Introduction

dYdX Foundation is excited to share our inaugural ecosystem annual report. Despite the challenging market conditions in 2022, stakeholders in the dYdX ecosystem persevered and continued to build toward the future of finance - one block at a time.

In 2022, DeFi proved its resilience and demonstrated clear advantages over CeFi. Market activity and sentiment highlighted the benefits of trustless technology, self-custody, and decentralization, including an opportunity for unparalleled transparency and fairness. We believe that these principles are key to the dYdX protocol’s success in the future.

The dYdX ecosystem is thriving with contributions from DAO contributors and endorsed delegates, market makers, infrastructure providers, security and audit providers, researchers, and builders of DAO tools and analytics. We extend our congratulations to all dYdX ecosystem stakeholders for a successful 2022! We look forward to collaborating with partners and contributors in the Cosmos ecosystem with the upcoming release of V4.

The 2022 ecosystem annual report covers the following sections:

1. About dYdX Foundation
2. $DYDX Token
3. International Go-to-market and Community
4. Governance
5. dYdX Protocol
6. dYdX Grants Program
7. dYdX DAO

We hope you enjoy reading the 2022 Ecosystem Annual Report! We welcome any feedback from the dYdX community on the 2022 Ecosystem Annual Report. You can view the short-form version of the 2022 Ecosystem Annual Report here.

About dYdX Foundation

dYdX Foundation is a non-profit Swiss Foundation formed in Zug, Switzerland on June 22, 2021.

dYdX Foundation shares dYdX Trading’s mission to “democratize access to financial opportunity.” dYdX Foundation was created to support and grow the dYdX protocol ecosystem by enabling communities, developers, and decentralized governance.

In 2022, the dYdX Foundation experienced significant growth, expanding from a team of three full-time employees and several part-time contractors to a team of 12 full-time employees and seven part-time contractors. One of the most noteworthy hires was Charles d’Haussy, who joined as CEO. Charles joins the dYdX Foundation from ConsenSys, a leading decentralized software protocols company behind Metamask and Infura. Charles is eager to tap into the power of community-driven growth to develop the dYdX protocol, community, and dYdX DAO. The dYdX Foundation team is focused on the following areas of the dYdX ecosystem:

• dYdX DAO development,
• Protocol governance,
• User Support,
• dYdX V4 Partners,
• Brand, and
• dYdX community enablement.

dYdX Foundation is hiring an Operations Associate and a Developer Relations Lead. Please apply, share the job postings and/or forward any network referrals that you think could be a good fit at dYdX Foundation.

$DYDX Token

On August 3, 2021, dYdX Foundation introduced $DYDX, a governance token that allows the dYdX protocol's community to govern the dYdX protocol. $DYDX aligns incentives between traders, liquidity providers, and partners of the dYdX protocol. $DYDX enables a robust ecosystem around governance and rewards – each designed to drive the future growth and decentralization of the dYdX Layer 2 protocol.

At the end of 2022, more than 33K unique addresses held $DYDX and $DYDX was distributed to over 61.5K unique addresses through a combination of retroactive, trading, staking, and liquidity mining rewards.

The dYdX community has control over many parameters via dYdX governance. For the following discussion, it is important to note that the dYdX community controls (1) the allocation of the community treasury and (2) changing any of the rewards and pools existing at launch.

In 2022, the circulating supply (including the community treasury) reached 194,449,829 $DYDX (19.4% of the total supply) and the accrued balance of the community treasury was 39,343,417 $DYDX. Currently, 2,492,731 $DYDX are available each epoch for the dYdX community to use for DAO and community initiatives, contributor grants, liquidity mining, and much more. We reference the accrued balance of the community treasury because it includes $DYDX vesting from the initial allocation (766,703 $DYDX each epoch) and $DYDX accruing in the rewards treasury from governance proposals to reduce $DYDX rewards emissions (1,726,028 $DYDX each epoch).

The initial five-year allocation of $DYDX included a 5.00% (50,000,000 $DYDX) allocation for the community treasury. As a result, 766,703 $DYDX vests in the community treasury each epoch.

In 2022, three governance proposals resulted in a 225% increase in the amount of $DYDX available to the community each epoch. We have included a summary of each proposal below.

1. DIP 14 - set the rewards for staking USDC to 0 (383,562 $DYDX per epoch),
2. DIP 16 - reduce trading rewards by 25% (958,904 $DYDX per epoch), and
3. DIP 17 - set the rewards for staking $DYDX to 0 (383,562 $DYDX per epoch).

