In this edition, we’re giving you everything you need to know about dYdX’s transition from being built on the Starkware L2 to developing its own appchain on Cosmos.
Learn about the factors behind this significant shift, and how it reflects on other DeFi apps and crypto adoption as a whole…
Stay alert, stay informed ⬇
dYdX's Origin & Journey
dYdX is a CLOB exchange that offers CEX-like trading experience.
dYdX is positioned as a leader in DeFi derivatives. Derivatives account for about 75% of the crypto trading volume, with spot trading making up the remaining 25%.
By volume, dYdX has long led the decentralized derivatives sector.
In part due to its popularity among Institutions, dYdX leads the industry when it comes to volume & # of trades taken
The protocol has been in existence for over six years, making it one of the "OGs" of DeFi.
dYdX's products evolved, from its initial margin trading protocol in 2018 to its current focus on perpetual contracts.
dYdX is one of the early adopters of layer-2 technology, partnering with StarkWare.
The initial plan for dYdX was to horizontally expand by adding spot trading, margin trading, and other features, mirroring the approach of centralized exchanges.
There are inherent and unique advantages of DeFi, such as user control through tokens and liquidity mining, as major growth drivers.
A decision was made to halt all traditional growth efforts at dYdX, focusing solely on product development and leveraging the $dYdX token for growth.
dYdX Chain
The upcoming release of the dYdX chain will be based on the Cosmos SDK technology and tailored for derivatives trading, a significant shift for the protocol and the choice of underlying tech for which it is to be built.
With the release of the dYdX chain, the platform will achieve full decentralization.
In its current state, the protocol is non-custodial and transparent, but the order book and matching engine remain centralized.
It can be challenging to build a decentralized order book due to the high performance required.
As a chain, dYdX takes a new approach in its operation, which involves using the mempool concept for the order book to boost scalability.
The protocol has collobarated with Circle to deploy a native version of USDC on Cosmos, eliminating bridge risks.
Founder Antonio Juliano acknowledges the existence of other platforms with order book approaches but beleives that there are several limitations in their methods.
He says that there are several benefits of controlling the entire stack, including the ability to build their own oracle system and handling liquidations.
dYdX's decision to migrate to an app chain on Cosmos was influenced by the platform's specific needs and the limitations of the existing tech.
Antonio emphasizes dYdX's commitment to building on the best possible technology and avoiding blockchain tribalism.
The Case for Appchains
In technology, there are always trade-offs; no one technology is objectively better than another.
While some technologies are hyped up, they often take longer to mature than people anticipate.
dYdX's goal is to become one of the biggest exchanges in crypto, but on a 5 to 10-year timeline.
Eventually, dApps may have their own chain that rolls back up to another layer-1, like Ethereum.
While layer-2s are becoming more popular and production-ready, not all products will benefit from operating on top of them.
Some projects, like dYdX, might move to their own app chain.
While layer-2s claim to be Ethereum-aligned, Antonio believes it's essential to focus on the product rather than the underlying technology or brand.
He believes that the brand of a DeFi product should stand on its own, separate from the platform it's built on, and emphasizes the importance of product-market fit for startups, especially in the DeFi space.
This aligns with the thoughts of many in the crypto space, who believe consumer-facing apps will garner more value going forward, rather than the infrastructure they are hosted on.
This follows the trend of Internet technology, with FAANG having accrued most of the value in Web2.
dYdX’s transition to its own appchain is one of several examples poking holes in the ‘Fat Protocol Thesis’, the idea of value in crypto accruing at the base layer instead of the app layer.
dYdX Foundation & Team
The dYdX LinkedIn page lists 77 employees. Some of the notable employees include:
Antonio Juliano - Founder
George Xian Zeng - COO
Rashan A. Colbert - Head of Policy
among others…
Founder Antonio’s personal journey into crypto started with his first job at Coinbase in 2015. He believes in the significance of perpetual contracts in the crypto trading landscape. While DAOs are essential, he believes that they cannot make significant product decisions, suggesting a separation between product development and execution.
Antonio emphasizes the significance of branding in the crypto space due to the plethora of Options available. Strong brands like FTX, Coinbase, and Uniswap stand out even when products are similar. DeFi platforms must offer something fundamentally different or new, rather than just replicating what centralized platforms offer. Personal development led him to believe more in the need for innovation and not just replicating centralized models.
While dYdX has achieved some product-market fit, there’s still a long way to go in terms of innovation and offering something fundamentally new.
The dYdX Foundation is an independent not-for-profit foundation headquartered in Zug, Switzerland. It was recently introduced on August 3, 2023, with the purpose of supporting and growing every aspect, technical or otherwise, of the current and future implementations of the dYdX Protocol. dYdX Foundation (focused on governance and coordination) is distinct from dYdX Trading (focused on software development).
The Foundation is empowered to do the following:
Support and finance appropriate research and development activities and projects.
Promote and educate the public on the ecosystem and/or dYdX.
Issue, receive, spend, and hold digital assets (no speculative trading activities)
Deploy governance smart contracts and issue governance tokens.
Engage with various businesses, partners, banks, regulators, authorities, and other third parties to the benefit of the ecosystem.
& more…
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