On November 1st, The dYdX Foundation hosted a discussion on Discord regarding general updates, current governance proposals and an Epoch 2 review. The discussion was followed by a community hangout and AMA with the dYdX Trading team.
A redacted transcript is available below:
David (dYdX Foundation): Welcome to the Epoch 2 review, and or first community AMA. I am excited to be here today and thanks for joining. I am going to get set up here and invite a few more people to the team, just give me one second. Cool so just to kick things off I wanted to give an overview of the next hour or so. The first 15-20 minutes we will be walking through the Epoch 2 review which is a document we just posted on the dYdX Foundation blog and I linked to in the announcements channel. We'll then spend the next 15 minutes or so walking through questions that have already been sent to us from the community, and then open it up for the last 30 minutes where we'll be bringing people on stage and answering questions from the community that you have. We'll be doing this for the next hour or so. If you do have questions or feedback, or comments, please post it under the discussions channel. You can also DM Paul, who is on stage right now. He'll be moderating the discussion and inviting people to ask questions. So if you share your question with him ahead of time, he can help bring you up on stage. Please try to stay on topic, off-topic discussions, not related to dYdX or just general shilling, will be heavily moderated. And so, yeah, please just post questions ahead of time under discussions, and Paul will pick the best ones.
So again, we're just going to spend the first 15 minutes or so walking through the Epoch 2 Review. The link is on our blog, and I just shared it under the announcements channel. And this is really just covering some of the major highlights for Epoch 2, which concluded last week. Reminder, we're currently in Epoch 3, and then it takes about seven days after the end of the Epoch for rewards to be claimed. So just to cover some major milestones from Epoch 2, so total volume on dYdX surpass $92 billion, which is obviously a huge number. Average daily volume surge to about 3.1 billion daily. Just to put this into perspective, this is up from about 30 to 40 million daily volume prior to the token launch. And open interests in the Epoch 2 nearly tripled to $1.3 billion, and total value lock increased to $864 million, indicating strong capital inflows into perpetual markets.
I think just today, TVL actually surpassed $1 billion on the layer 2 perpetual protocol, which is a huge milestone for the team. And then lastly, liquidity continues to increase on the platform as a result of the Market Maker Rewards and Staking program. So Antonio has published a lot of tweets about how liquidity on the decks is now at par, if not surpass, a lot of the other centralized exchanges out there.
In terms of the rewards for Epoch 2, there was about 11,200 or so unique wallets that earned 5.3 million $DYDX through the trading, liquidity provider, and staking rewards over the course of Epoch 2. In aggregate, we've had about 40,000 unique wallets who've previously earned $DYDX from the retroactive and through this staking and trading reward pools. And then on Etherscan, there's about 20,000 unique wallets who currently hold $DYDX, but some portion of our user base also holds $DYDX on centralized exchanges. So those are aggregated numbers overall.
Other metrics that are important to discuss with regards to the Liquidity Provider Rewards pool. Last Epoch, there were eight addresses that were eligible to earn rewards from this pool. If you look at the report, you'll notice that a majority of those rewards were earned by two market makers. And in total, seven market makers actually earned rewards. One market maker, although they were eligible, didn't earn any rewards from the LP Rewards Pool.
One noticeable change in the last Epoch was that there was an off-chain dip that was submitted by Su at Three Arrows Capital to reduce the liquidity provider rewards volume threshold for market makers from 5% to 1%. This was passed after a snapshot vote, which was strongly in favor of this proposal. And so, market makers that met that 1% threshold over the course of Epoch 1 are now eligible to earn rewards from that pool starting in Epoch 3. And so that pool is now becoming much more competitive where there's now 18 market makers, the eight existing, and then 10 additional new ones that did more than 1% of maker volume in Epoch 2, and thus are eligible to participate in the Liquidity Provider Rewards program in Epoch 3. So overall, that'll create a lot more competitive dynamics, which I think will benefit the community and liquidity and overall on the platform.
