This is the fourth edition of $DYDX Epoch Review, presenting updates from the $DYDX community and ecosystem. To stay up to date in real-time, join us on Discord, Twitter, and the Forums.

Epoch 3 Highlights

• Total epoch volume on the dYdX Layer 2 protocol reached $89B, with Average Daily Volume remaining steady at $3.1B. Ending Open Interest remained flat at $1.2B, while Total Value Locked increased to $891M.
• ~9K unique wallets earned 5.4M $DYDX through trading, liquidity provider, and staking rewards. ~42K unique wallets previously earned $DYDX rewards from retroactive, trading, and liquidity mining rewards. ~22K unique wallets currently hold $DYDX and $stkDYDX.
• 18 addresses were eligible for Liquidity Provider (“LP”) rewards. While the majority of awards were earned by 2 market makers, competition in the pool has increased since the maker volume threshold for eligibility decreased to 1%. Market makers meeting the 1% threshold in Epoch 3 are eligible to earn rewards in Epoch 4. 15 addresses did more than =>1% of maker volume in Epoch 3, and thus are eligible to participate in the LP rewards program in Epoch 4.
• $809M $USDC from 1,043 users was staked to the Liquidity Staking Pool. 3 market makers tested $USDC borrowing from the staking pool while upgrades to the StarkProxy smart contract were discussed and executed on-chain following a governance proposal.
• The Safety Module was reset to a clean slate. $DYDX staking and earning of $DYDX rewards is now active. The Safety Module smart contract was upgraded and the Safety Module was relaunched on November 20, 2021. 7M $DYDX was staked to the pool over the course of Epoch 3 from 602 users. 33M $DYDX are currently staked to the pool.
• 7.19% of the total $DYDX supply (excluding unearned Retroactive Rewards transferred to the Treasury and the $DYDX vested in the Community Treasury) is considered liquid at the end of Epoch 3.
• The forum discussions and proposals continue to cover various important topics. The community voted strongly in favor of passing several on-chain dYdX Improvement Proposals (DIPs) including Safety Module Staker Reimbursement & Compensation, Safety Module Restoration, and Upgrade the StarkProxy smart contract. Also, the community is debating launching a $6M dYdX grants program to empower community contributors and serve as a launchpad for more formalized governance processes.
• Epoch 3 ended on November 23 at 15:00:00 UTC. Epoch 3 rewards will be claimable on the governance dashboard on November 30, at ~16:08 UTC (7 days after the end of the epoch plus a ~1 hour delay). Once tokens have been claimed, they can be transferred, staked to the Safety Module, or delegated to dYdX governance.
• On November 27, 2021 the dYdX team was alerted of a security issue with a newly deployed smart contract. If you have set allowance to deposit to https://trade.dydx.exchange since Wednesday 11/24 read here for important recovery information. A white hat recovery of potentially vulnerable funds was executed in partnership with @samczsun and the dYdX team, and all potentially vulnerable funds were saved. As a result, gas-less deposits and the 0x swap integration have been deactivated until further notice.

Performance Indicators

for Epoch 3 (October 26, 2021 15:00 UTC - November 23, 2021 15:00:00 UTC)

* No addresses were identified as wash trading during Epoch 3.

~21K unique addresses currently hold $DYDX and ~600 unique addresses currently hold $stkDYDX.

~42K unique addresses have previously claimed $DYDX rewards from retroactive, trading, and liquidity mining rewards.

Trading Rewards

3,835,616 $DYDX were earned over the course of Epoch 3 and will be distributed to 8,502 traders. Trading rewards were distributed proportionally based on a formula rewarding both fees paid and average open interest.

Competition in this epoch remained elevated, as displayed with the elevated Sum of All Trader Scores and widely distributed rewards. A breakdown of the adjusted trading activity and Trading Rewards distribution can be found below:

Source: Foundation Metrics Page

dYdX Trading Inc. did not identify any Ethereum addresses that conducted clear wash trading during Epoch 3. Learn more about Wash Trading here.

As an input to the Trading Rewards calculation, users’ fees paid, and average open interest were reset to 0 at the start of Epoch 4.

Learn more about the trading rewards program in our documentation, or our recent blog post.

Liquidity Provider Rewards

1,150,685 $DYDX were earned over the course of Epoch 3 and will be distributed to 17 market makers based on a formula rewarding a combination of uptime, two-sided depth, bid-ask spreads, and the number of markets supported.

In Epoch 3, there were 18 addresses in total eligible for LP rewards. The following chart displays the rewards distribution by market maker over the course of the epoch:

Source: Liquidity Provider Rewards Dashboard

The Foundation Metrics Page has maker volume charts to see which addresses did >=1% of maker volume in a given epoch:

15 addresses did more than =>1% of maker volume in Epoch 3, and thus are eligible to participate in the LP rewards program in Epoch 4.

