of transaction orders for v4 was 635,791, and that for v3 was 161,337. However, there is still a gap between v4 and v3 in terms of open positions. v4 is US$38.88 million and v3 is US$251 million.

The rise of dYdX v4 is inseparable from the incentives of dYdX. Before the launch of dYdX Chain, dYdX prepared a set of incentives to gradually shift the transaction volume from v3 to v4. The original incentives on v3 will also gradually shift. stop.

dYdX DAO has empowered Chaos Labs through governance to run a 6-month launch incentive program, allocating $20 million worth of DYDX tokens to early adopters of dYdX Chain to incentivize users to migrate to v4.

The entire incentive plan will be divided into 4 phases (Trading Season). The current one is Season 2, which will last until February 14th - February 24th. Points will be earned by trading on dYdX, and DYDX rewards will be issued based on the points after the end of each Season. As shown in the picture below, Chaos Labs has also prepared a dashboard for everyone to check their points and rankings for each Season. Each Season will also optimize specific incentive measures based on feedback from the previous Season. For example, Season 2 introduces performance rewards based on Season 1 trading and market making rewards, and allocates 20% of the trading rewards ($800,000) to good-performing traders to encourage profitable transactions.

In order to attract trading volume and liquidity, dYdX Chain also provides transaction fee discounts. The overall transaction fee is slightly lower than that of centralized exchanges such as Binance. For Maker, after the first 120 days, the handling fee is up to 1bps (0.01%); for Taker, the handling fee is up to 5 bps.

For the use of dYdX, users can still trade through a series of wallets including MetaMask, as well as deposit through Arbitrum, Optimistic, Avalanche, etc. Circle has also issued native USDC through Noble, making deposits to dYdX more convenient in the future. In the environment of dYdX Chain, trading with market orders will now be smoother than before.

Summary

dYdX is the leader in the decentralized perpetual contract track. Since its launch, dYdX Chain has gradually shown greater competitiveness than the original v3 version. The recent v4 Transaction volume has also exceeded v3.

dYdX Chain has achieved comprehensive decentralization, including the front-end and matching engine. In particular, the transaction fees that everyone cares about have all been allocated to DYDX's pledgers and verifiers. There are still a series of measures to encourage the growth of v4 transaction volume, such as Maker rebates, transaction rewards, performance rewards, etc., which may further increase the transaction volume and open positions on dYdX Chain.

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