In terms of the liquidity staking pool, so we saw a huge surge in the amount of $USDC staked to that pool. At the end of the Epoch, there was about 867 million $USDC staked from about 1400 stakers or so. Since then, the pool has shrunk a little to about 810 million $USDC, but it's still very, very large. And so one noticeable development with that pool is that the team was focused on enabling market maker borrowers to actually be able to borrow that capital and use it to provide liquidity on the protocol. And we're excited to announce that we've successfully tested that process, and several market makers have begun testing borrowing, and we're hoping for that to be able to scale over the next few weeks through this next Epoch, and overall that'll benefit again, a lot of the activities on the platform.
In terms of circulating supply again, there's about 5 million or so new tokens that are added every Epoch to the circulating supply, which currently now stands at 6.64% of the total issued. Again, this excludes the unearned retroactive rewards, which were transferred to the treasury and immediately vested to the community treasury. And then there's a certain amount of tokens that have also vested to the community treasury, which from our standpoint, we consider liquid, but it's really in the hands of the community to more proactively spend the vested tokens in the community treasury.
In terms of just general governance matters. So obviously Epoch 2, there was a lot of activity. The forum discussions and proposals continue to cover various important topics that I think really reflect some fantastic opinions from the community and things that the team thinks a lot about as well. Obviously, the whole community has been focused on this safety module fix as well as the staker compensation. So just to kind of recap what happened over the course of this Epoch, following the deployment bug with the safety module during Epoch 0, there was finally a DIP that was submitted by paradigm to that basically provided for the safety module recovery and staker compensation. While the community was strongly in favor of the dip with over 86 million voting in favor, that proposal did not meet a hundred million dYdX minimum quorum required for a long time lock vote to pass, and thus failed.
I think there was a lot of questions and comments around why the threshold was so high. The team spent a lot of time thinking about the four different types of executor contracts, and especially for something like the long time lock, which has very material impact on how the governance system works. We strongly felt that the threshold should be really high for a long time lock vote to be able to pass. And so, unfortunately, this first DIP, even though there was strong community consensus in favor of it, it did not pass. I think a lot of people were disappointed understandably, but I think as a community, we have to move forward, and it's great to see kind of the progress that's happened since. So that was DIP, what we call DIP 1. After that DIP failed, basically, the community then rallied around splitting that proposal up into two separate DIPs. So just to talk about the safety module staker reimbursement and compensation DIP, that one was submitted by three arrows last week and only required a short time lock to actually be able to pass. And we're excited that as of this morning, with 31 million $DYDX tokens in favor of that proposal, that DIP has now passed and is now in the process of getting implemented through the lifecycle of their proposal. It's entered a two-day queuing system in the time lock delay. And then there's a seven-day execution grace period. But we're excited to see kind of that part of this proposal actually passed and will be implemented to where stakers, who originally staked their funds in the safety module that had a bug will be able to get their funds back plus 10% of what they stake based on a snapshot vote and community consensus.
So that's kind of DIP number four. DIP number three relates to a revised safety module fix that was submitted by paradigm. Unfortunately, when paradigm resubmitted that DIP, there was an input error in the smart contract that was basically calling the wrong smart contract. And so, without getting into a lot of the technical detail, which we're happy to get into later, that proposal would have failed even if it had reached quorum. And so paradigm just today re-submitted a new fix for the safety module, that will require a long time lock vote, so that once again will take 100 million $DYDX minimum quorum for that to pass. But we are excited to see that the community continues to think through how to get the safety module back in operation to create an additional safety net for the overall ecosystem and the protocol. Overall, it has been a busy past few weeks on the governance side this is new for a lot of people and we continue to see a lot of the community to vote. A lot of voters were surprised by gas cots on layer one, and some of the issues associated there. The dYdX foundation looks forward to working the community to try to activate governance more broadly. Again, we are just at the start of our decentralization process, and I think there is a lot of room for improvement. Ultimately, we value the community, and the community really has to drive this process forward for it to make sense for the protocol and ecosystem more broadly. That is just some high-level thoughts and milestones for Epoch 2, Epoch 2 ended on October 26th at 3:00 PM UTC and the rewards will be claimable on November 3rd at 2:00 AM UTC. So that's approximately seven days after the end of the Epoch, plus a 29-hour delay. Unfortunately, the Merkel update process is still a new process with coordination between multiple parties that requires some verification when bugs come up, and while the parties are working on ironing out a lot of these bugs, there was a 29-hour delay before the Merkle root was actually posted on chain. And so that explains why the rewards won't actually be available for another 48 hours.
