โHackMD
DeFi Final โ- dYdX
Introduction
dYdX is a decentralized exchnge (DEX) which focusing mainly on derivatives trading. It provides perpetual contract trading, margin trading, spot trading, lending, and borrowing services utilizing smart contracts on the Ethereum (ETH) blockchain. dYdX is a hybrid exchange, which indicates that it combines centralized and decentralized exchange operations, in which it can provides the transparency and security of decentralized exchange, while obtaining the usability and the fast speed of centralized exchange. Rather than being based on an automated market maker (AMM) like Uniswap or SushiSwap, it relies on order book and matching machine which usually used in centralized exchanges which is said to be able to provide more efficiency than AMMs.
Layer 2
On April 22nd, dYdX makes a decision to move to Layer 2 which only provides perpetual contract trading and leveraged trading based on layer 2 protocol. On November 1, 2021, the sunset of layer 1, dYdX no longer provides trading and borrows on layer 1 are now disabled while withdraws will be available indefinitely. In layer 2, in collaboration with StarkWare, Chainlink and Maker oracle, dYdX implements a oracle system which is compatible with Stark signature, which let the price can be used once the oracle price is verified, without waiting for the transaction. To speed up transaction without higher gas fee, off-chain transaction, holding transaction locally without posting on the block chain, is introduce. It was not until the amount of the transactions is arrived at a certain threshold that they will be pushed to block chain in batches. Helped by StackWare, zkSTARK is the technique that can offer zero-knowledge proof to verify the off-chain transactions.
Governance Token
On August 1, 2021, dYdX announced the launch of its governance token DYDX with total 1 billion () tokens supply that will gradually be accessible within five years. And after that, dXdY ensures that there will always be enough DYDX tokens by implementing perpetual inflation rate of 2% each year to reward the community. DYDX token holders have the right to propose and vote, such as determine allocation of funds and change risk parameters, and receives trading fee discounts according to their holding size.
Analysis
dYdX is the second biggest DEX with pretty large volumn in the ranking according to CoinMarketCap. Meanwhile, the DYDX token recently nearly dropped over 1 USD from its highest 26 USD.
Base Digger Framework
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Business Model
dXdY is a decentralized exchange that provides platform for trades (Dollars). With these trading, dYdX earns profits, and provides more to the clients. Moreover, with governance token DYDX (Governance), it allows clients with tokens to participate the proposing and voting to many events, which may lead the future for dYdX.
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Assets/Value Capture
With one billion of supplies, DYDX is the assets and value of dYdX that is used as trading rewards (Dollars) and can be used to capture value and trading value of dYdX (Illusion). DYDX is also the incentives for clients to trade on dYdX.
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Service
In Layer 2, dYdX provides perpetual contracts trading services with lower gas fee (Dollars), more efficiency and privacy (Illusion), compared to others. With clients trading on dYdX, it can earn more money to provide better service.
Conclusion
The dropping of DYDX makes users reluctant to hold those tokens, which results to a vicious cycle, making the value even worse. The crisis might eventually affects the volumn and value of dYdX, and bring the whole project to its end. The way that it uses hybrid exchange is certainly novel and groundbreaking, while it can do better at many aspects, such as functionalities, stabilities, and it need to make sure users stack their tokens. The future of dYdX still makes people looking forward to. Perhaps dYdX can do it even better on its strength.
