On January 24th, the dYdX Foundation hosted a discussion on Discord regarding general updates, current governance proposals and an Epoch 5 review. The discussion was followed by a community hangout and AMA with the dYdX Trading team.
A redacted transcript is available below:
James (dYdX Foundation): Good morning, good afternoon, and good evening to all who have tuned in for this AMA and Epoch 5 review. Let's just kick off by saying, we're really excited to keep up these AMAs and Epoch reviews with you all. For those that don't know me, I'm pretty new here. I'm James, jamh|dYdX in the Discord, for all those who have interacted with me already. I’ve recently been fortunate enough to be successful in acquiring the role of community ecosystem lead for the Foundation. If we haven't interacted yet, I'm sure we will in the near future as we build out this great platform together. So if you have any community-related questions and we don't have time here, then just jump into my DMs or we can chat right away. I'll start with the introductions of those who are present in this call. So here today from the Foundation team are myself, David, and Josh. And from the dYdX Trading team are Corey, Marc, and Antonio.
In terms of how we're going to structure this today, David will spend some time going through all things Epoch 5. Antonio will then touch on the recent exciting V4 announcement answering one or two prepopulated questions regarding this, followed by both the dYdX Trading team and the Foundation team answering questions that were posted in the Discord over the last few days. And then to finish, we'll have an open platform for all questions requested by you all here today.
Prior to just kicking this off, let's just start with a few housekeeping rules. If and when you're invited to speak, please refrain from any price discussion. Doing so will result in you getting kicked from the server. I'm sorry, you all know the drill here. Please listen for existing questions before you post yours to ensure it hasn't been asked. When you're on the stage please only ask one question, it'll give other members of the community time to offer their thoughts and questions. Finally, please stay on-topic. Off-topic discussion not related to dYdX or the Foundation will be moderated. David will be talking about all things, Epoch 5 now. David, over to you.
David (dYdX Foundation): Thanks, James. Really excited to have you join the dYdX Foundation. So similar to past AMA's, I'll spend the next 10-15 minutes just walking through Epoch 5 milestones. We'll be publishing the Epoch 5 review in the near future, but just wanted to highlight some of the major KPIs over the last Epoch. So during Epoch 5, total volume on the dYdX protocol was approximately $40 billion, with average daily volume around $1.4 billion. Ending open interest declined slightly to $908 million, and total value locked decreased to $911 million at the end of the Epoch. Overall, these are pretty strong results given the overall market volatility that we've been seeing over the last few weeks. dYdX continues to be one of, if not the leading decentralized exchange from a volume standpoint, and we're encouraged to see a lot of our growth metrics reflect that.
In terms of the number of $DYDX rewards, in the last Epoch there were around 6,500 unique wallets that earned 5.8 million $DYDX through trading, liquidity provider (“LP”), and staking rewards. In total, there's been over 44,000 unique wallets that have previously earned $DYDX, from the retroactive rewards, trading, and liquidity mining rewards. Currently, there's about 21,000 unique wallets that hold $DYDX, and approximately 1,700 unique wallets that hold $stkDYDX.
One interesting trend is we've definitely seen a large increase in the number of $stkDYDX holders, and I'll get into that a little later, but I think it’s encouraging to see a lot more users stake their $stkDYDX. Approximately 50% of all wallets that have earned $stkDYDX in the past, still hold it today. In terms of the LP rewards, in Epoch 5, there were 16 addresses that were eligible for LP rewards, with the majority earned by two market markers. These are pretty similar trends and competitive dynamics compared to prior Epochs.
Overall, we do see a lot of competition in the pool of our market makers, but a lot of the rewards end up going to the two largest market makers. So this is a trend that we're continuing to monitor. Obviously, our goal here and the objective of the pool overall is to bring in as many market makers as possible to provide liquidity on dYdX. In the past, some market makers that have met the 1% threshold in Epoch 5 are now eligible to earn rewards in Epoch 6. Encouragingly, we see 17 addresses, 14 existing and 3 new addresses, that did more than 1% of maker volume in Epoch 5 and thus, are eligible to participate in the LP rewards program in Epoch 6.
One notable change, if you recall in Epoch 5, the community voted to introduce $stkDYDX to the LP rewards formula, and so starting in Epoch 5, all 16 addresses that earned LP rewards had to hold $stkDYDX to be competitive in this pool. With regards to the Liquidity Staking Pool, at the end of Epoch 5, there was $526 million $USDC staked from 758 users in the Liquidity Staking Pool. There are four market makers that have borrowed $USDC from this pool. We saw quite a lot of withdrawals and requested withdrawals over the course of Epoch 5. At the start of Epoch 6, there's currently $260 million $USDC that is staked to the pool and earning $DYDX rewards. With regards to the Safety Staking Pool, there is now 20 million $DYDX that's staked in this pool from 1,746 users. So this is a very significant increase relative to past Epochs, and reflects token holders' long-term view of the protocol.