Again, there'll be available on November 3rd at 2:00 AM UTC on the governance dashboard. Those rewards can be cleaned in perpetuity. You can wait until gas costs are lower to be able to claim them. Once you've claimed them, you can transfer them or delegate your tokens to participate in governance.
So overall, those are some highlights that I just wanted to walk through. The Epoch 2 Review document has a lot more detailed statistics, charts, links that I encourage the community to read through and provide feedback on. Again, we want to make this as helpful for all of you as possible. So if you do have any feedback on how we can streamline or improve this governance process more broadly, feel free to DM me or the team at any time or post your thoughts on the forums or on Discord. And just want to express that we take your view extremely seriously and excited to partner on all of this .
That's kind of what I wanted to address at this point. Beyond that, I know a few people sent some questions are ready that'll walkthrough. Again, if you have additional questions, feel free to post them in the discussions channel, and then we shall post them, or we'll bring you on stage to kind of walk through that. And then there's a few other team members from dYdX Trading who can also help address any questions that anyone has here. So let me just walk through quickly, like the three questions that I've already received from the community. Give me one second.
So question number one was, well, there would be an option to buy $DYDX within the mobile app. So just to recap, the dYdX Trading team has shared some screenshots of this, and Antonio has announced the roadmap around building a mobile app for trading dYdX, excited to announce that that's progressing really well. I think the original timeline was still, 3-ish months from now. But the team is continuing to release some screenshots of the product, and I think will increasingly continue to do so.
In terms of listing the $DYDX token specifically, or being able to trade it within the app, what we've communicated from the start is that we have not had any discussions or plan to list or support listing $DYDX on any exchange, whether it's CEX or DEX, or whether it's our exchange or someone else's exchange. We purely view $DYDX as a governance token and as a utility token. And this is largely due for regulatory reasons. So at this time, we do not plan to list $DYDX on the exchange or via the mobile app.
The second question that I've received is around, are there any major dYdX milestones releases plan for the remaining calendar year? For example, the dYdX Mobile Trading app, potential Token Buyback burn program for the company profits, and/or new use cases for the $DYDX token? I think I would point whoever asked this question to the investor update that Antonio shared with the team. Sorry, shared with their community more broadly. Again, I think from a product standpoint, the team is focused on this mobile app, which at this point is two to four months out. I think the whole dYdX Trading team, at this point, is focused on the full decentralization roadmap.
So again, the top priority for the next year is to build a fully decentralized version of dYdX. Though dYdX has always been non-custodial, the order books and matching engines currently run in a centralized way, meaning there is no censorship-resistant aspect of decentralization. Over the coming year, the dYdX Trading team is actively researching and building a fully decentralized version of the protocol and product that has no centralized components. And so, a lot of that research for the project has already started and is kind of in full development. And so that's been kind of a core focus for a lot of the team.
Otherwise, you'll notice in kind of the dev blog channel that there's been a lot of product improvements on the front end to try to improve the overall trading experience. So you can continue to read updates from Everett and the team about new types of orders that are pushed and then visual updates and product feedback that a lot of the community members have shared in the feedback channels. So I encourage you to continue to do that.
In terms of governance more broadly, I think it's really up to the community what types of changes get pushed. Again, we're now only in Epoch 3. Right now, a lot of these rewards and trading pools last five years, which are about 65 Epochs or so. So I think there's definitely a lot of room for improvement and growth from a community and governance and token standpoint. I think one piece in particular that I'm excited about that I think has still yet to be tapped in full, is really leveraging the community treasury to advance the overall ecosystem.
Again, there's about 26 million or so $DYDX that are vested in the community treasury today. At the current price of $DYDX, that's several hundred million dollars that can be spent to help build that ecosystem. And so, I think a big priority for the community today should be really lobbying behind setting up a community grants program and getting people to actively build around the dYdX protocol and helping to drive growth to dYdX more broadly. So I think that's kind of a major milestone that I hope the community kind of gravitates around over the next Epoch 2.
