dYdX Announces Ambitious Scaling Plans

Market Meditations | June 23, 2022

dYdX was founded in 2018 and is currently the largest decentralised derivatives exchange, with a trading volume of over $650 million in the last 24 hours, according to CoinGecko. On June 22nd, the team announced plans via an official Twitter thread to develop and migrate to its own Cosmos-backed blockchain as part of the dYdX V4 update.

  • Currently, the exchange operates on an Ethereum Layer 2 scaling network developed by Starkware known as StarkEx.
  • dYdX V4 will be developed as a standalone blockchain based on the Cosmos SDK and Tendermint proof-of-stake consensus protocol, a software development kit used by projects in the Cosmos ecosystem.
  • The issue with current Layer 1 and Layer 2 solutions is that none can handle the throughput needed to run an order book and matching engine needed for dYdX to prosper.
  • The existing dYdX product processes ~10 trades per second and ~1,000 order places per second. Building a standalone chain will allow orders to be significantly scaled up.
  • As the protocol is migrating away from Ethereum, traders will not need to pay gas fees to trade but instead, pay per cent-based trading similar to regular exchanges.

The team claims that dYdX’s new chain “marks the full decentralization of the dYdX protocol” as the chain will be controlled by a distributed set of validators rather than the founding team alone. To develop a deeper understanding of dYdX V4 and the new dYdX Chain, check out the official announcement here.