DYdX 2023 Semi-Annual Ecosystem Report

Introduction

dYdX Foundation is excited to present the dYdX 2023 Semi-Annual Ecosystem Report which focuses on the milestones achieved so far in 2023 across the dYdX ecosystem. Despite the prolonged bear market, the dYdX Foundation has demonstrated an unwavering commitment towards building the future of finance and expanding the dYdX protocol ecosystem by growing the dYdX community, fostering the development of the dYdX protocol, and supporting decentralized governance. Our focus remains on enabling the dYdX DAO and preparing the dYdX community for the release of the dYdX v4 open-source software – the “dYdX Chain” (if and when deployed on mainnet).

2023 has been a year marked by adverse macroeconomic conditions and heightened regulatory challenges. Notably, the U.S. Securities and Exchange Commission (SEC) initiated actions against several centralized exchanges and financial intermediaries. Further, the crypto industry was impacted by corporate failures and the aftermath of the FTX bankruptcy, while traditional finance endured monetary challenges and bank runs. These events underscore the pivotal role that decentralized finance can play, with a large focus placed on self-custody, which eliminates the need for intermediaries, offering increased transparency, efficiency, and immutability, among other advantages. These conditions have highlighted the importance of the dYdX Foundation’s mission to democratize access to financial opportunity.

On January 11, 2022, and August 23, 2022, dYdX Trading Inc. (“dYdX Trading”) announced a path towards the full decentralization of the dYdX protocol and the dYdX v4 Milestones, respectively. Since then, dYdX Trading has released milestone updates centered on completing Milestone 2, Milestone 3, and Milestone 4, and launched a Public Testnet. Separately, dYdX Trading has released a v4 Technical Architecture Overview, an Indexer Deep Dive, a Front End Deep Dive, a Governance Deep Dive, a Rewards & Parameters Deep Dive, and an overview of Public Testnet. We encourage the dYdX community to review these posts in detail.

In August, the Foundation released a blog post that discussed the potential migration of $DYDX from Ethereum to the dYdX Chain (if and when deployed). Shortly thereafter, a member of the dYdX community launched a Snapshot vote to adopt the dYdX v4 open-source software as the next iteration of the dYdX protocol and to migrate the $DYDX Token from Ethereum to the dYdX Chain (if and when deployed on mainnet). The Snapshot vote passed with near unanimous support.

As we approach the potential mainnet launch of the dYdX Chain, pivotal governance proposals — driven by the dYdX community — have garnered media attention. For example, Blockworks featured the Snapshot proposal to adopt dYdX v4 open-source software and migrate $DYDX to the dYdX Chain, and The Block highlighted the potential utility of the $DYDX token on the dYdX Chain (if and when deployed on mainnet);

“The dYdX Chain will be a proof-of-stake blockchain network and, as such, if and when deployed on mainnet, it will require a Layer 1 protocol token for staking to validators in order to secure the chain and for stakers of the Layer 1 token to govern the network.”

Throughout this journey, dYdX Foundation has been committed to increasing user education and promoting the dYdX brand at various global conferences. In July 2023, we hosted our inaugural dYdX Connect event during the EthCC / Nebular events in Paris, France. In addition, team members have been featured in several prominent media outlets, spotlighting key industry trends, such as; Coindesk – Moving to Own Blockchain From Ethereum a Prelude, Cointelegraph – Centralized exchanges will become gateways for DeFi, and Crypto Potato – Wall Street Traders Are Using DeFi.

dYdX Foundation is an integral part of a wider ecosystem, which comprises many key stakeholders and DAO members. These namely include dYdX Trading, the core development team behind the dYdX v3 Protocol and the dYdX v4 open-source software, dYdX Grants, the subDAO responsible for administering grants to dYdX contributors, and the dYdX Operations Trust, the subDAO created to kick-start and scale operational capabilities for the dYdX DAO. In a broader context, the dYdX ecosystem also includes but is not limited to community members, grantees, endorsed delegates, token-holders, hedgie holders, investors, market makers, and traders.