Then lastly, on the potential for a token buyback burn program from the company profits, again, the team has been very clear on this, that for regulatory reasons even though dYdX Trading didn't issue the token, dYdX Foundation issued the token, dYdX Trading doesn't feel comfortable transferring fees to the community or doing buybacks at this time given the current regulatory environment and their current $DYDX token design.
Again, I think a lot of the discussion around buybacks has been constructive, and certainly, the team is thinking through a lot about how to increase utility of the token within the overall ecosystem beyond trading fees. Certainly welcome the community's feedback about how to improve kind of the tokenomics. And again, encourage everyone to get involved on Discord on the forums, but also understand that there are regulatory reasons driving some of the decision-making at this time. And so until there is a fully censorship-resistant protocol where some changes on the regulatory side of things, the trading fee discounts, or sorry, the buyback or trading fee split kind of policy that currently exists will continue to remain.
Next question is around “what marketing plans for dYdX over the next three months to bring dYdX back again in the spotlight. The hype around dYdX has "gone down" quite substantially since the token launch, and I'm a bit worried that dYdX will lose a lot of marketing share over the next couple of weeks and months to competitors for the marketing activities, not be substantially expanded. In my honest opinion, right now, the marketing is super weak, and I think this is an existential threat.”
I certainly appreciate kind of the comment and the feedback. The reality is that the team is certainly very resource constraint. dYdX Trading team is under twenty people at this time. The Foundation has two people. We're actively trying to hire kind of across the both organizations, but we are bandwidth constraint around what we can and can't do. I think specifically, as it relates to marketing, I think, again, this is an opportunity for community members and users of dYdX to really step in and step up here.
I think as token holders, and as users, you're the best marketing channel that the protocol can ask for. And so, I think if you are looking to get involved, I highly encourage you to participate in Discord, to share information about dYdX to create content, to participate as an affiliate, or to be an ambassador for the company and the protocol more broadly.
So really, I think marketing is a community-driven effort. I think if you look at most protocols out there, very few of them spend anything on marketing, and this is really a community-driven growth effort. And so encourage whoever asked that question to really think through kind of the community grants program and how to best allocate funds from the treasury to drive marketing initiatives to help drive awareness. Again, for us, I think it's important to have a long-term view, we're really optimizing for a self-sustaining protocol. Over the long run, we're not necessarily optimizing for things on a weekly or daily, or monthly basis for that matter.
Question number four relates to “regarding the AMA happening soon. Can you please ask the team to talk about the errors happening in the smart contracts and propose smart contracts?” I mean, I think this is a good question. I think just to level set, a lot of the smart contracts, or if not, all of them have been thoroughly audited and tested. A lot of the underlying governance smart contracts were formed from Aave. Any changes were subsequently audited and tested. It's important to understand that at least for the safety module, the issue wasn't necessarily on the smart contract itself. It was in the deployment process of the smart contract.
Again one of our engineers is here and can probably speak to this more, but when we launched the governance contracts, there was I think, over 40 individual smart contracts that were launched. And so it was highly kind of technical and complex. Unfortunately, there was an issue with one of the deployments, and it wasn't an issue with the code itself. I think that is what one benefit, at least for a more technical audience. All of the smart contracts are open source available on our GitHub on Etherscan, people can review those comments, edit improve, etc.
So again, I think, as a team, we've always looked and take the security and thoroughness of our smart contracts super-seriously. Errors do happen. And when they do, we move very quickly and provide a thorough post-mortem and try to limit kind of the impact as best as we can, but bugs do happen. And so we'll continue to keep the community kind of updated when they do, but I think overall, we've been very transparent and continue to test things to minimize the risks that bad and unfortunate things happen.
So those are at least the questions that I see that I've received so far. Hope that was helpful. I think happy to bring on kind of additional anyone else who has questions. On the stage, we have Paul and Vijay, who are on the dYdX Trading Growth team. We have Ken, who is an engineer who worked on a lot of the governance contracts. And then Marc, who's more on the regulatory legal side of things. So here's kind of... And then Lucas, who's also on the engineering team who helped to build a lot of the smart contracts. So it really welcome the next 30 minutes or so open to taking kind of any questions that the community wants to ask.