Overall, the community voted to reduce emissions and collectively increased the five year allocation of the community treasury by 11.2%. Over 5 years, 16.2% of the token supply will accrue to the community treasury, which is governed by $DYDX holders.

Allocation changes in 2022

* Note, unclaimed Retroactive Mining Rewards were transferred to the community treasury at the end of Epoch 0.

$DYDX in the community treasury and the rewards treasury can be used as $DYDX holders decide with a Short Timelock proposal. $DYDX token holders can reference this technical guide to create a dYdX Community Treasury Spending Proposal. Given that the dYdX community has access to almost 40M $DYDX, we are looking forward to the dYdX community funding initiatives that can foster dYdX ecosystem growth.

International Go-to-market and Community

In 2022, dYdX Foundation’s international go-to-market team was busy building the dYdX brand as well as enabling and educating the dYdX community. The international team reflects the diversity in the dYdX community and is spread across eight time zones with team members collectively speaking more than eight languages.

Social Presence and Community Engagement

In 2022, the dYdX Foundation team made significant strides in increasing our brand and social presence, resulting in a 62.5% increase in Twitter followers, a 30% increase in page views in core markets, and a 390% increase in Discord members. A large portion of this growth can be attributed to our events and community engagement efforts. Throughout the year, we held over 200 in-person and virtual events within the dYdX ecosystem, attracting more than 8,000 attendees.

To incentivize active participation and measure engagement within the community, the dYdX Foundation experimented with creating "Proof of Attendance Protocols" (POAPs) for more than 60 events. Through this initiative, more than 6,500 POAPs were claimed.

Recently, the dYdX Foundation community team launched dYdX Quests, a reward program for contributing to the dYdX ecosystem. So far, 4,111 quests have been claimed with 689 contributors tracking their progress.

Education: the dYdX Academy

A lack of knowledge is often cited as a major barrier to entry into DeFi, trading, and trading perpetuals on a decentralized exchange. The dYdX Academy was created in May 2022 by members of the dYdX community to fill this gap.

To date, the dYdX Academy website has had over 27,950 page views and more than 750 hours of content consumed. The dYdX Grants Program (“DGP”) recently commissioned the creation of a revamped dYdX Academy that is set to launch in February 2023. We are hopeful that the dYdX Academy will be an industry-leading educational platform for DeFi and the dYdX community more broadly.

dYdX Ambassador Program

On April 15, 2022, dYdX Foundation announced the launch of the dYdX Ambassador Program. Out of 2,472 applications, 18 Ambassadors were chosen to join one of six burrows: Analytics, Governance, Marketing, Content & Media, Risk Analysis, Student, and User Onboarding & Education. At inception, the dYdX Foundation announced that the Ambassador Program would operate for one onboarding month and one (three month) season, after which the dYdX community would vote on the continuation of the Ambassador Program.

The Ambassador Program ran from May 2022 to September 2022. On September 11, the Snapshot vote to continue the dYdX Ambassador Program concluded. Despite a majority of $DYDX voting in favor of the Ambassador Program continuing, the vote failed to reach the 67% minimum vote differential outlined in the minimum requirements for binding snapshot votes. As a result, the Ambassador Program was wound up soon after the conclusion of the vote.

Overall, the Ambassador Program replicated DAO working groups and demonstrated that a group of highly motivated individuals could drive growth, sustainability, and adoption of the dYdX protocol.

Hedgies

On January 26, 2022, dYdX Trading Inc. announced the release of the Hedgies, a collection of 4,200 unique, collectible avatars represented as NFTs.

On March 22, 2022, dYdX Foundation announced the purchase of 205 Hedgies to promote the growth of the dYdX protocol and governance. In 2022, 145 Hedgies were distributed to active dYdX community members. Want to get your hands on one of the dYdX Foundation’s remaining perpetual-loving quill balls? Easy. Get active in Governance.

Governance

Governance on dYdX V3 resembles many other DeFi protocols - one token equals one vote, and $DYDX holders may delegate the voting and/or proposal powers of their respective tokens to another ETH address. Similar to other ecosystems, participation in dYdX governance was variable and largely dependent on timing and the subject matter of the respective vote.

Proposals and Vote Participation

In 2022, there were 22 proposals (16 off-chain Snapshot votes + 6 on-chain votes). Below, we provide an overview of governance participation in 2022.

Across the 22 governance proposals, the average amount of $DYDX and unique addresses participating was 21M $DYDX from 424 unique addresses, respectively. The average amount of $DYDX voted in a given vote was approximately 5.2% of the $DYDX with voting rights.

