dYdX Layer 1 is a perpetual derivatives exchange that uses a completely decentralized order book to create liquidity for traders. With the ability to receive cash flow from all other chains and high scalability.
The currently active dYdX V3 version is a Layer 2 using StarkEx’s zkRollup technology that is performing very well, with billions of dollars in transaction volume per day. That didn’t really go with the development team’s original vision and they were more ambitious. So they developed dYdX Layer 1, also known as dYdX Chain.
So what is the vision of the development team? Is it really true in the upcoming cycle? Let’s find out the details in this section!
Overview of dYdX Layer 2
dYdX is a perpetual derivatives exchange (Perpeptual) developed to compete with CEX exchanges. dYdX creates trading liquidity using a CLOB-style order book, meaning trading orders will be matched in the Offchain environment.
With the V3 version in operation at the present time, this is a Layer 2 on Ethereum developed based on StarkEx’s zkRollup technology. Using STARK proof will bring transaction privacy.
In essence, dYdX’s order book is operated by a third party similar to CEX exchanges. The difference is that the project is user-accessible using a Web 3 wallet and the assets are controlled by the user. That is also the biggest difference between centralized and decentralized platforms.
dYdX is also Layer 2 on Ethereum using zkRollup technology, so the transaction or order placement speed is hundreds of times faster than Ethereum but still meets high security for users thanks to transactions being aggregated and sent to the Layer. 1 Ethereum.
Overview of dYdX Layer 1
As for the V4 version of dYdX, it is a Layer 1 using the PoS consensus mechanism built based on the Cosmos SDK toolkit. This Layer 1 officially Mainnet on October 26, 2023. It uses DYDX Token as proof of stake for the network. Therefore, in addition to the Governance feature, DYDX is also used to pay transaction fees and Stake to Validators.
The transaction fees that Layer 1 dYdX collects in USDC and DYDX will be used as rewards for Validators and Stakers. For market makers, they will be free to participate in creating liquidity for the market.
Currently versions V3 and V4 of dYdX will work in parallel with each other. So why did the V3 version have a resounding success with a daily trading volume of up to billions of dollars and hundreds of thousands of traders participating in transactions every day, but did they develop Layer 1 dydX with the V4 version? To answer this question, let’s go to the next part.
Why Did dYdX Change to Layer 1?
Although currently the V3 and V4 versions of dYdX operate in parallel, the project’s vision is to transfer all values from dYdX V3 to dYdX V4. The project when founded had a vision of creating products for everyone and being completely decentralized and Layer 1 is the destination.
dYdX is new to the Mainnet and has not yet been put into stable operation, so the project needs time to develop. Especially in need of high security from the Validator system, a large enough amount of dYdX is staked to ensure that no one can attack. Then, dYdX will fully work with the only Layer 1 version.
So why move dYdX to Layer 1? This is true to the vision of delivering decentralized products. The first is that dYdX Chain will operate independently with its Validator network, it is not dependent on Ethereum, not affiliated with StarkEx or StarkWare. Layer 1 dYdX will be a completely decentralized network, managed by the community.
With version V3, dYdX uses off-chain order matching Orderbook (Offchain) to respond at the fastest speed possible, similar to CEX. It unintentionally brings concentration risks and lack of transparency to the Crypto market. With dYdX Chain, the Validator will operate this order bookthereby turning the order book into a space that is not controlled by anyone.
The zkRollup technology that dYdX V3 uses from StarkEx offers higher scalability than Ethereum with a TPS of about 100. But when moving to Layer 1, the project can handle with Speed up to 10 thousand transactions every second. Needing fast speed to meet market demand for the upcoming season, the scale of Crypto will be much larger than at present.
dYdX is built using the Cosmos SDK toolkit to be Layer 1 compatible with EVM and connect to all blockchains other, especially the Cosmos ecosystem. This orientation helps dYdX become a trading platform ready to accept users and cash flows from any other blockchain, not just Ethereum.
The development team built dYdX Chain as a Layer 1 which also helps increase the applicability of the project’s original Token, DYDX. This token with version V3 is only used for administrative voting and incentivizing core users. In version V4, in addition to being used for Governance, the DYDX Token is also used to pay transaction fees and Staking in Validators to receive rewards.
dYdX chose Cosmos SDK because the toolkit was very optimized to help the team build a Layer 1 quickly, in fact about 1 year. The Cosmos SDK allows for a very high level of customization of the structure and components in the chain. Especially since there aren’t many dependencies and constraints on Cosmos. Allows Layer 1 to develop freely.
dYdX Development Team
The founder of dYdX is Antonio, he used to work for Coinbase so he has a lot of experience and capacity to develop products in this field. He is a famous person in the Crypto world with more than 50 thousand followers on X. Antonio also has a deep relationship with Coinbase, the leading investment fund Paradigm.