As the dYdX community considers migrating from Ethereum to a sovereign app-chain, the dYdX Foundation has been focused on supporting the expansion of the dYdX ecosystem by engaging with new potential dYdX Chain partners, including validators, indexers, researchers, infrastructure developers, analytics providers, media, and press partners.

We extend our heartfelt gratitude to the committed and growing community of contributors in the dYdX ecosystem! We’re excited to continue expanding our footprint in Cosmos and its wider ecosystem. We look forward to seeing many of you at Cosmoverse in Istanbul, Turkiye, in October 2023!

Ecosystem Overview

The dYdX 2023 Semi-Annual Ecosystem Report covers the following sections:

  1. About dYdX Foundation
  2. $DYDX Token
  3. Governance
  4. dYdX DAO
  5. dYdX Chain
  6. International Go-to-Market and Community

Enjoy the dYdX 2023 Semi-Annual Ecosystem Report. You can view the short-form version of the report here.

About dYdX Foundation

dYdX Foundation is a non-profit Swiss Foundation formed in Zug, Switzerland, on June 22, 2021. The dYdX Foundation recently celebrated its second anniversary.

dYdX Foundation has established itself as one of the many important contributors and participants in the dYdX ecosystem. Staying true to the Foundation’s vision to democratize access to financial opportunity and the Foundation’s mission to support and grow the dYdX protocol ecosystem by enabling communities, developers and decentralized governance. The Foundation has expanded its activities in line with its initial goals, achieving notable and sustained success.

In 2023, the dYdX Foundation continued to expand the team with key roles filled. Our team now includes 13 full-time contributors and 6 contractors. We welcomed a new Marketing & Communications Lead, a pivotal addition to our Governance Team, a new Operations Associate, and a dedicated Go-To-Market Lead for French-speaking markets. These strategic hires internally prepare the Foundation for the potential launch of the dYdX Chain. The dYdX Foundation team is largely focused on the following areas of the dYdX ecosystem:

  • dYdX DAO Enablement
  • Protocol Governance
  • User Support
  • dYdX Chain Ecosystem Development
  • Brand Awareness and Social Media Growth
  • Press, Media, and Communications
  • Regional Go-To-Market Strategies
  • dYdX Community Enablement

As the team continues to evolve and as we approach the potential mainnet launch of the dYdX Chain, additional strategic hires will be thoughtfully considered to align with the Foundation’s long-term vision.

The $DYDX Token

On August 3, 2021, dYdX Foundation introduced $DYDX, an Ethereum-based governance token that allows the dYdX community to govern the dYdX protocol and provides traders with trading fee discounts. $DYDX aligns the incentives placed between traders, liquidity providers, and partners of the protocol, while enabling a robust ecosystem focused on enhanced governance and efficient reward mechanisms.

As of August 29th, 2023, more than 46.1K unique addresses held $DYDX, while 70.7K unique addresses have previously earned $DYDX.

As of 29 August, the circulating supply (including the community treasury) reached 183,765,523 $DYDX (18.38% of the total supply), and the accrued balance of the community treasury was 65,806,458 $DYDX. Currently, an additional 3,595,890 $DYDX accrues every epoch, which the dYdX community could use for a variety of activities including but not limited to; community initiatives, contributor grants, liquidity mining, and more. We reference the accrued balance of the community treasury because it includes $DYDX vesting from the initial allocation (766,703 $DYDX each epoch) and $DYDX accruing in the rewards treasury from governance proposals to reduce $DYDX rewards emissions (3,595,890 $DYDX each epoch).

The dYdX community, via dYdX governance, has collectively decided on the outcomes of many important governance parameters, including the allocation of the treasury, the distribution of reward programs, and the governance contracts themselves.

Five governance proposals resulted in an increase in $DYDX available to the community each epoch. We have included a brief summary of each proposal below.

