TL;DR

• Since the launch of the dYdX Chain, the utility of the DYDX token has expanded across Security, Staking, and Governance.
  • Security - Approximately 149M DYDX ( 14.9% of the total supply) have been staked to 60 Validators in the active set to secure the dYdX Chain.
  • Staking - As a result of staking to Validators in the active set, over 20M USDC have been distributed to date by the protocol to more than 18,991 dYdX Chain Stakers.
  • Governance - dYdX community members have initiated 55 governance proposals to date, demonstrating active participation in the network’s decision-making process.
• USDC-denominated staking rewards unlock many tangible use cases.
• 75.2% of all ethDYDX have been migrated to the dYdX Chain.
• On April 6, 2024, the dYdX community voted to transfer 20M DYDX from the dYdX Chain community treasury and stake those tokens with liquid staking provider Stride. 

The dYdX Chain, along with its native Layer 1 token DYDX, launched on October 26th 2023, following a favorable vote by the dYdX community. This event marked a significant milestone, introducing additional utility for the DYDX token. While the original ethDYDX tokens continue to circulate, the bridging of 75.2% of all ethDYDX to the dYdX Chain represents an accelerating shift towards the new ecosystem. This blog post is a follow-up on ‘Introducing DYDX’ and aims to expand on the diverse functionalities of the DYDX token within the dYdX Chain ecosystem. 

Evolution of DYDX - Unlocking New Utility

The community-driven launch of DYDX marked a significant transformation, evolving the token from its governance-only function to a dynamic, multifaceted token. This evolution is central to the dYdX Chain, underpinning its security, staking, and governance. Six months post-launch, it’s time to evaluate the DYDX token’s utility and how token holders are leveraging its functionalities.

Securing the dYdX Chain 

The dYdX Chain leverages a Proof-of-stake (PoS) security mechanism, requiring token holders to stake their DYDX to Validators to bolster the network’s security and stability. The staking of DYDX tokens and decentralizing the Validator set are vital for the chain’s robustness and resilience. For example, a malicious Validator or token holder controlling ⅓ of the stakeweight could halt the chain, and a group of Validators or token holders controlling ⅔ of the stakeweight could control the chain. 

Currently, approximately 149M DYDX (14.9% of the total supply) are being staked to active set Validators on the dYdX Chain. Since the launch of DYDX in October 2023, the amount of staked DYDX has steadily increased.

On April 6, 2024, the dYdX Community voted to liquid-stake 20M DYDX with Stride to improve Validator decentralization, reduce the chance for malicious attacks, and improve network security. Staking rewards will auto-compound USDC and be automatically converted into DYDX by the Stride protocol at regular intervals, then staked to generate additional staking rewards. This proactive approach by the dYdX Community highlights a willingness to protect the security and stability of the dYdX Chain and effectively utilize the community treasury.  

As the number of staked DYDX increases, the network becomes more resilient, secure and less vulnerable to attacks. This collective staking effort is indicative of the community’s dedication to maintaining a secure, decentralized, and disintermediated trading platform, setting a strong foundation for the network’s ongoing growth.

Staking Rewards in USDC

Following the dYdX Chain's launch, an innovative staking reward mechanism was introduced, whereby 100% of the protocol's fees, paid predominantly in USDC, are distributed to DYDX Stakers who contribute to the security of the network by staking their tokens to dYdX Chain Validators. This mechanism not only incentivizes the provision of security but also opens up various practical use cases for Stakers. Specifically, they can reinvest their USDC staking rewards into crypto or other assets, or use the USDC as collateral for trading on the dYdX Chain with just a few clicks.

To date, the dYdX Chain has generated over $120B in cumulative trading volume, with more than $20M in USDC distributed by the protocol to Stakers that are providing security to the network. Currently, over 18,991 DYDX Stakers are receiving USDC staking rewards in exchange for the provision of network security. According to Mintscan, the DYDX staking APR is 18% as of 26 April 2024. Staking rewards levels on the dYdX Chain likely represent an attractive protocol incentive for potential Stakers looking to contribute to network security. 