Again ideally, post your question first on discussion so that we avoid kind of any spam, but if you do have a question, raise your hand, and we'll bring you up on stage. So I see Badfrog Ribbit , which I'm going to invite to speak because he's been super awesome and active on Discord and super thoughtful comments. Badfrog, the floor is yours. I don't know if it's just me, but Badfrog, I can't hear you.
Badfrog Ribbit (Community Member): I'm sorry. Can you hear me now?
David (dYdX Foundation): Yep. We can hear you now.
Badfrog Ribbit (Community Member): Awesome. First of all, you guys are doing an amazing job. I know there were some governance issues, but as far as like a pool platform, a D app, as far as execution goes across the board, you guys are just killing it. You've done some amazing things. You've brought in astounding volumes into the whole platform over a really short time. So, kudos. I really hope that people jump in because I know you guys really want to push the community aspect, and I really hope that more people continue to jump in. I think there's a huge opportunity. I guess my one question that I didn't have answered before is, are there any plans now or in the future to add a fiat to a stable coin gateway on a platform?
David (dYdX Foundation): I'm happy to take kind of this, and then if anyone else wants to jump in, feel free. I think at this time, one thing that we've learned is really focusing on kind of niche and crushing kind of execution there. I think for us, we're focused on the crypto to crypto market only. That's where there's just a massive opportunity and less focused on kind of the fiat on-ramp side of things. The reality is most of our users today already have crypto, at least the ones who want to trade perpetual product. So at this time, given kind of our limited engineering resources, spending engineering resource to build out kind of Fiat on-ramps just doesn't make a lot of sense.
Then, from a collateral standpoint, at least based on the current design of the system, we only support one form of collateral. So at this time, that's $USDC. So the team is still working on being able to support deposits and withdrawals from other ERC20 tokens through an integration with 0X API. But again, that'll be just crypto to crypto. I don't see at least on the current roadmap the ability to deposit fiat or convert fiat into dYdX directly. I'm going to bring up kind of a few more people, let's see. Maybe I'll add a few at the same time, and then whoever wants to ask their question first, they can do so.
Speaker 1 (Community Member): Hello. Are you able to hear me?
David (dYdX Foundation): Yup. We can hear you.
Speaker 1 (Community Member): Awesome. So I just want a second with Badfrog said. You guys have done a really good job so far, put in a lot of effort, and I think the community is helping out as well, so awesome to everyone. So my question is, does dYdX ever plan on supporting future products other than crypto futures, for example, like stock or commodity futures? If like the regulatory environment in the US where the shift, or maybe when dYdX is fully decentralized.
David (dYdX Foundation): Yeah, I think it's a great question and something that comes up a lot. Again, I'm happy to take this and if anyone else wants to jump in, feel free to. Again, I think like our thesis has always been decentralized derivatives are such a huge market that even if we capture a part of that, that's a huge market today. And if you look at what the market is today, it's really perpetual products. Like 90% of trading volume in crypto today is perpetuals. And so, I think being kind of the market leader in decentralized perpetuals is a huge market that we're laser-focused on becoming the best at and executing on. So that's really the focus today. I think beyond that, we've gotten a lot of people ask us about kind of dated futures or options or equities, etc. I think ultimately, dated futures options are probably certainly something that we think about, but it's more medium-term/long-term aspiration. Ultimately, I think Antonio and the whole team now is focused on making dYdX the leading decentralized derivatives exchange. And so derivatives can mean a lot of different things. And I think it really depends on kind of where the market evolves over time, but I think realistically, given the regulatory environment and where we are today, we're just laser-focused on perpetuals. And I think we'll continue to be, at least for the foreseeable future.
Speaker 1 (Community Member): Awesome. Thank you.
David (dYdX Foundation): [Speaker 2] do you have a question?
Speaker 2 (Community Member): Yeah, I feel like that partially answered my question because I was going to ask about derivatives based on… perhaps I was looking at the forum post regarding a theory on gas derivative. Also thinking about as the options markets are evolving in defi, looking at something like a VIX type of volatility market, or just some of these more abstracted derivative concepts that aren't really kind of synthetic pegged assets, but more complex derivatives that you can kind of build on top of these more slightly traditional markets.
David (dYdX Foundation): Vijay, do you want to share kind of any thoughts there?