(1) DIP 14 – set the rewards for staking USDC to the Liquidity Module to 0 (383,562 $DYDX per epoch),

(2) DIP 16 – reduce Trading Rewards by 25% (958,904 $DYDX per epoch),

(3) DIP 17 – set the rewards for staking $DYDX to the Safety Module to 0 (383,562 $DYDX per epoch),

(4) DIP 20 – reduce Trading Rewards by 45% (1,294,520 $DYDX per epoch), and

(5) DIP 24 – reduce Liquidity Provider rewards by 50% (575,342 $DYDX per epoch).

Overall, the community voted to reduce emissions and collectively increased the five-year allocation of the community treasury by 19.2%. Over 5 years, 24.2% of the token supply will accrue to the community treasury and the rewards treasury.

Below, we demonstrate the percentage change in the $DYDX allocation as a result of dYdX community governance proposals.

* Note, unclaimed Retroactive Mining Rewards were transferred to the community treasury at the end of Epoch 0.

Having a community-managed treasury opens up a wide range of possibilities. Through a Short Timelock proposal, $DYDX token holders control $DYDX in the community treasury and the rewards treasury. Token holders can reference this technical guide to create a dYdX Community Treasury Spending Proposal. Given that the dYdX community has access to upwards of 65M $DYDX, we hope to see various community-led experiments and initiatives that can foster the growth of the dYdX ecosystem.

The Future of $DYDX – Securing & Governing the dYdX Chain

The dYdX Chain will be a proof-of-stake blockchain network and, as such, if and when deployed on mainnet, it will require a Layer 1 (“L1”) protocol token for staking to secure the chain and to govern the network. Validators will be key stakeholders of the dYdX Chain – they will be responsible for storing orders in an in-memory orderbook, gossipping transactions to other validators, and producing new blocks for the dYdX Chain via the consensus process, among other things.

As a proof-of-stake blockchain, dYdX Chain stakers will play an important role in determining the strength of the network. Stakers achieve this by delegating the validation rights associated with their L1 protocol tokens to one or more validators. This action directly increases the likelihood of those validators’ chances of entering or staying in the active set of validators who can participate in the network’s consensus process.

Furthermore, validators will be particularly important in the governance of the dYdX Chain as (1) only staked tokens can be used to vote and determine the outcome of governance proposals, and (2) a validator inherits the voting power associated with the number of L1 protocol tokens (1-1) that a given delegator has staked to the respective validator (unless the delegator chooses to vote and override the validator’s vote with its own).

dYdX Foundation released a blog titled “A Take on Good Practices for dYdX Chain Validators and Stakers” which includes a list that aims to assist token holders in making informed decisions when selecting which validators to stake to after the potential mainnet launch of the dYdX Chain. This also allows validators to potentially increase the likelihood that dYdX Chain L1 token holders will stake to them.

dYdX Foundation also released a thread highlighting some technical characteristics of the Cosmos SDK’s x/gov module, the full details of which can be found here.

dYdX Trading released a blog post titled ‘dYdX Chain – Rewards and Parameters’ that summarizes how rewards are distributed and the fee schedule in the dYdX v4 open-source software. Notably, the initial dYdX v4 open-source software code will process some protocol fees accruing to validators, which could be shared with stakers who are staking to validators.

In DIP 26 – v4 Adoption & DYDX Token Migration to dYdX Chain the dYdX community demonstrated strong consensus that $DYDX should be migrated from Ethereum to the dYdX Chain to become the L1 staking and governance token of the dYdX Chain (if and when deployed on mainnet).

v3 Governance

Governance on dYdX v3 resembles many other DeFi protocols – one token equals one vote, and $DYDX holders can choose to delegate the voting and/or proposal powers of their respective tokens to another Ethereum address.

In 2023 the community voted to migrate community forum platforms from Commonwealth to Discourse. As of August 31st, there were 150k+ views, 453 Discourse members, 222 contributors, and over 902 posts in Discourseydx.forum/.

Proposals and Vote Participation

So far in 2023, there were 14 governance proposals (10 off-chain Snapshot votes + 4 on-chain votes). Below you will find an overview of governance participation so far in 2023.