Notably, a significant surge in the distribution of staking rewards occurred in February and March 2024, with a 163% and 147% month-over-month growth in the USDC staking rewards generated by the protocol, with over $4.5M and $6.7M USDC distributed to DYDX Stakers, respectively. It's important to acknowledge that staking incentives and APRs are subject to change, influenced by many factors, including but not limited to network activity, the total amount of DYDX staked, and other market dynamics. 

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The dYdX Chain is fully decentralized

The genesis of the dYdX Chain represented a significant milestone in the decentralization journey of the dYdX protocol. dYdX v3 was a non-custodial hybrid Layer 2 DEX on Ethereum that featured a centralized orderbook and matching engine. On dYdX v3, ethDYDX token holders could change certain parameters through a governance proposal.

In comparison, the dYdX Chain is a fully decentralized and independent Layer 1 network with 60 active Validators that each operate an in-memory orderbook and matching engine. 

Since the dYdX Chain launched in October 2023, two initiatives have made governance more accessible. First, the minimum deposit to submit a governance proposal on the dYdX Chain was reduced from 10K to 2K un-staked DYDX. Since this proposal passed, approx 40 governance proposals have been launched. Second, the dYdX Operations subDAO deployed a New Market Listing Widget on the dydx.trade User Interface, streamlining the process for proposing and creating new markets on the protocol, facilitating more efficient community participation.  

The result of these changes is evident in the increased activity, with 40 governance proposals introduced in just over 3 months, summing up to 55 proposals to date. This contrasts with the 30 proposals in the entire year of 2023 under dYdX v3 governance, highlighting the velocity and ease with which dYdX Community members can create and launch governance proposals on the dYdX Chain, an exciting symptom of a healthy and thriving governance community. 

ethDYDX - Bridge to DYDX

On August 3, 2021, the dYdX Foundation launched DYDX (now ‘ethDYDX’), a governance only token that allowed the dYdX community to govern certain aspects of the dYdX Layer 2 protocol on Ethereum (dYdX v3) to align incentives between traders, liquidity providers and partners. The ethDYDX token enabled a robust ecosystem around governance, rewards and staking - each of which was designed to drive future growth and decentralization of dYdX v3.

The dYdX community, through dYdX v3 governance, voted (Snapshot and on-chain) in favor of adopting DYDX as the Layer 1 token of the dYdX Chain. Since the dYdX community voted for DYDX to power the dYdX Chain, the wethDYDX Smart Contract (a decentralized, permissionless and autonomous one-way software bridge) was deployed on the Ethereum mainnet, and the bridge.dydx.trade front-end, which enables users to interact with the wethDYDX Smart Contract, was also later deployed (collectively, the “Brigde”).  The Bridge  enables ethDYDX token holders to permissionlessly convert their ethDYDX into dYdX Chain-based DYDX. 

To date, over 75% of all ethDYDX have been migrated to the dYdX Chain, leaving just under 25% of all ethDYDX currently in circulation on Ethereum. The current circulating supply of ethDYDX is 247,168,367. 

For ethDYDX token holders interested in bridging their ethDYDX to the dYdX Chain, a comprehensive "How-to-bridge" guide is available, offering a step-by-step walkthrough. Additionally, a video tutorial is accessible to guide users through the process.

DYDX Token Statistics 

According to Coingecko, the DYDX token has a total supply of 1 Billion tokens, a current circulating supply of 501,325,666.72 DYDX (c. 50% of the total supply) and a token distribution as per the graphic below. 

‍DYDX powers the dYdX Chain

DYDX is the Layer-1 token that powers the dYdX Chain, securing and stabilizing the infrastructure, rewarding the community with a unique USDC staking reward mechanism and enabling decentralized governance of a fully permissionless and disintermediated DeFi platform.