Again at the start of Epoch 6, there's still 20 million $DYDX staked, so we didn't see a ton of requested withdrawals. Those 20 million $DYDX are earning pretty juicy APRs and earning $DYDX rewards as a result of backstopping the protocol. In terms of total circulating supply, at the end of Epoch 5, there's 8.41% of the total $DYDX supply that is now considered liquid. This excludes the unearned retroactive rewards that were transferred to the Treasury and the $DYDX invested in the Community Treasury over the course of the Epoch. If you included both of those numbers, the circulating supply would be about 11% or so and increases at a rate of around 0.5% every Epoch.
In terms of broad governance proposals, we continue to see active discussions in the forums around proposals that cover a lot of important topics. I think generally speaking we’re pretty encouraged by the level of engagement and dialogue going on within our community. One of the proposals that I'm personally most excited about and I think the community was as well, is the community unanimously supporting launching the dYdX Grants Program, the “DGP.” On January 10th, 752,000 $DYDX was transferred from the community treasury to the Grants Committee multi-sig to fund multiple RFPs. I think this is a huge milestone for the broader dYdX community. The DGP represents one of the largest grants programs in all of DeFi to fund community initiatives. The Grants Committee was formed by a team and a company called Reverie, and is managed by a multi-sig of 8 strong crypto community members from various backgrounds. I caught up with the Reverie team earlier this morning and they indicated that they've had over 40 applications come through, which I think is awesome to see the level of interest in building cool tools around dYdX. We really want to encourage all hedgies to get involved, to build better tools for growth, governance, and analytics. There’s a pool of capital that's available to fund projects that help drive the overall growth of the ecosystem. One area in particular that has received fewer applicants is around governance-related tools. If you're a builder or involved in the community and the governance side of things is something that excites you, I'd encourage you to look at the RFP list on the website dYdXGrants.com and apply. Additionally, if you have other ideas that are not listed and you want to submit new RFPs, this is really meant to reflect an opportunity to have the community drive new projects and get funded by the Treasury.
The second governance proposal that I wanted to highlight, the dYdX Foundation, started a thread to create a framework to determine eligibility for LPs to borrow $DYDX staked to the Liquidity Staking Pool for market-making purposes. There's five LPs that are currently approved to borrow the $260 million $USDC staked in that pool. The community has control over adding, removing, and changing allocations to approved market makers. Market makers can borrow that capital and use that capital to provide additional liquidity on dYdX. I think it's the Foundation's view that currently a lot of $DYDX rewards are being rewarded to stakers of $USDC without having that capital being utilized for its intended purpose. The Foundation put together a framework that lays out requirements for adding new LPs to this pool. Obviously, it's completely subject to governance and requires a Snapshot vote and an on-chain vote to be implemented. I think this is an important proposal to get feedback from the community on, to help drive additional liquidity onto various markets on dYdX.
The third governance proposal that I wanted to highlight is the proposal submitted to address the LP rewards formula by adding more weight to the spread. There was a Snapshot vote late in the Epoch that did not pass. It failed to reach consensus on Snapshot and thus, no changes were made to the LP rewards formula. Overall, if you look at the thread there were a lot of really interesting discussions from some of the leading market makers in the space. I think other lessons learned is that the poll highlighted several issues with using Snapshot polls to change the LP rewards formula and off-chain variables more broadly. Earlier today, the dYdX Foundation created and published a thread that included several minimum requirements for binding Snapshot votes. There are certain decisions that don't currently require an on-chain vote, notably any change to the trading rewards or LP rewards formulas. A simple Snapshot vote, which is off-chain and gasless, is enough to indicate consensus there and change those formulas that are currently off-chain. To ensure the integrity of the governance process, the Foundation indicated or suggested some minimum requirements for Snapshot votes which are effective immediately. We welcome the community's feedback on that thread, but overall, we think that that's an important proposal and adjustment to maintain the integrity of the governance process more broadly.
Lastly, just some updates from the dYdX Trading side over the course of Epoch 5. I think there were a lot of really exciting announcements that the dYdX Trading team is excited to talk more about in the AMA. But I think most importantly, the team announced the plan to launch the next version of the protocol, V4, by the end of 2022. As indicated in the announcement, V4 will be open source, fully decentralized, and no central party, including dYdX Trading, will have the ability to receive trading fees. I think this is just a major announcement that's really exciting for the community that we're building and lays out a vision from a product standpoint of what's to come over the next 12-24 months.
A few other important highlights on the trading side. The Trading team announced that the maximum leverage available to BTC and ETH was reduced to 20X from 25X. The fee schedule was reduced up to 66% for a minimum of three months. So less leverage on BTC and ETH, which given the volatility in the current markets is definitely a good thing. Most importantly, it's much cheaper now to trade on dYdX. The change is in line with centralized exchanges and created an opportunity for traders to trade more frequently without paying as much in fees. I'm sure there's a lot of questions on that and excited to have the dYdX Trading team on here.
