dYdX has announced its intention to leave Ethereum, making the announcement in a blog post on its website. After leaving Ethereum, the protocol will focus on creating its own chain in the Cosmos ecosystem. Against this backdrop, derivative DEXs are still figuring out the best way to structure their protocol.
A New Standalone Blockchain, The dYdX V4
dYdX believes that migrating away from Ethereum and working on its standalone blockchain would allow the protocol to be significantly more efficient and increase its processing capacity by at least 10. The blog post revealed that the new chain would also not feature gas fees, instead featuring only trading fees. The team at dYdX also expects the move to improve the protocol’s decentralization and processing capacity significantly.
The new Layer-1 blockchain will become the new home of the DYDX token, currently trading at just under $1.50. The protocol also took to Twitter to announce the news, tweeting out,
“We’re excited to announce that dYdX V4 will be developed as a standalone Cosmos-based blockchain!”
dYdX V4 marks the full decentralization of the dYdX protocol. The blog post also highlighted that having a standalone chain on Cosmos would allow the platform that little bit of extra flexibility when it came to features and fees. The blog post stated,
“A major benefit of Cosmos is that the chain can be developed to suit the exact needs of the dYdX network. One application of this is that traders would not pay gas fees to trade, but rather pay fees based on trades executed similar to dYdX V3 and centralized exchanges. These fees would accrue to validators and their stakers.”
The Need To Scale
dYdX’s blog post also highlighted the problem with Layer-1s and Layer-2s that the team could develop on, stating that none of them could handle the throughput required to run a first-class order book and match engine. The existing dYdX product is capable of processing around 10 transactions per second, along with 1000 order places/cancellations per second.
The team, at one point, did consider the option of another trading model, such as an AMM or RFQ system. However, it ultimately came to the conclusion that an order book-based protocol was essential to give the trading experience that institutions and professional traders demand. The team explored existing off-chain order book systems but were not satisfied, leaving them with no choice but to create a decentralized, off-chain network to enable the running of the order book.
While most decentralized exchanges continue to use liquidity pools and automated market makers (AMM) to fill orders, dYdX will continue its use of a traditional order book model, even with the new version of their platform. The team at dYdX believes that order books that directly match a buyer with a seller are better suited to handle large, institution-sized transactions.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.