What Networks is dYdX Available on?

As explained above, dYdX is housed on its own custom built ZK rollup. This specific ZK rollup (StarkEx) uses zkSTARKs — STARK proofs for data integrity (posting back to L1), with on-chain data-availability to ensure a fully non-custodial protocol.

Trading on DYDX.

What Assets are Tradable on dYdX?

On dYdX assets fall into two groups based on the leverage offered on their contracts:

  • 20x leverage = BTC & ETH
  • 10x leverage = LINK, AAVE, UNI, SOL, SUSHI, YFI, 1INCH, AVAX, DOGE, SNX, CRV and many more…

dYdX Fees

dYdX implemented maker (limit orders placed on the order book) and taker (market orders taking from the order book) trading fees back in March 2020. Unfortunately, the totality of this revenue is absorbed by the company behind the exchange, dYdX Trading Inc. The fee structure can be seen below, along with the discounts associated with the amount of DYDX (governance token) held.

Fee Discount and Fee Structure at dYdX

Volume on the exchange, and therefore the fees generated have been declining since the start of the bear market. Fees peaked in Oct 2021, with a staggering $24.1M taken as protocol revenue in a single week. Last week, that number sat at just $1.1M. Despite the lack of connection between the DYDX token and protocol revenue, the two metrics have followed each other very closely — as shown on the chart below, with fees as green bars and fully diluted valuation (FDV) as a purple line.

Fees generated on dYdX against DYDX fully diluted market cap.

How can I earn Yield on dYdX?

As described above, dYdX hasn’t left anything in the form of #RealYield for their users and liquidity providers — but alas, isn’t that what token incentives are for?

Market Makers

Market makers on dYdX are primarily focused on balancing the order book using algorithms, so I wouldn’t get your hopes up here. These liquidity providers (LPs) are paid in DYDX and well as earning funding fees depending on the open interest (OI) on a certain asset pair (long vs. shorts).

Trading Rewards

In an ingenious move from the team, the only way to earn any form of yield for the average retail user is through trading rewards, incentivising trading on the platform through the emission of governance tokens whilst absorbing all that incentivised revenue themselves These emissions are distributed in the form of DYDX based on a user’s volume and OI.

dYdX Tokenomics

The DYDX token itself grants holders the right to propose and vote on changes to the protocol, where staking and delegating your tokens has an impact on your proposing and voting power.

Allocations

A total of 1,000,000,000 DYDX were minted for the following allocations:

  • 50% Community
  • 18.5% Trading Rewards (partially redirected to Rewards Treasury)
  • 7.5% Retroactive Mining Rewards
  • 7.5% LP Rewards
  • 5% Community Treasury
  • 11.5 % Rewards Treasury (absorbed 25% of Trading Rewards & 100% of DYDX/USDC Staking Rewards)
  • 28% Investors
  • 15% Founders, Employees, etc.
  • 7% Future Employees, etc.

Token Unlocks

Tokens not distributed to the community (50%) are locked up for the following periods:

  • 30% will unlock after 18 months post-launch (cliff)
  • 40% will unlock equally from month 19 through month 24 (vest)
  • 20% will unlock equally from month 25 through month 36 (vest)
  • 10% will unlock equally from month 37 through month 48 (vest)

These unlocks along with the general emissions schedule can be visualised below. From this, we can see 15% of the entire supply is due to be released at once in Q1 2023 before agressive vesting begins for 6 months. Based on the FDV trend shown above, it may get even more ugly for DYDX as the circulating supply is due to almost triple by the end of Q2 2023.

DYDX Vesting Schedule

Is dYdX Safe?

dYdX in its current form has been audited by Peckshield, one of the leading auditors in the space. Additionally, dYdX run a ‘Vulnerability Disclosure Policy’ (bug bounty) to rewards those who find exploitable faults in the system.

During periods of high volatility, its possible that the value of some accounts may fall below zero before the exchange has liquidated them. In these cases, an insurance fund is the initial backstop to ensure the exchange remains solvent. However, if the insurance fund is drained, positions with the highest leverage and profit may be used to offset the shortfall.

Finally, it should always be consider that L2 rollups currently require a large amount of trust in the centralised party behind the chain, in this case, dYdX themselves along with Starkware.

Final Thoughts: What’s Next for dYdX?

dYdX have embarked on their V4 product offering, which will take the form on an entirely new chain, dYdX Chain, based on the Cosmos SDK and Tendermint Proof of Stake (PoS) consensus protocol. This decision is based on their strive for full decentralisation but also on the customisablilty of this new blockchain. The key highlights to this new venture are the likely use of DYDX as a gas token, and the design of an off-chain order book and matching engine capable of scaling to orders of magnitude of the current architecture.