There were other announcements today around the Trading Leagues product, which is also really exciting, which I'm sure that the team can share more on as well. Then lastly, in terms of the end of Epoch operational stuff. So Epoch 5 ended on January 18th at 3:00 PM UTC. As per usual, rewards are claimable approximately seven days after the end of the Epoch. So rewards will be available to claim tomorrow, January 25th at 4:06 PM UTC. So that's approximately seven days and an hour delay from the end of the Epoch. And so once you've claimed your rewards, you can transfer them. You can stake that to the Safety Module where you can delegate them to dYdX governance.
That's it on the Epoch review side of things. We'll be publishing the blog post in the near future, as well as the tweetstorm summarizing a lot of these statistics. Again, if the community has any feedback on these reviews, always feel free to DM me and happy to coordinate on that. Thanks, James.
James (dYdX Foundation): Thanks, David. That was great. If anyone has any questions regarding anything David's just said, all things Epoch 5, then please hold off until the end of this AMA where you'll be able to raise your hand and ask questions at that time. Next, Antonio, I can see that the community has a few questions for you. Are you happy to answer these questions here? I can go through them. The first one is, "will you release your research with Paradigm soon? Is there any date confirmed with that?" That's from @MethodMane on Discord.
Antonio (dYdX Trading): Thanks, James. First of all, thanks everyone for joining the call. It's great to have you on. To give you some context on this question. One of the things that we announced in the last month was that we are working on dYdX V4. One of the things that we talked about in that post is the main thing that we are working on right now which is the research side of the project. Specifically, this means what exactly we're going to build, how we're going to approach building a decentralized order book, the types of products that we're going to offer on the exchange, and pretty much from an architectural perspective, how exactly the next protocol is going to be built. So specifically as it relates to this question, will we be releasing any of our research findings with Paradigm along the way? We will continue to give updates generally as we go along. I think the main way we're focusing on building out this project is getting a lot further along on the research side, and also on the implementation side before we release too much information publicly. Probably the blog post that we put out just a couple of weeks ago is the best thing to refer to. Again, the main problem that we're trying to solve for the protocol is, how do we fully decentralize the protocol?
Directly responding to the question, we don't plan to release too much information probably in the next, at least one-to-two-to-three months on exactly what we're building, but I promise you, we are building some big stuff and I'm personally pretty excited to release more information on it once we have things a little bit more solid, further down the line.
James (dYdX Foundation): Awesome. That's great. Next question coming in from @BoringTrad3r, "what are the mechanisms by which you will achieve full decentralization?"
Antonio (dYdX Trading): Yeah, it's a good question. I don't mean to be too obscure but probably the answer is fairly similar to the previous question. I talked about this, or we talked about this, in the blog post. The main problem that we're trying to solve for full decentralization is, how exactly do we decentralize the order book and the order matching system on dYdX? Maybe taking a step back, why is this so important and why do we think it's so important to continue to use an order book based model on the full decentralized version of dYdX? I've talked about this a lot in podcasts over the years. But one of the really exciting things that's happened on dYdX, especially in the past couple of months, post the Foundation's token launch, is a ton of professional traders are now trading on dYdX, both individuals and legit crypto trading firms. The main way these traders trade is programmatically, they are used to trading on order book based models. So it's really important for us as a protocol and a product more broadly to be able to support those professional traders that demand access to the leading trading models, and that's order books. I know that that wasn't exactly the question that was asked, but sort of just giving a little bit of background on why are we trying so hard to decentralize the order book when there are, let's call it, proven decentralized trading models that are not order book based and that empirically do work in the wild, specifically like automated market makers. That's not what we're going to be building for dYdX V4. We're going to be building a decentralized order book. I don't think that that has ever been achieved so far by anyone in DeFi. I think it is super achievable in the next year and we have a lot of solid ideas on how exactly we're going to do this.
Again, not releasing too much information at this point, but we're researching a lot of off-chain gossip networks for how we can gossip orders amongst a decentralized network and have the function that we at dYdX Trading play right now in terms of operating the off-chain matching engine, just more performed by a decentralized network of participants. That's probably all I'll say about that for now, but this is, as you say, a core part of the research and what we're going to be building in V4.
James (dYdX Foundation): That's fantastic. Thank you. For those trying to request to speak, just hold off until the end and we'll all answer questions just right at the end of the AMA, please. The last question, Antonio, from the community, from @LuraSSS, "there's a wonder if you're thinking of switching from an ETH network to your own network, like every huge growing project. If you have an idea to switch to your own network, you have answered this question. If your answer is no, are you planning to do anything about commission fees? We pay a fee both when depositing to the staking section, when withdrawing, and when receiving bonuses. This situation seriously harms the investor."
