Why Did dYdX Move to Cosmos?
Read in 4 mins
dYdX is a popular DEX with perpetual contracts trading. This summer, the protocol announced they would be moving off of the Starkware ETH L2, and creating their own Cosmos appchain.
In this Cryptocito livestream, host Cryptocito is joined by Paul Erlanger of dYdX to explain the DEXs decision to move to the Cosmos ecosystem, the details around the move, and what users can expect.
Read our notes below to learn more.
Paul’s Background
Worked in TradFi, private credit.
Realized inefficiencies of TradFi, there are even DeFi protocols building private credit right now.
Became interested in BTC and crypto in 2017.
Joined dYdX summer of 2021 as ~15th employee, shortly before DYDX token launch.
dYdX Origin
dYdX (then called Expo) launched spot and margin trading protocol on ETH L1 in 2017 after raising $2m seed round.
dYdX invented flash loans and DEX aggregation.
V1 DEX was very complicated and didn’t get much traction.
At it’s peak Expo did $50k in volume, team then launched ETH L1 lending protocol similar to Compound.
This new product had better UX for advanced traders, did $1m volume on day one.
At first it was integrated with 0x DEX source orders, decided to create own orderbook.
In early 2020 dYdX was top DEX by volume, but was overtaken by DEXs with token incentives.
After raising series B, launched on ETH L2 Starkware in early 2021, launched DYDX token and foundation in August 2021.
Current daily volume is $1b-$4b.
Volume and depth can rival large CEXs at times.
dYdX Details
Most volume comes from pro traders and institutions who do more than $200m volume per month.
This is because dYdX has advanced features including full order book, sophisticated order types, full API suite, etc.
There is a lot more flexibility on orderbook DEX model rather than AMM.
Eventually team wants dYdX to appeal to retail as well, launched mobile app earlier this year.
dYdX is non-custodial but not censorship resistant; orderbook is on a centralized server.
Why dYdX Chose Cosmos
Team was excited about cosmos appchains.
dYdX has 1k order placements and cancels per second with minimal to no fees, which isn’t possible on any chain.
Team decided to use offchain orderbook.
Best way to develop their own orderbook and matching engine was to build Cosmos appchain with tendermint blockchain infrastructure and Cosmos SDK (software used to design blockchains).
Plans for Cosmos
dYdX may use Cosmos IBC (inter-blockchain communication) for bridging assets over, not been confirmed yet.
Validators will propose pricing and matching.
dYdX will have it’s own validator network with DYDX token staking.
dYdX is working on collaborating with popular Cosmos app chains.
Security is main priority, team will be careful with bridging.
dYdX may integrate CosmWasm (platform that allows others to build Cosmos smart contracts on top of an appchain).
dYdX may be general compute eventually, which could enable permissionless building of RPC nodes, other infrastructure.
Cryptocito
Future of dYdX
The goal is to become fully decentralized and censorship-resistant, which is only possible on Cosmos.
dYdX V4 will have offchain orderbooks in a decentralized manner, each validator will have full version of orderbook.
This orderbook design is unique to dYdX.
This will not require consensus, which is the bottleneck for blockchains.
Roadmap
Private testnet should launch December - early January, with public testnet following.
Mainnet could maybe launch early Q2 2023.
dYdX is Chain agnostic, will adapt to provide what users want, but Cosmos provides the best experience right now.
Cosmos ecosystem onboarding should be easier to use.
dYdX wants to build best infrastructure, composability, UX in Cosmos.
New Tokenomics
There will be a one-way bridge for DYDX tokens from ETH to DYDX.
New incentive models may be implemented for Cosmos.
dYdX is currently top 3 in protocol revenue.
The dYdX Trading Inc. company will no longer receive revenue, will be up to governance to decide protocol fees, validator and staker compensation, etc.
dYdX won’t be using ICS (inter-chain security), they’ll be using their own validator set.
At launch could be ~ 200 validators. There could be a cap on this at first as ⅔ consensus becomes harder with more validators.
Q&A
Q: What are dYdX’s main competitors?
Q: How many daily active users does dYdX have?
A: There are around 5k weekly active users.