Across the 14 governance proposals, the average amount of $DYDX and unique addresses participating was 42.6M $DYDX from 458 unique addresses. The average amount of $DYDX utilized in each vote was approximately 4.3% of the total supply.

Below we’ve highlighted some key governance proposals.

  • DIP 21 – Should the dYdX Community Transition From Commonwealth to Discourse – The dYdX community voted to transition the community discussion forum to Discourse.
  • DIP 20 – Reduce Trading Rewards by 45% – Reduce Trading Rewards to 1,582,192 $DYDX per epoch.
  • DIP 23 – Launch the dYdX Operations subDAO V2 – On behalf of the dYdX Operations Trust (“DOT”), Trustees Joanna and Callen requested $6.6M of funding from the dYdX community treasury.
  • DIP 24 – Shifting from LP rewards toward market maker rebates – Reduce LP Rewards by 50% from 1,150,685 $DYDX per epoch to 575,343 $DYDX per epoch.
  • DIP 26 – V4 Adoption & DYDX Token Migration to dYdX Chain – a key proposal as we near the potential release of dYdX Chain (if and when deployed on mainnet)

Elaborating on DIP 26, a member of the dYdX community launched the DIP 26 – Snapshot vote with the following proposal items;

  1. The dYdX community will adopt the dYdX v4 open-source software (if and when deployed on mainnet) as the next version of the dYdX protocol (Snapshot),
  2. The dYdX community will adopt DYDX as the L1 token of the dYdX Chain (if and when deployed on mainnet) (Snapshot),
  3. The dYdX community will adopt the Ethereum smart contract (the “Ethereum Smart Contract”) commissioned by the dYdX Foundation that, if deployed, could enable a permissionless and autonomous one-way bridge for the DYDX token to be migrated from Ethereum to the dYdX Chain (Snapshot),
  4. The dYdX community is recommending that dYdX Chain validators should reference the Ethereum Smart Contract commissioned by the dYdX Foundation when distributing DYDX on the dYdX Chain (Snapshot), and
  5. wethDYDX will have the same governance and utility functions as Ethereum-based DYDX (“ethDYDX”) on dYdX v3 (On-Chain: Long Timelock).

On September 1, 2023, the Snapshot vote passed with ~36M DYDX from 392 addresses voting in favor of the proposal.

To highlight the learnings from governance on the dYdX v3 platform, dYdX Foundation released a v3 Governance learnings blog. Read the detailed report to see highlights on:

  • Governance Procedures
  • Governance Participation
  • Reaching Consensus
  • Delegation
  • Voter Type and Subject Matter
  • Proposal Implementation
  • Incentive Program Clawbacks

Governance continues to play a crucial role for the dYdX ecosystem; you can view the latest proposals on the dydx.community website (on-chain proposals) and Snapshot (off-chain proposals).

Future of the dYdX DAO

On November 2, 2022, the dYdX Foundation published A Take on the dYdX DAO’s Near Future. This propelled conversations within the community, culminating with the dYdX Operations Trust releasing a dYdX DAO playbook. With the upcoming potential release of the dYdX Chain, we encourage the dYdX community to discuss the current and future desired state of the dYdX DAO particularly, the dYdX community could discuss which subDAOs could be formed to perform core functions in the dYdX ecosystem.

In 2023, the dYdX community voted to launch the Operations SubDAO 2.0 and to continue the Grants subDAO with the rollout and extension of v1.5.

dYdX Grants subDAO

The dYdX Grants subDAO is in its second year of operation after the successful rollout of DGP v1.5, which passed in April, and the extension, which passed in August. To date, 122 grants have been approved, 98 grants have been completed, and over $4 million in funding has been allocated to 94 unique grantees. All funded grants are available on the DGP website.

Several new initiatives were launched via DGP v1.5, enabling the community to fully utilize the grants program, including:

  • The community cauldron was launched allowing faster approvals on small grants. Read the progress report here.
  • Research grants enabled potential solutions for the dYdX Chain’s potential issues post genesis, some key grants:
  • ///Skip Protocols MEV identification dashboard///
  • ///ChorusOne detailed research on MEV///
  • ///Skip Protocol and dYdX Trading’s detailed blog on how to catch a bad validator///
  • The dYdX Grants subDAO launched the grants dashboard providing enhanced transparency of active grants.