Antonio (dYdX Trading): Yeah, great questions. I think those are two pretty separate things. Let’s take the first one first. We're not going to say exactly what we're building right now because we don't know. Again, we're more in the research phase of just trying to design the optimal architecture for what we want to build in the next protocol. I put out a somewhat spicy tweet on this I think a couple of months ago, that probably continues to be the best insight as to how I at least think about Ethereum versus other chains. Just sort of like rehashing that a little bit and then focusing on what that means for dYdX V4. I think Ethereum is clearly the leader in terms of building a decentralized platform for running smart contracts right now. It is the most decentralized, and there is by far the most infrastructure built up on top of Ethereum versus other chains. That being said, a lot of other chains, we're obviously looking at things like Solana, Cosmos, StarkNet, things like potentially other L2s that could roll up to any one of these given layer ones. The point here is that I don't care if we build V4 on Ethereum or Solana or Cosmos or StarkNet, or whatever. From a growth and community perspective, I only care about building the best possible product and that is always how we think about the decisions that we make at dYdX. Again, no specific decision has been made on that so far, but the point here is we're keeping our options open and looking at how exactly we can build the best possible product for traders to achieve our goal of becoming one of the biggest exchanges in crypto. I know this wasn't exactly the question that was asked, but just sort of like giving a little bit more context on that. I think it's always really important that we all keep in mind what the goal of dYdX is. It's not to become the biggest decentralized exchange in crypto, we've already sort of done that. We're basically tied with Uniswap. We want to become one of the biggest exchanges in crypto, decentralized or centralized. To do that, we just need to build the best possible product and not be beholden to any specific technology for more, I don't know, cultural reasons, I guess. We're keeping our options open and thinking about it from a purely technical perspective.
Then the second question, also a good one. I guess if I were to summarize, are we thinking about potential reimbursements for gas fees that are paid by traders on the platform? In response to that, I'd point at one of the things that we also launched in the past month that I was pretty excited about, which is gasless deposits on the exchange. I guess this kind of relates to what I was just saying, but obviously, gas fees on Ethereum are extremely expensive right now, we recognize that and we want to continue to drive a lot of volume to the protocol. So that was something that we launched in the past month that I think directly addressed that problem going forwards and should make the platform a lot more accessible to both existing and new traders.
James (dYdX Foundation): Fantastic. Thanks, Antonio. That's super interesting! Now more broadly, questions for dYdX Trading team, "How is the progress going in terms of the mobile app development?"
Antonio (dYdX Trading): I can take this one as well. It's coming along quite well. One piece of alpha is that we just ran an internal trading competition on the dYdX app, where everyone on the team used the app, which is basically done and built. We're in the process of final testing on it right now to do a bunch of trading on the main app with real money. So the point here is that the app is built. You know, these things take a little bit of time in terms of squashing all the bugs and making sure we can deliver a high-quality product to the traders and the community. We're really close and we're almost there. There's no specific timeline for exactly when that's going to launch, but that is another really exciting thing that I think will be launching in let's call it like the next few months, if not sooner.
Also, backing up and maybe talking a little bit more about why I'm really excited about the mobile app. First of all, mobile is a super important paradigm for technology in general. And I think just having a mobile app will make dYdX a lot more accessible to a lot more traders all over the world. The other reason I'm really excited about it, and the reason I think that there's a huge opportunity especially on mobile, is because I think nobody has nailed a great trading app for crypto on mobile so far. Obviously, FTX, Binance, etc., all have trading apps, but I think that there's still quite a lot of improvement in the product and design space around trading apps in general and getting mobile trading and crypto to be up to the standards of what is more expected in the traditional markets, more similar to the quality of like a Robin Hood. And I don't think crypto's there yet, so I think there's a big opportunity for dYdX. Specifically answering this question, sometime in the next few months.
James (dYdX Foundation): Awesome. That's great. Thank you. "Can you talk more about the Trading Leagues product?"
Antonio (dYdX Trading): Yeah, for sure. Maybe I'll give a quick intro on this. Corey was the mastermind behind this one, so he can talk more about it. Effectively what we wanted to do and the goal of this, was to drive a lot more gamification, a lot more social interactions, and pretty persistent rewards to trading on dYdX. The motivation for this was that the worlds of trading and gaming are not connected but somewhat similar. A lot of the mentality that goes into trading is a similar mentality to what exists in gaming at large, whether it's video games or poker, etc. We can take a lot of learnings from what has worked well for those industries and bring them into crypto for the first time, nobody's done this before, even on centralized exchanges, so we aim to drive a lot more retention and user adoption through this product. Effectively what it is, I think, if you've played video games before, it should feel pretty similar. For example, there are five leagues, bronze through diamond. Everybody will start in the bronze league and then will work their way up to diamond league based on their trading performance. There will be rewards for the top traders in each league on a weekly basis. I'll stop there. Corey, I don't know if you wanted to add anything else?