As an input to the LP rewards calculation, market maker’s uptime, two-sided depth, bid-ask spreads, and the number of markets supported are reset to 0 at the start of Epoch 4. New market makers providing >=1% of maker volume in Epoch 4 will be eligible to join the pool in Epoch 5.

Learn more about the trading rewards program in our documentation, or our recent blog post.

Liquidity Staking Pool

$809M $USDC was staked to the pool over the course of Epoch 3 from 1,043 users. 383,562 $DYDX were earned over the course of Epoch 3 and distributed pro-rata every second to stakers. A larger user continued to stake $441M $USDC earning more than 50% of the rewards.

$USDC staked by address at the end of the epoch was as follows:

Source: Etherscan

266 users requested to withdraw before the Blackout Period in Epoch 3. These inactive $USDC funds can now be withdrawn and are no longer earning $DYDX rewards. Users must request to withdraw their funds before the Epoch 4 Blackout Window (last 2 weeks of the epoch) to withdraw their funds starting in Epoch 5.

The dYdX Foundation has been working to provide the tooling to facilitate market maker borrowing from the Liquidity Staking Pool. While market makers began testing borrowing functionality from the Liquidity Staking Pool, most activity was paused until the StarkProxy smart contract upgrade was completed.

We are excited by the amount of capital staked in the Liquidity Staking Pool and to see borrowing ramp up over the course of Epoch 4. We encourage the community to initiate discussions on a framework to add or remove borrowers from the Liquidity Staking Pool.

Source: Dune

Learn more about the trading rewards program in our documentation, or our recent blog post.

Safety Staking Pool

The Safety Module has been reset to a clean slate. $DYDX staking and earning of $DYDX rewards is now active. The Safety Module smart contracts were upgraded and the Safety Module was relaunched on November 20, 2021 at ~4:36:32 AM UTC. 383,562 $DYDX will be earned over the course of a given epoch and distributed pro-rata every second to stakers.

7M $DYDX was staked to the pool over the course of Epoch 3 from 602 users. 47,027 $DYDX were earned over the course of Epoch 3 and distributed pro-rata every second to stakers.

The 56 stakers who were affected by the initial bug received an additional 15,746 $DYDX, pro-rata, to make them whole. These funds were paid out from the Rewards Treasury, and claimable by stakers through the Recovery Contract.

Learn more about the safety staking pool in our documentation, or our blog post.

Community Treasury

Approximately 766,703 $DYDX vested in the Community Treasury over the course of Epoch 3. Vested $DYDX sits in the Community Treasury Vester contract. Any community member can call the claim() function to transfer the vested DYDX to the Community Treasury.

Currently, the Community Treasury has a claim to 26,990,912 vested $DYDX tokens:

We hope to see the community participate more actively in governance and distribute vested $DYDX on an ongoing basis through contributor grants, community initiatives, liquidity mining, and other programs.

Learn more about the community treasury in the documentation.

What's next?

Epoch 3 has ended

Welcome to Epoch 4! Epoch 4 started automatically on November 23 at 15:00:00 UTC and will end on December 21 at 15:00:00 UTC. Learn more about epochs here.

Epoch 3 ended on November 23 at 15:00:00 UTC. Epoch 3 rewards will be claimable on the governance dashboard on November 30, at ~16:08 UTC (7 days after the end of the epoch plus a ~1 hour delay). Once tokens have been claimed, they can be transferred, staked to the Safety module or delegated to dYdX governance.

Circulating supply

7.19% of the total $DYDX supply (excluding unearned Retroactive Rewards transferred to the Treasury and the $DYDX vested in the Community Treasury) is considered liquid at the end of Epoch 3. These earned $DYDX tokens can be claimed in perpetuity.

Claim your $DYDX rewards

The Merkle root was proposed on-chain on November 23 at 04:08:33 PM +UTC and the 7-day waiting period has begun. Epoch 3 rewards will be claimable here on November 30, at ~16:08 UTC (7 days after the end of the epoch plus a ~1 hour delay). Once tokens have been claimed, they can be transferred, staked to the Safety module or delegated to dYdX governance.

The Merkle tree data, which is a list of (address, reward) pairs, is available here.

Under the hood, the Merkle Distributor smart contract will distribute $DYDX token rewards according to a Merkle tree of balances. The tree will be updated at the end of each epoch with each user's cumulative reward balance. An update is performed by setting the proposed Merkle root to the latest value returned by the oracle contract. The proposed Merkle root can be made active after a waiting period has elapsed. During the waiting period, dYdX Governance can freeze the Merkle root, in case the proposed root is incorrect or malicious. Root updates can be unpaused by a ShortTimelockExecutor.

