Why is dYdX’s escape from Ethereum already a foregone conclusion?

Recently, I saw @dYdXChinese claiming that its total transaction volume has exceeded 120B, and 14.9% of the supply of tokens has been pledged, and more than 20MUSDC has been allocated to pledgers. In short, all data indicators after the launch of the dYdX independent chain are pretty good. So, how to evaluate the development process of dYdX from L1 to L2 to an independent chain? Can the Ethereum Layer3 application chain narrative bring dYdX back? Next, let me talk about my views:

1) dYdX is a typical application representative born for the Trading system. From beginning to end, the goal is to become a decentralized perpetual contract focusing on the order book type. Derivatives Exchange. Because of this, in the past many years of development, dYdX has had three core pain points:

1. It must have super technology to expand high performance, because compared with the AMM trading pool type, orders Bo has extremely high requirements on system throughput and latency for Real-Time batch matching and execution;

2. We must pursue decentralization as much as possible, because in order to pursue ultimate efficiency in the L1 and L2 stages, dYdX has to take However, DeFi projects that focus on transactions and aim to compete with centralized exchanges such as CEX for the market must use smart contracts and DAO governance to achieve transparency and decentralization of key processes in the long run. Node deployment allows community users to participate more in governance decisions. (This is also the main reason why it allocates a large amount of transaction fees to verification nodes and staking users;

3. It is necessary to manage user retention and growth issues as much as possible. Compared with exchanges such as CEX, the chain is decentralized The threshold for derivatives exchanges will be higher, so it is necessary to have a better product experience in terms of product design, interactive interface, trading tools and risk control functions; compared with DEX such as Uniswap, dYdX is a relatively closed trading system. Unlike Uniswap, which can obtain a large amount of liquidity and transaction fee sharing by integrating with a large number of projects, dYdX can only rely on long-term user retention, especially fixed user groups such as professional traders and market makers, to support product operation

.

2) So, why does dYdX want to be an independent application chain? The answer is that currently neither L1 nor L2 can meet its ultimate performance pursuit.

Initially developed its business on Ethereum L1 due to the low performance and high gas fluctuations of the main chain, dYdX faced the competitive pressure of Uniswap and chose to migrate to L2; under the layer2 product form of StarkEX, It seems that there is a foundation for L2 low Gas and high throughput, but it is still far from the high performance pursued by dYdX. Therefore, a compromise solution of off-chain matching of transaction data is adopted, using Starkware zero-knowledge to prove on-chain and off-chain Finality Proof implements a solution for high-speed transaction engines on L2. However, this solution also relies on off-chain services, which makes dYdX often criticized for having a "centralization problem";

Then, with the launch of dYdX V4, dYdX built an exclusive high-performance chain based on the Cosmos SDK. There are 60 active Validators that maintain the consensus mechanism, including Ledger, Coinbase Cloud, etc., as well as the user pledge Reward dividend mechanism that is continuously launched. With the support of the independent application chain, dYdX has been frequently refreshing various operational data indicators, such as:

1. Currently, there are 149 million DYDX (14.9% of the total) in the pledge state;

2. The protocol has distributed more than 20 million US dollars in USDC to 18,991 pledgers;

3. Community members have initiated 55 governance proposals so far;

From the data , the dYdX independent application chain is gradually realizing its original vision and becoming a super decentralized sustainable exchange. At least, dYdX has determined its ultimate application chain form. There is no need to tell the story of chain expansion, performance and other technical layers. In the future, it only needs to continue to operate the data growth such as users and transaction volume.

3) Now that dYdX has its own independent kingdom, from a business perspective, as a successful application, dYdX’s today should be the future where many L1 and L2 application goals may be achieved.

We can’t help but ask, since L1 and L2 are currently over-involved at the infra level, and there are narrative expectations for layer3’s super application chain, theoretically speaking, if dYdX is placed on Ethereum It should be no problem to develop on the layer3 application chain, right?

The answer may disappoint most people, but it doesn’t.

1. dYdX focuses on the Trading system business of decentralized derivatives trading. Its initial positioning is to cultivate independent user groups and data growth models to become an exclusive customized application chain.

Although layer3 can customize Gas Token, consensus mechanism, verification rules, etc., the core interoperability capabilities of the layer3 application chain and the key asset settlement of the layer3 application chain still rely on the Ethereum main network, which will also cause problems. dYdX brings certain limitations.

2. Even Uniswap is not yet mature enough to build a layer3 application chain based on Ethereum. The depth of ecological liquidity of layer2 and the performance obstacles in layer1 settlement (high gas fees) still restrict them from building layer3 applications. chain possibilities. In particular, the extreme lack of users and market liquidity on layer 2 makes it difficult for application chains built on layer 2 to have a stable user group and transaction depth. What's more, dYdX has such high requirements for decentralization, order book matching performance, and trading experience.

Therefore, dYdX’s departure from the Ethereum ecosystem to build an independent application chain is not only a proactive act of escape, but also a helpless choice limited by the underlying performance limitations of Ethereum. (Thinking about it from another angle, although the Ethereum ecological volume Infra has been heated up, the necessity is still great.

This actually exposes a prominent problem of layer3 application multi-chain narrative: like dYdX, there are mature users and The actual customization needs of the market's applications may not be met, and some applications that start application chains in the layer3 environment will not receive the spillover effect of L1 and L2's super ecological liquidity in the short term.

##In short, dYdX’s positioning and development trajectory in the Crypto ecological family are quite unique. Although it has been considered “successful” to a certain extent, it can be the same as protocol companies such as Uniswap and AAVE. , continues to have stable business expansion and growth in a turbulent market environment

But dYdX’s path to success cannot be easily replicated by many applications on L1 and L2. In fact, Uniswap is. The answer has been given. It is difficult to escape if you rely on the Ethereum ecosystem. You can only continue to optimize in L1, L2, L3 and other continuous stacks. After all, most applications have almost no combinable liquidity provided by the bottom layer of the public chain. The foundation of survival.

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