Corey (dYdX Trading): I think when we think about it at a high level as well, it makes the product a little bit more approachable. When we think about adding new users to the exchange and growing the protocol more broadly, being able to enter a product and enter some sort of competition or game where you can get feedback on how well you're doing on a weekly basis is a unique way to continue to add and expand the dYdX protocol. Another thing I would add there is that we're definitely thinking about ways to tie it back to $DYDX as well. I think what's interesting here is that if you look at the prize and entry requirements, as you continue to level up in the system, you have to have more $DYDX or $stkDYDX in your wallet that you're holding. The goal here is really to not only onboard people to become more active traders, but also continue to onboard to the governance protocol more broadly. I think what we'll start to see here is more distribution of holders of the token as well, which is a positive.
James (dYdX Foundation): Thanks, Corey. That was great. Then moving in the opposite direction, "is there a timeframe on the NFT announcement? Can you disclose any of the utility yet?" That question was from @Thrawl.
Antonio (dYdX Trading): Yeah. Good question. So, first of all, we haven't announced specifically that we're launching an NFT or anything like that. Let's say there will be another announcement later this week, which I think I teased last week in one of my tweets. There will be another announcement later this week, in just a few days, so stay tuned for that.
James (dYdX Foundation): Fantastic. Next, the question from @Rhoden is, "will there be trading pairs on TradeView eventually?"
Corey (dYdX Trading): Yeah, sure. I could take that one. In short, we're working on it. There's a whole process that has to happen before a new exchange is integrated with TradingView. We are in touch with their teams and are discussing both the possibility of just adding dYdX markets so people could use their charting tools on their website. As a longer-term discussion, also we are chatting with them about the possibility of adding an actual trading integration. I guess to give it some perspective, TradingView has, somewhere around the order of magnitude of like 500,000 active traders per month, that utilize their trading infrastructure to execute trades. So we would, theoretically, if this happened, be one of the first DEXs ever to be able to integrate with them, so we’re having two parallel conversations there.
James (dYdX Foundation): Thanks, Corey. "Are there any plans for the next content or trading competition? If so, when?"
Corey (dYdX Trading): The community can think of the trading leagues as a perpetual trading competition. Basically, every week is a new competition and every week we're launching these competitions with various cash prizes depending on the league that you're in. These will essentially replace the previous format of the trading competitions.
David (dYdX Foundation): Just one additional comment on the content side of things, we’re still waiting on the public results of the content competition. Going forward, the community grants program is funding a lot of content creation, newsletters, growth initiatives, etc. Broadly speaking, anyone interested in creating content for dYdX, I'd encourage you again to apply to the Grants Committee and/or just start to do it, and then DM me for additional resources.
James (dYdX Foundation): Great. The last couple of questions for the Trading team, "will dYdX trading have to hold a certain amount of coins to enable spot trading?"
Antonio (dYdX Trading): I'll take this one. More broadly I'll interpret this question as, "will there be spot trading on dYdX in the future?" "If so, what will that take from a product and protocol perspective?" It's definitely something that we're thinking about for the long term. Again, maybe just zooming out and reframing the question in a different way. For me and the Trading Team at least, we always start with, "what is our goal?" Our goal is to become the biggest exchange in crypto, centralized or decentralized. The reason that we're so focused on synthetic trading is because that is the biggest market in crypto already and it's continuing to grow fast. So that is the main thing that informs our pretty singular focus on just building high-quality products and protocols, specifically for that use case of trading perpetuals and synthetic assets. One of the things that we're excited about with spot trading is that it makes the product better overall just to have multiple different types of trading in the same app. So it's certainly something that we're considering adding to the V4 protocol. In all likelihood, it would not be added to the current L2 perpetuals protocol, but this is something that we're thinking about adding for V4. We haven't really decided if we're going to be coming out of the gates having this upon launch. It just opens up a lot of new questions, with whatever roll-up or chain that you're on, how many tokens do people have on that chain, right? When you're spot trading the assets themselves must be there, versus if you're just trying to support a protocol or synthetic trading, really all you need is just one collateral asset or multiple of collateral assets. Whereas for spot trading, you need to worry a lot more about bridging, onboarding, offboarding, etc. So to answer the question, we're definitely thinking about it, but it's something that at the soonest would come with V4 in all likelihood.
James (dYdX Foundation): Perfect. "Is there a rough roadmap of derivatives, cross margin, multi-settlement, inverse perps, and expiring future planned?"
Antonio (dYdX Trading): Yeah. Similar answer to the previous question. This is definitely something that we're thinking about for the long term. Specifically thinking about it being added into V4. I'll just reframe it as, "what is our goal?" Our goal is to become the biggest exchange in crypto and therefore, we want to offer the products that people want to trade. It's not our job or decision to be telling people what products they should be trading exactly. Why did we focus on perpetuals exclusively for at least the past year or two? It's really because that's where the market is at. From a volume perspective, perpetuals trade more volume than everything else in crypto put together. That being said, one of the things that I'm excited about for the evolution of trading and crypto is the evolution in other types of derivatives. Specifically, I'm looking a lot at options, potentially more things like dated futures, potentially more let's call it novel financial products like the type of stuff that Paradigm was having the research papers on, etc. So again, similar answer, we don't have any firm plans to support any of that right now. We are thinking about building a platform for multiple types of trading products into V4 in the future. That could come out either on the launch of V4 or afterward.