Governance Forums

DIP 3 (on-chain proposal 3) - Safety Module Restoration - EXECUTED

An on-chain DIP was created on November 1st at 05:04 PM UTC by Dan Robinson from Paradigm. 20M $DYDX were required to submit a Long Timelock DIP. User snapshots were recorded on November 2nd at 05:04 PM UTC, approximately 1 day after the DIP was created, at which point the proposal transitioned to an active state. A 10-day Voting Period on the proposal was in effect until approximately November 12th, at 05:04 PM UTC. With 251 unique addresses voting with ~142M $DYDX, and less than 0.1% voting against the DIP, sentiment was strongly in favor of the proposal and the proposal met the minimum quorum required for a Long Timelock vote to pass (100M).

After the 10-day long timelock delay for the DIP, the DIP was executed on chain. Safety Module restoration is now complete and the locked funds were recovered and sent to the Reward Treasury. The Safety Module has been reset to a clean slate. $DYDX staking and earning of $DYDX rewards is now active. Learn more about the Safety Module here.

DIP 4 (on-chain proposal 2) - Safety Module Staker Reimbursement and Compensation - EXECUTED

An on-chain DIP was created on October 27th at 05:38 AM UTC by DeFiance Capital / Three Arrows Capital. 5M $DYDX were required to submit a Short Timelock DIP. User snapshots were recorded on October 28th at 05:38 AM UTC, approximately 1 day after the DIP was created, at which point the proposal transitioned to an active state. A 4-day Voting Period on the proposal was in effect until approximately November 1st, at 05:38 AM UTC. With 150 unique addresses voting for the DIP with ~32M $DYDX, and less than 0.1% voting, the community voted strongly in favor of the proposal. After the 2 day short timelock delay, the DIP was executed and the 56 affected stakers could receive their staked amount and 10% of their staked $DYDX as compensation.

Each staker will need to call the claim() function directly on the Recovery Contract to receive their funds. Stakers can claim on Etherscan here.

DIP 5 (on-chain proposal 4) - Upgrade the StarkProxy smart contract - EXECUTED

An on-chain DIP was created on November 16th at 19:03 UTC by Wintermute. 5M $DYDX were required to submit a Short Timelock DIP. User snapshots were recorded on November 17th at 19:03 UTC, approximately 1 day after the DIP was created, at which point the proposal transitioned to an active state. A 4-day Voting Period on the proposal was then in effect. 182 unique addresses voting unanimously for the DIP with ~70M $DYDX. After the 2 day voting-delay, the DIP was executed on November 24 at 17:49 UTC and the StarkProxy smart contracts were upgraded to support cancellation and recovery. Wintermute is now able to recover the 50M $USDC locked and the upgrade ensures that other market makers can safely use the Liquidity Staking Pool.

Other active governance discussion threads

Derek from Reverie has started a discussion thread to launch a dYdX grants program to empower community contributors and serve as a launchpad for more formalized governance processes. The program would (1) allocate $3m per quarter, to be re-evaluated every 2 quarters (6 months) and (2) appoint 1 full-time grant lead supported by 7 part time reviewers.

A community member has started a discussion thread to change the LP rewards formula by adding more weight to the spread. The change is intended to encourage LPs to actively put orders as close to mid-price as possible and facilitate trading activities. More information about LP rewards can be found here.

dYdX Trading Updates

New features

dYdX Trading, Inc. launched several new features for the exchange, including:

• Gasless deposits - dYdX Trading Inc. will be covering gas costs for all new users who deposit at least $1000 $USDC on their first deposit and existing users who deposit at least $2000 $USDC in 1 transaction. Read more here. *
• Users can now swap certain ERC20 assets directly for $USDC via the 0x API, and deposit in the same transaction directly via the dYdX front-end. Read more here. *
• * On November 27, 2021 the dYdX team was alerted of a security issue with a newly deployed smart contract. If you have set allowance to deposit to https://trade.dydx.exchange since Wednesday 11/24 read here for important recovery information. A white hat recovery of potentially vulnerable funds was executed in partnership with @samczsun and the dYdX team, and all potentially vulnerable funds were saved. As a result, gas-less deposits and the 0x swap integration have been deactivated until further notice.
• Content Competition - Coinciding with the start of Epoch 4, a total prize pool of $200,000 $USDC is available for creating dYdX content. Read more about it here.
• If you use FireblocksHQ as your crypto custody solution, you now have full connectivity to dYdX including signature caching and full key recovery.
• Check out the new preferences menu in the dYdX Layer 2 app, including a way to update your username! Read more about it here.

For more frequent updates, check out the $$#dev-blog$$ channel on Discord.

New market launches

dYdX Trading, Inc. launched the ZRX-USD Perpetual Contract markets. Eligible traders outside of the United States can trade with up to 10x leverage, cross margining, and zero gas fees.