Generally, voter participation increased over 2022. Further, more unique addresses participated in off-chain votes as compared to on-chain votes, but the amount of $DYDX participating was generally higher for on-chain votes. The differences in voter turnout by vote type could be attributed to higher minimum thresholds for on-chain votes.

In the first half of 2022, high vote thresholds and gas fees could have been a barrier to voting on on-chain proposals for the dYdX community. Gas fees were not a barrier to participating in on-chain votes in the second half of 2022 because a dYdX community member completed a grant to vote by signature on dydx.vote (a means to vote without the voter paying gas fees).

A survey of $DYDX holders revealed that many holders were less likely to participate in on-chain voting when the outcome of a vote was relatively conclusive, which was often the case in on-chain votes. We assume that high vote thresholds may contribute to this trend by disproportionately motivating larger $DYDX holders to participate, while discouraging smaller $DYDX holders from doing so.

In terms of proposal subject matter, the majority of proposals involved revisions of the rewards formulas. In 2022, we wanted to highlight the following key proposals:

• dYdX DAO - the dYdX community voted to direct 3.6M $DYDX to fund the DGP subDAO (DIP 6 and DIP 12) and the dYdX operations subDAO.
• Emission reductions - the dYdX community voted to reduce $DYDX emissions and increase $DYDX available to the dYdX community in three proposals:  
• ///DIP 14 - set the rewards for staking USDC to 0 (383,562 $DYDX per epoch),///
• ///DIP 16 - reduce trading rewards by 25% (958,904 $DYDX per epoch), and///
• ///DIP 17 - set the rewards for staking $DYDX to 0 (383,562 $DYDX per epoch).///
• LP Rewards Formula - Liquidity is a fundamental component of the dYdX protocol and the dYdX community has actively experimented with methods to incentivize market makers. On average, 47 liquidity providers (LPs) qualified for LP rewards and there was a 9% increase in the number of LPs qualifying for rewards each epoch in 2022.

Delegation

On February 11, 2022, dYdX Foundation launched the endorsed delegates program. Endorsed delegates are community members who create a public profile on the dYdX community forums and post a pitch on why $DYDX holders should delegate to them. In 2022, 24 endorsed delegates onboarded and remain active. The dYdX Foundation created a dashboard for endorsed delegates, but it is generally difficult to measure how active a given endorsed delegate is. From the dYdX Foundation’s perspective, an active endorsed delegate is a delegate that consistently participates in discussions and votes. Based on this understanding, a little over half of the onboarded endorsed delegates can be considered active in the dYdX ecosystem.

On average, endorsed delegates accounted for more than one-third of the $DYDX voted in a given vote in 2022. The endorsed delegates program has empowered many community members, increased decentralization, and enhanced decision-making in the dYdX community.  For these reasons, we believe that the first iteration of the delegation program has been successful. Nevertheless, the dYdX Foundation will continue to assist with the optimization of the delegation on the dYdX protocol.

dYdX Protocol

dYdX V3

Activity on the dYdX protocol was in line with the market. In 2022, there was a general month-over-month decline in crypto trading and DeFi usage. However, there were 33.9K active traders on the dYdX protocol in 2022 and active traders on dYdX increased on average 4.2% each epoch. The greatest number of active traders in an epoch was 14,359 in Epoch 16.

Separately, cumulative volume and cumulative fees on the dYdX protocol were $466.3B and $137.8M, respectively. The trading volume over a given epoch varied from approximately 14.7B to 73.0B and fees varied from approximately $3.5M to $24.0M.

dYdX V4

On January 11, 2022, dYdX Trading Inc. announced a path towards the full decentralization of the dYdX protocol in the next version of the protocol - dYdX V4. In that post, dYdX Trading revealed that dYdX V4 will be open source, fully decentralized, and entirely controlled by the dYdX community. dYdX Trading Inc. has broken the development of dYdX V4 into milestones and regularly provides updates about the progress on development on their blog.

Recently, dYdX Trading announced the completion of Milestone 2 and provided estimates for the completion of the upcoming milestones:

• M3 (Private Testnet) - end of March,
• M4 (Public Testnet) - end of July, and
• M5 (Public Mainnet) - end of September.

dYdX Grants Program

In Epoch 5, Reverie officially launched V1 of the DGP with 752,000 $DYDX transferred from the Community Treasury to the Grants Committee multi-sig.

On March 15, dYdX Foundation published a “Legal Framework for Non-U.S. Decentralized Autonomous Organizations”. In this blog post, the dYdX Foundation introduced a framework for the creation of a Guernsey purpose trust (the “Purpose Trust”) in the context of a DAO’s grants program.