James (dYdX Foundation): Perfect. Thanks, Antonio. Finally, "will the leagues have the option to follow other traders?"
Corey (dYdX Trading): This isn't a feature that we'll have at launch. By definition, all traders' trades are private when you trade on dYdX. It's not something that's fully available or easy to just open up. Having said that, I think the interesting thing about trading leagues is it gives the opportunity for certain traders to expand their brand. For instance, if you're doing really well in the trading leagues, maybe you release some sort of trading bot on various protocols outside of dYdX that you are able to follow them on. Trading leagues are a good way to objectively rank different traders. On top of that, there is at least one of those protocols or companies that do copy trading that is looking at integrating into dYdX. For something in the future, once they complete that integration, you could theoretically see a world where top traders on dYdX are then launching strategies on these copy trading platforms. Then you can copy the trades on dYdX.
James (dYdX Foundation): Thanks, Corey. That's all the questions for the Trading team. Thanks to the community for pre-populating those. Now, moving on to questions for the Foundation team. David, specifically, starting with the V4 plan, @RainDaniel posted, "is it quite dangerous to become fully decentralized? Will the whale token holders be able to affect the voting results, ahead of the more loyal and engaged users?"
David (dYdX Foundation): Great Question. Is it dangerous to become fully decentralized? I think that's a matter of personal opinion. Generally, the whole team and the ecosystem are aligned that decentralized is better than centralized. If we can build the best product that is built on decentralized technology, that is on par with centralized exchanges, if not better, then I think a lot of the benefits of decentralization really just empower traders globally. I don't necessarily see it as dangerous, I think that there are potential implications around from a technical standpoint if you can reach full feature parity. Again, the dYdX Trading team, which is the best team in the space, is focused on building the best product to address that. In terms of whale token holders being able to affect the voting results ahead of the more loyal and engaged users, the objective of launching $DYDX is really to align incentives between various stakeholders in the overall ecosystem. I think as a general principle, we want to distribute tokens to active traders who are going to be long-term contributors, LPs, or traders on the dYdX protocol. If you look at the token distribution schedule, we're only about 10% in. We're just at the start of Epoch 6, all of the existing pools, rewards, and staking pools are set to last five years. So we're just in that first inning. Even though a lot of investors currently have locked tokens that are subject to lockups, even today with 8% of the circulating supply in the hands of the community and liquid, the community by itself can submit proposals and pass important proposals that drive governance, decisions, and growth for the overall protocol. Overall, I think it's important to understand that investors and the team all have exposure to the token and everyone wants the long-term and sustainable growth of the ecosystem over time. Those dynamics will continue to play out but I don't see large whale token holders as being a negative for the overall growth of the community. I'd encourage smaller $DYDX holders to come together and vote and pass meaningful proposals that impact their situation.
James (dYdX Foundation): Great. Thanks for clarifying that, David. Another one is coming from @Walrus, "there's been a proposal to add veDYDX. Does the team feel like adding curve-like token mechanics to either type of staking activity to be beneficial?"
David (dYdX Foundation): That's a great question. I guess, just to level-set for those who aren't familiar with Curve and the “ve” construct, effectively Curve pioneered this model that provides governance rights for anyone who stakes their tokens. Basically, you require vote locking. People on Curve who lock their tokens for longer periods of time, up to four years, get a greater weighting in terms of voting and governance. I think overall, it's a really interesting design that, again, puts more governance rights into the hands of stakers, who are presumably longer-term participants in the ecosystem. There was one thread or comment on the Commonwealth Forums indicating that this was an interesting design that the dYdX community should consider. Overall, encourage the community to continue to debate and do research on whether this type of structure makes sense for our community. Ultimately, the community has full control over the governance contracts, which includes how governance voting weights are allocated. So certainly this is within the control of the community, but just because one other project does it, doesn't mean that it makes sense for us. I encourage whoever submitted this question, and the community more broadly, to do more research and understand the implications of passing a proposal like this. But, on the surface, I think it is a really interesting design, but it does come with its own set of trade-offs.
James (dYdX Foundation): Next question, coming in from @Chris, "is there any progress on automatic staking instead of having to claim then stake?"
David (dYdX Foundation): Yeah, so this is a great question that's come up a lot both on Discord as well as Commonwealth. Overall, I think this is a really interesting feature that certainly would be beneficial for stakers. For anyone who's staking $DYDX to the safety module, currently you have to withdraw or claim your $DYDX at any time during the epoch, which costs gas fees, then you have to re-stake those $DYDX for that to compound. I think the proposal for it to automatically compound makes a lot of sense. It would cost less in gas and just continue to increase the size of the safety module. I think the issue here is really on the engineering side. This is not a trivial kind of task around building in this automatic staking. Frankly, on the engineering side, we're quite bandwidth constrained. Having said that, this is certainly an improvement to the governance contract. It could be proposed by the community. If there are any developers who want to take a look at the open-source code, there's certainly room to improve it, adding features such as automatic staking, so I would encourage the community to drive that initiative.