Antonio and the dYdX exchange are also supported by Fred Ehrsam Co-founder of market-leading venture capital fund Paradigm. Fred Ehrsam was also a co-founder of Coinbase Exchange. In terms of talent, it goes without saying. And he has participated in consulting and supporting a lot of projects. For dYdX, he directly contributed to the product development strategy.
dYdX also receives support and support from major investment funds such as Paradigm, a16z, Polychain Capital, Electric Capital, Bain Capital Crypto, DragonFly, 1confirmation. These funds have invested a lot of money to fund development projects and also participated with other contributions.
With talented people developing a product together, do you know how good it is? And in fact, dYdX is leading in the Derivative segment and its trading volume even exceeds Coinbase.
dYdX Application on Phone
The dYdX team has developed an App version for phones on IOS. The App will help Traders place orders or monitor orders right on their phone, anytime, anywhere. Smartphones are an indispensable item for most people, so this product brings many conveniences to users as well as easily reaching a large number of users.
I used to trade Forex and saw many famous foreign traders analyze buy and sell points in Trading View on PC or Laptop. But they often enter orders and monitor them on their phones. Phones help them manage and transfer money easily.
I don’t know if Metaverse will be a popular product for everyone in the future or not. In the next 1 or 2 cycles towards Mass Adoption, phone support is inevitable. Phones are popular products for everyone, so when the dApp is transformed into an App on the phone, users are ready to use and experience it.
Advantages and Disadvantages of dYdX Layer 1
Advantage
- Completely decentralized with the order book operated by the Validator system on layer 1 dYdX.
- The ability to match orders quickly, can reach speeds of tens of thousands of transactions per second.
- Ability to connect with other chains thanks to Cosmos infrastructure and Bridges.
- Applications can develop products related to dYdX on dYdX Chain. These applications will help optimize products and supplement liquidity for dYdX.
Defect
- Security risks when the dYdX Layer 1 network is new and there are not many Validators on this chain.
- The dYdX token is divided into many versions on many inconsistent networks, which will be a barrier for users.
- dYdX V3 and dYdX have not been merged into one, providing a unified dYdX interface that operates on the dYdX Chain layer.
Personal Projection
dYdX is the largest decentralized perpetual derivatives exchange in the Crypto market, processing billions of dollars in trading volume every day. The project is developing in appropriate directions such as decentralization and improving scalability to meet the transaction needs of millions of users that will pour in in the next cycle.
The Crypto market is still very small, with the potential to grow in the future. When a large number of users pour in, they will choose large, reputable projects to use. Therefore, dYdX will be a place to welcome new cash flows in the next cycle.
As you know, the demand for trading perpetual futures contracts with leverage is huge. Even when the market is as gloomy as ever, there are still hundreds of billions of dollars in trading volume every day, most of which is on CEX exchanges. As demand is large and users are switching from centralized and decentralized finance, they will be the next customers for dYdX.
In the Crypto market, to build and develop projects, the most important point is people. People will come up with ideas and directly build. The market is growing very quickly and needs people who can grasp or stay ahead of the market. dYdX’s team is a team that can do just that.
The founder of dYdX is Antonio, he used to work for Coinbase so he has a lot of experience and capacity to develop products in this field. Antonio and dYdX are also supported by Fred Ehrsam Co-founder of market-leading venture capital fund Paradigm. Fred Ehrsam was also a co-founder of Coinbase Exchange. In terms of talent, it goes without saying. And he participated in advising and supporting the project a lot.
With talented people developing a product together, do you know how good it is? And in fact, dYdX is leading in the Derivative segment and its trading volume even exceeds Coinbase.
The project has launched a mobile application, this product is futuristic and truly necessary. Placing orders right on the phone will be much more convenient and easier to follow. We can’t always carry a computer with us. I see that Forex traders prefer placing trading orders on the phone, but analyzing entry points using a computer is most intuitive.
Summary
dYdX is a project that has made many improvements and pioneered the introduction of Orderbook into the derivatives market. The project has achieved great success and become a monument in the Crypto market. Leading a very important and potential segment, dYdX still has many opportunities to develop.
Especially the strength comes from the people who dedicate themselves to the project every day. Products are continuously improved and come up with new ideas, solving difficult market problems. It is not an exaggeration to say that dYdX is a technology unicorn and continues to thrive in the new cycle.