If you’re interested in applying for a grant, reach out via this form.

dYdX Operations SubDAO

The dYdX Operations subDAO v2 proposal went live in May 2023. In the proposal, the Operations subDAO requested $6.6M from the community treasury under an 18-month mandate that included: i) recruiting an Operations Lead, a Technical Project Manager, a Site Reliability Engineer, ii) deploying the dYdX v4 open-source software and supporting the operation of a version of the iOS app, Android app, and website (browser) front-ends for the potential future version of the dYdX protocol, and iii) identifying an indexer operator which contributes to deploying an indexer in the potential future version of the dYdX protocol, among other things.

The proposal sparked interest from the community, receiving almost unanimous support from $DYDX stakeholders to transfer the $6.6M from the community treasury to the dYdX Operations Trust under the DOT 2.0 mandate.

Over the past few months, the team behind the dYdX Operations subDAO has successfully recruited two independent contractors and are providing regular updates about their mandate via their website.

If you’re interested in exploring the dYdX Operations subDAO, head to the forums for more information.

dYdX v3

Activity on the dYdX v3 protocol has remained stable in the first half of 2023. So far in 2023, approximately 68,628 new accounts have been created, trading volume totalled approximately $240.5B, with daily trading volume at approximately $1B. Notably, daily trading volume has remained stable since 2022, which saw approximately $1.2B in daily trading volume. Monthly trading volume has ranged from $20B to $43B. So far in 2023, there were approximately 61,624 active traders, approximately 4,300 weekly active users, and approximately $1.5 million of fees per week. The dYdX v3 platform recently passed $1T in cumulative trading volume.

Antonio Juliano, CEO of dYdX Trading, updated his blog that delves into the history of dYdX. Read the blog and learn how dYdX’s journey helped celebrate their 6th Anniversary.

v4 Public Testnet

dYdX Trading announced the completion of 4 out of 5 milestones with the launch of their Public Testnet. Since the launch of the initial public testnet, we’ve seen the launch of Public Testnet #2, enhancing performance and increasing the access to available markets to 30+. Currently there are around 57+ validators participating in dYdX Trading’s v4 Public Testnet #2. The current Public Testnet block time is 1.8 seconds, with over 2.9 million transactions and 2.9 million bonded tokens. If you want to participate in Public Testnet #2.

dYdX Chain

On January 11, 2022, dYdX Trading Inc. announced a path towards the full decentralization of the dYdX protocol in the potential next version of the protocol “dYdX Chain”. In the subsequent months dYdX Trading has released several blogs that outline the journey and technical architecture of the dYdX Chain.

The release of the milestones indicated the initial roadmap for the dYdX Chain. The completion of Milestone 2 enabled all of the basic functionality required to run the core product of the exchange. The completion of Milestone 3 added advanced features and the private testnet. Then came a blog highlighting how MEV could be tackled in the dYdX Chain environment. Followed by a deep dive highlighting why full decentralization matters. To better understand the technical architecture of the dYdX Chain, several deep dives were posted by dYdX Trading; technical architecture overview, followed by deep dives on the Indexer, Front End, Governance (read the Foundations tl;dr thread delving into the x/gov features) and Rewards and Parameters. The announcement of Public Testnet signified the completion of 4 out of 5 milestones.

Soon after the public testnet was live, dYdX Trading wound down Testnet #1 and launched Public Testnet #2, enhancing the performance of the test network and adding a further 30+ markets. As we edge towards the potential mainnet release of the dYdX Chain we encourage the dYdX community to review the dYdX Chain blogs referenced above in detail.

dYdX User Support

On March 20th, 2023, the dYdX Foundation launched a renewed dYdX User Support service. Since the launch of the new dYdX User Support program, dYdX Foundation has continued to improve documentation, enhance capabilities, and utilize learnings from direct conversations with traders of the platform. For further details about User Support, the ACX team recently released a User Support progress update.