The other area or way to achieve this goal would potentially be to work with another DeFi protocol. It could be someone like Yearn or Yearn Vaults, who create automated strategies where people stake $DYDX on Yearn, and Yearn is the one that automatically compounds those rewards. These smart contracts are fully composable on L1. So far, we haven't seen a ton of community engagement or development around them, but these contracts are in the hands of the community, they can be upgraded, and so important features like automatic staking could be implemented if the community mobilizes around it.
James (dYdX Foundation): Now, another question from @Meng, "is there anything we can do about listing new tokens at a faster rate?" I know this has been a common question that's come up in the community as well.
David (dYdX Foundation): Yeah, this is a great question, Meng. Generally speaking, towards the end of last year, the dYdX Trading team was adding one to two new markets a week. That's stalled a little over the last few weeks and months. The protocol currently has a number of additional markets that are eligible to be added. To add a new market on dYdX, there must be a reliable oracle, market makers who are willing to provide liquidity, and then it needs to pass a competitive analysis. So ultimately to become the largest exchange in crypto, the dYdX Trading team has always been focused on listing the assets that are most traded and of high quality. Focusing on the most traded and high-quality assets is going to continue to be the strategy there. Lastly, it needs to pass a regulatory review to make sure that the token in question is not a security by US standards. So that's the framework that's been formalized. If you look at the Commonwealth Forums, there's a thread that was started by Wintermute, creating a committee to put the business case around adding new tokens. I think that that proposal has somewhat stalled. Generally speaking on Commonwealth and Discord, there are a lot of one-off requests for listing a given token, which is helpful just to get a sense of market sentiment, but ultimately, we encourage the community to put together really a more robust framework around a list of the 20 new markets that we want listed, the business case around it and all the other parameters that I mentioned. Again, adding new markets to the protocol at this point requires a governance vote for it to be added to the smart contracts. So there is a process here, but there are probably five or so new assets that can be added that are already included in the protocol. Any new asset beyond that would require a governance vote. I think this is really in the area for the community to try to push and come up with a more holistic framework for which markets to list and do that in more of a constructive manner than just one-off requests.
James (dYdX Foundation): Thanks, David. Just the last few questions. "Are there any plans on pushing the marketing for the dYdX protocol?"
David (dYdX Foundation): Absolutely. I mean, marketing broadly is an area that certainly the Foundation and the dYdX Trading team are extremely focused on. At times it seems like we live in our own little echo chamber, or large echo chamber in crypto. The most important thing when you've built a product as great as ours is really getting the word out there. At least on the Foundation side, we're looking to hire a marketing associate. We have a job description posted on our careers page. The dYdX Trading team also is looking to hire in various marketing roles that are listed on the careers website as well. Broadly speaking, marketing really is in the hands of the community. I think word of mouth and getting all of our users and community members to share important updates and helping to drive broader awareness of dYdX across different distribution channels is critical. Beyond that, I think the Grants Committee has explicitly come out with a few RFPs, just generally focused on growth and marketing. So, anyone who wants to write a newsletter, build marketing, or growth-related things, you can get funding for that as well. From the product side, a lot of the initiatives that Corey and Antonio mentioned around the Trading Leagues product and creating our virality there, holistically we're all thinking about growth marketing across different channels. Marketing broadly is an area that we are focused on improving and I do think that the community must play a stronger role in terms of helping to drive marketing more broadly.
The last point I'll make here is with V4 of the protocol that Antonio was discussing, in a similar vein, I think the community should be thinking a lot about what growth and marketing look like when V4 of the protocol is released. How do we build the best decentralized marketing engine for the dYdX ecosystem to continue to bring in new traders that help us achieve our mission?
James (dYdX Foundation): Great. Thanks, David. The last few questions begin with, "what is the minimum amount of funding you can apply for, for the grants program?"
David (dYdX Foundation): So that's a good question. I see we have CBergz in the audience, who is from the Reverie Team. So maybe we can bring him on stage and he can address and highlight some of the requirements there.
CBergz (Reverie Grants Committee): That's a good question. There's technically not a minimum. We are not trying to pay out tiny grants. We want it to be as productive as possible and we want people to be well rewarded for the work that they're going to do as well. Given the funds that we have in place, we're looking at a range of about $10,000 is probably the lower bound. I wouldn't expect those to be below $10,000 notional.
James (dYdX Foundation): Great. Thanks, Cbergz. Then the last question for David would be, "do you interact with other DAO projects?"