On March 17, Reverie created a Snapshot poll for the DGP to implement the Purpose Trust contemplated in the “Legal Framework for Non-U.S. Decentralized Autonomous Organizations” post created by the dYdX Foundation. The Snapshot vote concluded with almost unanimous community support in favor of implementing the Purpose Trust (37.4M $DYDX and 531 voters).

By implementing the Purpose Trust, each member of the Grants Committee became a trustee of the Purpose Trust. The Purpose Trust came into existence the moment assets, $DYDX tokens were transferred to the Grants Committee multisig and the Trustees and the Enforcer executed the Purpose Trust Instrument.

The Purpose Trust is a type of trust that has no beneficiaries and has only one obligation for the Trustees: fulfill the purpose of the Purpose Trust. As Trustees, the Grants Committee must fulfill the purpose of the Purpose Trust that is consistent with the purposes stated in the DIP. To make sure that Trustees operate in line with the purpose, Guernsey law requires that the Purpose Trust have an “enforcer” to hold the trustees accountable legally and make information requests. As contemplated by the Trust Agreement, Reverie will be the enforcer of the Purpose Trust (the “Enforcer”).

The implementation of the Purpose Trust provided the following benefits:

• No government approval is required for the formation of the Purpose Trust,
• $DYDX holders retain more control. They may add or remove Trustees, terminate the trust, and add or remove a purpose from the Trust Agreement,
• Trustees can act on behalf of the Trust on-chain and off-chain,
• The Purpose Trust trust does not pay income tax and has no filing or reporting obligations, and
• Allows converting $DYDX to stablecoins without tax liabilities to enable $USDC-based grants.

On August 7, 2022, the dYdX community unanimously voted in favor of transferring an additional 2,582,000 $DYDX to the dYdX Grants multi-sig to launch DGP v1.5.

In its first year of operations, the DGP received 521 applications, approved 88 grants and 59 grantees completed their grants. All funded grants are available on the DGP website.

At the end of 2022, the DGP had allocated $2.8M in funding across 18 rounds with over $2.0M in funding remaining. Grant size was highly variable and depended on the project type and scope of work. The median grant size was $20K with grants varying from $1K - $240K.

With the remaining funds, the DGP plans to target funding grants involved with (1) international growth, (2) risk, (3) community initiatives, and (4) testnet development.

If you have any ideas about potential RFPs that could benefit the dYdX protocol or the dYdX community, please reach out to the DGP team here.

Future of the dYdX DAO

On November 2, 2022, the dYdX Foundation published “A Take on the dYdX DAO’s Near Future.” The dYdX Foundation highlighted that the dYdX DAO will likely consist of several autonomous subDAOs in the near future that each work on core functional areas of the dYdX protocol and are ultimately accountable to the dYdX community. The blog post contemplated the potential formation of an operations subDAO to best position the dYdX DAO for the launch of dYdX V4 on Mainnet.

Among other potential competencies, an Operations subDAO could be responsible for the following: (1) creating a bank account and payments system; (2) establishing and maintaining a DAO communication platform; (3) sourcing and establishing relationships with different vendors and service providers; and (4) enabling the dYdX community and future subDAOs by creating a DAO playbook for optimal subDAO formation, operations, and management.

On December 13, 2022, Reverie created an on-chain DIP to launch an operations subDAO by establishing a Guernsey Purpose Trust entity with $360,000 in $DYDX from the community treasury. The vote concluded with 82.2M $DYDX voting in support of the launch, and the proposal has now been implemented. The operations subDAO’s responsibilities include building and iterating on a DAO playbook, establishing fiat banking capabilities for non-crypto expenses (e.g. legal expenses, providers, etc.), and managing a DAO communication platform (e.g. Slack or community-managed Discord).

In the future, it could be important for the dYdX community to establish additional subDAOs to focus on other key functional areas of the protocol and the DAO, such as finance and treasury management, growth, risk management, community, and/or others, either before or after the Mainnet launch of dYdX V4.

Final Remarks

We hope you enjoyed reading the 2022 Ecosystem Annual Report! We are extremely excited by the level of community engagement so far and look forward to working with the dYdX community in 2023. We welcome any feedback from the dYdX community on the 2022 Ecosystem Annual Report.

Stay up-to-date with the dYdX ecosystem by following us on Twitter @dydxfoundation, joining our Discord, and contributing to the discussions in the community forums. If you have any questions about getting involved with the dYdX community, please reach out to ecosystem@dydx.foundation.

Are you interested in building the future of finance? Join us! Get involved with the dYdX community or check out the dYdX Foundation's open positions at dydx.foundation/careers.