Vijay (dYdX Trading): Yeah, sure happy to. So, this is definitely an area we're exploring in the nearer term. And definitely to the extent that community has interest and thoughts around this. There's an opportunity to propose these kinds of products to the group that will effectively be facilitating the listing process. And if you go on the forums, you can see some early discussions around that. So generally, there's a whole host of considerations in order to actually make a new product a reality, including things like oracle prices, but for products like that, those definitely do exist. And I think the quality of data sources out there is definitely increasing pretty rapidly. For example, with things like the Pyth Network, P-Y-T-H, which was a source of high-quality market data for more traditional type products. So the prerequisites are definitely coming into place. And so we're definitely thinking about it. And to the extent you and the rest of the community have thoughts on this would encourage you to comment on the forums as well. So that's definitely an area that I think is a very logical kind of expansion opportunity or dYdX in the near term. Things like volatility and VIX and things like that.
David (dYdX Foundation): Great questions, everyone. Again, for members of the audience, if you have a question, either write it on our Discord in the discussion channel or feel free to raise your hand, and we'll bring you up on stage. I got a few more questions over texts that I can walk through now. One question is, are the rumors about the NFTs true? I think a lot of people saw, Antonio's Twitter comment, staying tune. Obviously, NFTs are a hot topic. These days, it's something the team has been spending a lot of time thinking about. I think if you look at all of our names on Discord, we are all starting to associate with a certain type of emoji, which is really the only alpha that I can share right now. But overall, I think NFTs are super interesting, and there's a lot of proactivity going on, no specific kind of commitment or timeline, but it is something that we're actively looking at and thinking about and should be able to release more details, hopefully soon.
Next question is around “when Sheba? In general, what's the plan on adding more assets, how often?” So there's a great thread on the Commonwealth forms about the new asset adding new assets to the protocol, highly encourage whoever asked this question to take a read there. Ultimately, the reality is we can add from a technical standpoint, any asset where there's a reliable Oracle, and then there's market makers who are willing to provide liquidity, that's the requirements at a technical level. Beyond that, there is some regulatory consideration around making sure that we're not listing any type of security. And so that's a decision that guides at least some of the new asset listing discussion, but ultimately, if you are interested in adding a new market to the protocol, I encourage you to read this forum post and go through the process of requesting to add a new market.
I think at this point, it's really in the community's control around which markets get added for consideration. Ultimately, in the past, the team has been focused on listing the assets that people want to trade that have high volume and high liquidity and can get market maker interest and reliable Oracle sources. So, Sheba certainly appears to kind of meet that threshold. So encourage whoever asked that question to participate in the forums and make proposal to have that market added to the protocol.
Other questions… Will dYdX be having more trading competitions? How would they be different in the future? I see Corey's in the audience. I don't know, Corey, if you want to hop on and speak to that a little. Cool.
Corey (dYdX Trading): Yeah. Happy to speak to that a little bit. Yeah, in short, I would say, yes, we are focused on launching new trading competitions, both in the near term and the medium term. In the near term, we may have some that are fairly similar to how we're structured in the first one. In the medium term, we are actually working on, I don't want to reveal too much information, but like a really novel way in which we can run trading competitions much more frequently. And then we're also thinking about ways in which we can add really cool and innovative gamification features to it.
David (dYdX Foundation): Awesome. Next question is, will there be a spot market where you can deposit assets other than $USDC? I guess, Corey, do you want to talk a little bit about the L-1 shutdown?
Corey (dYdX Trading): Alright. So is the question depositing US other assets to the Layer 2? Is that what we're talking about here?
David (dYdX Foundation): Yes. It's will there be a spot market where you can deposit assets other than $USDC?
Corey (dYdX Trading): Yeah, I think the question is probably getting at the Layer 2 depositing. So yeah, I mean, in the near term, prob unfortunately not like there's technical limitations into what the Layer could have as the form of collateral. So right now, that's only $USDC. We are doing research into ways in which we could add more forms of collateral, that's more of a long-term feature request and another build out there.