David (dYdX Foundation): At a personal level, I spend virtually all my time interacting with other DAO projects and exploring the DAO infrastructure tooling set out there. Obviously it's a pretty dynamic space. There are a lot of different DAOs out there. A lot of them don't work super well. For the dYdX community to have control over the largest crypto trading platform out there, we need to build a best-in-class DAO. There are a lot of lessons learned by experimenting and exploring what other people are doing. Generally speaking, I can't say that I've been super impressed with other DAOs. I don't know that there's any DAO out there that's really best-in-class quite yet. There are a lot of DAOs that have interesting models and things to learn from. This is a white space for us to build the best DAO possible. One additional point here is one objective for the community should be really around driving utility for $DYDX, more broadly within the broader ecosystem. We encourage the community to also participate in other DAOs and see whether there are any ways to partner and really drive utility for dYdX by really leveraging that composability.
My example earlier, working with Yearn to build an automatic staking functionality to the safety module contracts, for something like that to be built, there would need to be community members that are active within the YearnDAO to help drive that discussion. If you think about DAOs and are excited about DAOs, this is literally what I geek out about all the time, so feel free to DM me. If you have any ideas or specific examples that you think other DAOs are doing well, always happy to chat on that.
James (dYdX Foundation): Okay. I know we've gone on for a while, guys in the audience. What we'll do, let's just open up the floor for one or two questions. If you want to ask a question, raise your hand now, and then we can invite you up to the stage. I'll give you a minute or so to do that. We'll probably have time just for one or two questions. So please raise your hand if you've got a question. It can be to the Foundation team or the Trading team.
StarkWhale (Community Member): “When you guys say you want to do community governance, and you want governance to be a V4 effort in relation to marketing, what are you picturing? I've had some ideas personally, I want to talk to someone about these ideas in some capacity, because to build out a codified marketing angle or room for a decentralized platform is a unique challenge. I'm kind of wondering what the team has in mind, or what you guys are envisioning?”
David (dYdX Foundation): Yeah. I think it's a great question and a unique challenge. Certainly happy to chat after this AMA and brainstorm there. My very preliminary thoughts here is that, ideally, all of dYdX users are currently outside of the United States, and really around crypto hubs and various markets. The ultimate vision is how can we get the community to mobilize around 20 or so different marketing agencies that are community-controlled, community funded and community staffed that really help drive localized growth targeting different geographies around the world. I think that's a very big picture, but we're spending a lot of time thinking more formally about a community manager and ambassador program, really helping to drive increasing the localization of our content and the product into various languages, trying to educate and support users with guides, and reduce the barrier as much as possible. So I think that's the lowest hanging fruit. Beyond that, I think our competition now is really the FTXs and Binances of the world that are spending $50 to $100 million a year on sports sponsorships and various marketing efforts with very substantial budgets.
I think the whole team, Antonio in particular, and then various members have been very vocal about the fact that in DeFi more broadly, community treasuries are just "criminally underutilized," right? I think even the grants program which is currently funded, at the time, with $6 million, representing one of the largest grants programs in DeFi, is still a relatively small marketing budget. How do we build the infrastructure, tooling, community members that ultimately we get to a place where we're spending $50 to $100 million a year, financed by the community treasury to really elevate the brand and the dYdX ecosystem beyond the current distribution channels that we have today.
I think those are just high-level thoughts from the community side of things. There's a lot of room for building and creative approaches to help address what a decentralized marketing DAO, sub-DAOs, or working groups, look like in the context of dYdX. If that's a challenge that you're excited about, I'm happy to chat anytime.
StarkWhale (Community Member): Yeah, the information is pretty much what I was wanting to hear and what I was thinking in part. It's a really important metric, people don't realize that Binance when they ICO’d, they spent literally 50% of their ICO budget on marketing and that's why they are where they are right now. They did exactly what you were talking about doing. They went global, they targeted every market. They were very active and they were very proactive. I wasn't sure on what level you were looking into this, but what you guys have been talking about is really wonderful. So I'm really happy, thank you also for having me on to speak.
James (dYdX Foundation): Based on time, guys, we're going to have to wrap up here. I'll just finish reiterating that gasless deposits are still live. These are $1000 for new users on their first transaction and $2,000 for existing users, limited to every three days. I know there's been some concern in the community with regards to supported wallets. So, confirmed dYdX supported wallets for depositing and withdrawing are MetaMask, Ledger, Coinbase Wallet, WalletConnect, ImToken, Trust Wallet, Rainbow, and TokenPocket. Other wallets may work, however, they're just not fully supported by dYdX yet. I know there's been some recent difficulty with bridging the Trezor Wallet. One member of the community, yesterday or the day before, managed to successfully do this by turning the gasless deposits off. So finishing on that, thanks everyone for tuning in. If it's your first time, great. If you've been around for a while, fantastic, thanks for tuning in. Thanks for posting the questions, asking the team for really detailed responses. We're always monitoring the community. Keep up the comments and interaction, it's encouraging to see all the support and knowledge that you hedgies have. So let's end on that note. This will be deciphered and posted as soon as we can. Hopefully it'll be within the week. Have a lovely evening, morning, or afternoon wherever you are.
Legitimacy & Disclaimer
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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