International Go-to-market and Community

dYdX Foundation

In the first half of 2023 the dYdX Foundation’s international go-to-market team continued to build brand presence in key markets, educating the community, launching initiatives and supporting the dYdX ecosystem for the potential launch of the dYdX Chain. The international team is diverse and spread out across 4 core markets and 6 additional sub markets highlighting the diversity of the dYdX community. As we approach the potential launch of the dYdX Chain, we highlight achievements so far in 2023.

Social Presence and Community Engagement

The Foundation has made significant improvements across four core social channels: Twitter, YouTube, LinkedIn, and Discord. We increased our event presence, participated in multiple AMAs, Twitter Spaces, and generally enhanced dYdX exposure in each market. The Foundation launched Public Relations, expanded Quests and POAPs, and continued to utilize our valued hedgies.

Twitter

We’ve seen an 11% increase in followers compared to the same period in 2022 finishing at 36,090 followers. Additionally, we’ve seen 37% increased engagement and 14% increased reach compared to the same period in 2022. The increased following, engagement, reach, and performance on Twitter have eventuated from increased content and visibility of the Foundation. Adapting content to suit the platform has contributed to performance.

Discord

We’ve made significant improvements to Discord, focusing on quality over quantity. As a result, we’ve seen a reduction in the number of Discord followers. This has led to an increase in the quality of engagement and a 4% increase in new member retention. The Foundation announcement channel has grown to the largest number of readers (3,091).

LinkedIn

dYdX Foundation has continued to leverage LinkedIn, adapting engaging content to suit the platform. Due to this, we’ve seen a 36% increase in followers, currently sitting at 1,655. Due to increased presence and adaptive content, we’ve achieved a 58% increase in impressions and a 22% increase in unique followers. LinkedIn continues to be an important channel that reaches a unique audience.

YouTube

The Foundation continues to leverage YouTube to keep the community informed and updated. Every key AMA, Event, Twitter Space, Podcast, Community Town Hall, etc. is housed on the dYdX Foundation’s YouTube, which provides the community with easy-to-access viewing. The Foundation Youtube channel has 387 followers so far in 2023.

Events, AMAs, Podcasts, Trading Floors, etc.

The GTM team has attended over 40+ in-person events and 10 major events including but not limited to: Paris Blockchain Week, DAO Tokyo, B-Dash Camp, IVS Kyoto, WebX, Eth CC, Nebular Summit, Atom Istanbul, Web3 GOA and Korea Blockchain Week attracting over 25k attendees in aggregate. Additionally, the GTM team has hosted over 113+ AMAs, podcasts, webinars, weekly trading floors, and Hedgie huddles among other activities.

Quests and POAPs

The Foundation has continued to incentivize participation and engagement within the community via “Proof of Attendance Protocols” (POAPs) and dYdX Quests. As of the 31st of August, 55,400 quests have been claimed, with 131 POAP events and over 5,708 POAP holders included.

dYdX Foundation PR

dYdX Foundation onboarded a leading PR agency, MarketAcross to increase our awareness and brand visibility. Adding to the existing media activity, dYdX has been featured in prominent media outlets including but not limited to Coindesk, Cointelegraph, Decrypt, The Rollup, Crypto Potato, and more. As we continue to scale PR efforts you’ll likely see more of the Foundation featuring in Tier 1 publications.

Final Remarks

As we approach the potential release of the dYdX Chain we hope this report provides an overview of some focus areas for the dYdX Foundation, highlights ecosystem contributors and provides timely updates on the dYdX community and dYdX governance. We thank the dYdX community for their continued support and involvement in shaping the future of dYdX. This moment marks a pivotal point in the history of dYdX and we’re excited about helping to shape the future of DeFi.

Don’t forget to stay up-to-date with the dYdX ecosystem by following us on Twitter, joining our Discord, following us on YouTube and LinkedIn, and contributing to the discussions in the community forum. If you have any questions about being involved with the dYdX community, please reach out to ecosystem@dydx.foundation.