But to alleviate that to a bit of a lesser degree, we are going to launch ways in which you could easily exchange a different asset for $USDC in the deposit flow. So let's say you come to dYdX with Ethereum. You only have Ethereum in your wallet, but you want to create an account on Layer 2, and you want to deposit in like the onboarding flow. We'll give you the option to exchange some of that Ethereum into $USDC so you could deposit that right into the protocol.
David (dYdX Foundation): Awesome. Marc getting a question on kind of the US regulatory status right now for US users and future token additions. Is this something you can maybe speak to at a high level?
Marc (dYdX Trading): Sure. Glad to speak to it. So, I think when you're talking about the protocol itself, I think our positions been from day one consistently, and you're seeing this be something that other protocols are doing as well. That crypto derivatives are things that are regulated in the US. And making them available to US people isn't something that we view as a viable option. And I think you could frankly see with just the space and even if you look at centralized exchanges, you see that. And if you look at decentralized exchanges, whether it's what Uniswap’s done with its front end on derivatives, you see kind of that move. And I think that's pretty clear in terms of what's required there. And so there really are no plans to kind of take a different approach there, especially given kind of the centralized nature of the order book and matching engine. Was that the only part of the question, David?
David (dYdX Foundation): Also, with regards to new assets listings?
Marc (dYdX Trading): Sure. So the new assets listing side, I think there's two aspects to it that we think about when we're listing it. The first has to be that right now, to the extent that US regulator is kind of looking at like, wanted to look at dYdX, it would probably be like something like the CFTC. And one of the main things you don't want is you don't want it to be you like the SEC. And we've always been like, very careful about that. And so like, even though we stay out of the US, we're conservative about it. And so, we don't want to list securities. So we make sure that we don't have kind of securities for US Law purposes. But that's actually useful for other purposes as well, which is that we want the protocol to be available in as many jurisdictions as possible. And generally, listing securities makes that much more difficult, whereas listing commodities, which are many other cryptocurrencies, isn't as difficult. And so, if we stick to listing commodities in the way that we have and not securities, it makes it easier to make dYdX available broadly as we do now.
David (dYdX Foundation): Awesome. Thanks, Marc. I guess the next question, maybe Ken or Lucas, you can maybe address this. “Do you think the threshold set for governance are too high if you need long-time locks and high quota to fix errors? Is this proportionate? Do we need a proposal to debug every failed line of code? Big issues require governance calls, fixing errors doesn't?”
Ken (dYdX Trading): Yeah, I can take this. So I think the first part is to understand is essentially any type of proposal that has the ability to fix bugs also has the ability to introduce bugs. And there's really no way to separate those two flows from each other. So whatever requirements, whatever like voting threshold time delay, threshold, we want to protect any upgrades to the code, have to apply, regardless of whether that's a bug fix or a feature improvement, for the most part.
The second thing, which I also want to clarify, is the reason it's particularly difficult to make upgrades to the safety module is because the safety module actually controls voting power in governance via the staked $DYDX token. And so that's why a long time lock vote is required. Whereas normally for taking contracts, we would only require a short time lock vote. And so the 10% threshold was decided upon because if you're able to pass a long time lock vote, you're able to do anything. You're able to override essentially any governance decision in the whole system. So it's kind of like the God mode sort of type action that you could unlock.
Ken (dYdX Trading): So that's why it might seem a lot higher than it needs to be on something that's just a staking contract otherwise. We did think about this quite carefully during the initial design process. And our model is based on pretty similar to what Aave has for their system with a long time lock and a short time lock. And we actually tweaked it to make the threshold half of what Aave actually has for their system after careful consideration. So it's actually a little bit on the more open side relative to Aave. And currently, still think that that was the right decision, but understand that there's questions around that and a little bit of confusion around it as well.
David (dYdX Foundation): Thanks, Ken. And just one follow-up there. Do you have any thoughts on quadratic staking, voting, or only stake voting alongside penalties for early on stakers?
Ken (dYdX Trading): Yeah, so I guess one part of that is was around staking for voting. And then the other one is a separate question about penalties. Yeah, for the staking implementation, we were aiming for something that met the core requirements of what we wanted to achieve. And I think staking for voting is definitely worth exploring. The stake contracts are actually fairly complicated already, and we wanted something that was doing the core features that we needed, but I think definitely something that's worth thinking about.
