Bessie Liu

The community that oversees the dYdX protocol is looking to adopt dYdX v4 in a recent governance proposal.



The crypto derivatives exchange plans to launch a custom dYdX app chain using the Cosmos SDK has been in the works since early last year as it migrates from an Ethereum rollup. 



A <a href="https://dydx.exchange/blog/public-testnet">public testnet</a> of dYdX v4 was launched in early July and has seen transaction volumes north of <a href="https://v4.testnet.dydx.exchange/?#/markets">$46 million</a>.



<a href="https://blockworks.co/tag/mev">MEV</a> mitigation is the subject of <a href="https://blockworks.co/news/skip-protocol-sdk">ongoing discussion</a>, with monitoring by <a href="https://blockworks.co/news/skip-protocol-sdk">Skip Protocol</a>, combined with some sort of governance-based social slashing the trendy approach.



Read more: <a href="https://blockworks.co/news/decentralized-exchange-dydx-to-build-its-own-blockchain">Decentralized exchange DYdX to build its own blockchain</a>



On the governance front, Callen Van Den Elst from Wintermute has <a href="https://dydx.forum/t/drc-v4-adoption-dydx-token-migration-to-dydx-chain/970">noted</a> that a handful of requirements must be met in order to successfully launch dYdX v4.



Notably, DYDX, the native token of the network, will be the layer-1 token for its new app chain. DYDX tokens will be bridged through a one-way <a href="https://blockworks.co/tag/ethereum">Ethereum</a> smart contract commissioned by the dYdX Foundation, and validators must reference the Ethereum Smart Contract when distributing DYDX tokens on the app chain.



Community governance will also determine whether a wrapped version of the Ethereum-based DYDX token (wethDYDX) will have the same governance and utility as ethDYDX tokens on dYdX v3.&nbsp;



This final requirement is necessary to ensure that governance on Ethereum remains functional during the transition period.&nbsp;



These proposal items will all be included in a 4-day <a href="https://snapshot.org/#/dydxgov.eth/proposal/0x17026e18317dc29fe745d3130246a83b1485612da9c97e7261e8f659cf33663c">Snapshot vote</a> beginning Monday at 7:49 pm ET.



The price of <a href="https://blockworks.co/price/dydx">DYDX</a> is trading at $2.16, up from $1.97 the day prior as of 10:15 am ET.



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New dYdX v4 reaches community vote stage

Jocelyn Yang

<div id="highlights-block_62b361ebaefe1" class="highlights">
 <ul>
 <li>The goal for dYdX V4 is to have high throughput for the order book while remaining decentralized, the company said</li>
 <li>DYdX is positioning itself as the largest decentralized derivatives exchange, with more than $690 million in trading volume in the past 24 hours</li>
 </ul>
 
</div>



A crypto derivatives platform based on Ethereum layer-2 blockchains is developing its own blockchain.



The new product from dYdX plans to be based on Cosmos, using Tendermint’s proof-of-stake consensus protocol to validate transactions. Layer-2 protocols are built on top of popular blockchains, such as Ethereum and Bitcoin, and are typically used to increase efficiencies, add features and scale the technology.&nbsp;



The game plan for dYdX V4 — the exchange <a href="https://dydx.exchange/blog/v4-full-decentralization" target="_blank" rel="noreferrer noopener">laid out</a> by the company in January — is to be fully decentralized by the end of the year.&nbsp;



“Developing a decentralized, off-chain order book and matching engine and moving from Ethereum to a dYdX-specific chain as a major [decentralized finance] protocol is very much untested, but we believe it gives the dYdX ecosystem the best shot at having a network that could offer a long term competitive product experience with centralized exchanges,” the company said in a statement.&nbsp;



Founded in 2017 by ex-Coinbase and Uber engineer Antonio Juliano, dYdX is positioning itself as the largest decentralized derivatives exchange — with more than $690 million in trading volume in the past 24 hours, according to <a href="https://www.coingecko.com/en/exchanges/dydx_perpetual" target="_blank" rel="noreferrer noopener">CoinGecko</a> data.&nbsp;



The company noted the existing dYdX product processes at about 10 trades per second and about 1,000 order placements/cancellations per second.



In the company&#8217;s vision for dYdX V4, each validator will “run an in-memory orderbook that is never committed to consensus” such as off-chain. Meanwhile, on a real time basis, “orders will be matched together by the network. The resulting trades are then committed on-chain each block.”&nbsp;



A spokesperson for the company didn’t immediately return a request for comment.



In August 2020, dYdX <a href="https://integral.dydx.exchange/scaling-with-starkware/" target="_blank" rel="noreferrer noopener">partnered</a> with StarkWare to scale decentralized trading. The company <a href="https://cms.blockworks.co/paradigm-leads-65m-round-for-decentralized-exchange-dydx/" target="_blank" rel="noreferrer noopener">raised</a> $65 million in a Series C funding round in June 2021 led by Paradigm.



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Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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