David (dYdX Foundation): Yeah. Great questions, everyone. And again, the contract as designed today are in the hands of the community. So any improvements can be agreed on by the community and changed over time. I guess, one question on the product side, and I'm wondering who could answer this, maybe Ken or Lucas or Corey, if you have any info. Reduce only in bracket orders were on the roadmap, I think any progress or updates on these?
Corey (dYdX Trading): Yeah. I could jump in. So yeah, both of those are still 100% on the roadmap. In terms of specific timing, I can't give you an exact estimation of a date when they'll be released, but yeah, they definitely still both are on the roadmap and hopefully will be implemented by end of year.
David (dYdX Foundation): I guess the last question that I see before we wrap things up is “what is the utility of $stkUSDC and $stkDYDX”? I think that's a really kind of interesting question. Maybe let's start with $stkUSDC because I guess that's actually live today. I guess Corey, do you want to take this one as well?
Corey (dYdX Trading): Yeah, so I'm happy to... Okay. Yeah, go ahead, Ken.
Ken (dYdX Trading): Yes. So stkUSDC is an ERC20 token that you receive representing your position in the liquidity staking pool. The main feature of it is if you were to trade it, it would actually be a way of getting out of your stake position earlier. So, as far as I know, I don't know if there are any AMM pools currently for stkUSDC, but as you might be aware, the liquidity staking pool, once you deposit your use to see you're locked up for at least one epoch at a minimum, and you actually have to request to withdraw before you can get your funds out, but by creating a market for stkdUSDC, you could create a market whereby people could exit their positions immediately by having someone else buy out your position, basically. So that's the main purpose of it.
David (dYdX Foundation): Awesome. And then last question that I see on the Discord is: “how does the dYdX team deal with inflation of dYdX governance? As we know, there are around 5 million $DYDX governance unlocks each 28 days, VC tokens will unlock after 18 months. If there is no buying burn, how will you guys do with the inflation? Is there any plan?”
I don't know exactly what the question really means because there is no per se inflation. It's there's more circulating supply on an epoch-by-epoch basis as more people earn rewards. Again, investors, the existing team, have tokens that are locked. And there's a lockup schedule that is public.
The tranche first is set to unlock after 18 months. But every epoch, there's 5 million tokens that are added to circulating supply. And then, to the extent that the community decides to spend the 26 million that's currently vested to the community treasury, there's additional supply that'll enter the market over time. And so I think right now the utility is really around fee discounts and then participating in governance and then hopefully, the safety module could the community decide that it's still important gets fixed, where people will be able to stake their $DYDX tokens as an additional backstop to the overall protocol as a way to earn additional yields on their $DYDX through $DYDX rewards to the staking pool. So that's currently the design of the reward and tokenomics on staking more broadly.
Again, the community is encouraged to think through how to increase utility for the token more broadly. We've already shared our views on why buy and burns are just not viable at this time based on the regulatory environment. But beyond that, certainly welcome the community thoughts on how to improve the tokenomics more broadly.
So, with that, we're at the one-hour market. Thank you all for joining. Hope you enjoyed the conversation. We'll post a recording and a transcript of this conversation on the blog and hope to be able to do these more frequently and continue to engage kind of the community more broadly. So, thanks again for joining, and hope you enjoyed it, and thanks to the dYdX Trading team for participating as well. Thanks, everyone.
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dYdX Foundation’s purpose is to support and grow the dYdX protocol ecosystem by enabling communities, developers, and decentralized governance.
Nothing in this post should be used or considered as legal, financial, tax, or any other advice, nor as an instruction or invitation to act by anyone. The dYdX community is sovereign to make decisions freely from time to time, in accordance with the governance rules, principles, and mechanisms adopted by the dYdX DAO. Community discussion and interaction on the contents of this post are encouraged. The dYdX Foundation does not directly participate in governance decisions to be made by the dYdX community, including, without limitation, by making and/or voting on governance proposals. The dYdX Foundation may change, update or complement its analysis or opinions expressed in this post in the future and assumes no obligation to publicly disclose any such change or update. This post is solely based on the information available to the dYdX Foundation at the time it is made and should only be read and taken into consideration at the time it is made and on the basis of the circumstances that surround it.
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