This is the third edition of $DYDX Epoch Review, presenting updates from the $DYDX community and ecosystem. To stay up to date in real-time, join us on Discord, Twitter, and the Forums.

Epoch 2 Highlights

• Total volume on the dYdX Layer 2 protocol surpassed $92B, with Average Daily Volume surging to $3.1B. Ending Open Interest nearly tripled to $1.3B and Total Value Locked increased to $864M, indicating strong capital inflows into Perpetuals markets. Liquidity continued to increase as a result of the market maker rewards and staking programs!
• 11.2K unique wallets earned 5.3M $DYDX through trading, liquidity provider, and staking rewards. 40K unique wallets have previously earned $DYDX rewards from retroactive, trading, and liquidity mining rewards. ~20K unique wallets currently hold $DYDX.
• 8 addresses were eligible for Liquidity Provider rewards with the majority earned by 2 market makers. An off-chain DIP to reduce the Liquidity Provider rewards volume threshold for market makers from 5% to 1% was passed. Market makers meeting the 1% threshold in Epoch 2 are now eligible to earn rewards in Epoch 3. 18 addresses (8 existing and 10 new) did more than =>1% of maker volume in Epoch 2, and thus are eligible to participate in the Liquidity Provider rewards program in Epoch 3.
• $867M $USDC from 1,251 users was staked to the Liquidity Staking Pool. Market maker borrowers began to test $USDC borrowing from the staking pool.
• 6.64% of the total $DYDX supply (excluding unearned Retroactive Rewards transferred to the Treasury and the $DYDX vested in the Community Treasury) is considered liquid at the end of Epoch 2.
• The forum discussions and proposals continue to cover various important topics. While sentiment was strongly in favor of DIP: Safety Module Recovery & Staker Compensation, the proposal did not meet the 100M $DYDX minimum quorum required for a Long Timelock vote to pass and thus failed. Separately, the community voted strongly in favor of passing DIP: Safety Module Staker Reimbursement and Compensation. The community can soon vote on a revised DIP: Safety Module Restoration to restore functionality to the Safety Module staking pool.
• Epoch 2 ended on October 26 at 15:00:00 UTC. Epoch 2 rewards will be claimable on the governance dashboard on November 3, ~20:04 UTC (7 days after the end of the epoch plus a ~29 hour delay). The Merkle update process is still a new process with coordination between parties that requires manual verification when bugs come up and the parties are working to on ironing these out. Once tokens have been claimed, they can be transferred or delegated to dYdX governance.

Performance Indicators

for Epoch 2 (September 28, 2021 15:00 UTC - October 26, 2021 15:00 UTC)

* Data excludes activity from 8 addresses identified as wash trading during Epoch 2.

~20K unique addresses currently hold $DYDX and ~40K unique addresses have previously claimed $DYDX rewards from retroactive, trading, and liquidity mining rewards

Trading Rewards

3,835,616 $DYDX were earned over the course of Epoch 2 and will be distributed to 11,175 traders. Trading rewards were distributed proportionally based on a formula rewarding both fees paid and average open interest.

Competition in this epoch accelerated, as displayed with the doubling of the Sum of All Trader Scores and more distributed rewards. A breakdown of the adjusted trading activity and Trading Rewards distribution can be found below:

Source: Foundation Metrics Page

dYdX Trading Inc. identified 8 Ethereum addresses that conducted clear wash trading during Epoch 2. These addresses were removed from receiving Trading Rewards for Epoch 2. Their fees paid and open interests were also excluded from the Trading Rewards calculations, so other traders were not diluted. Additionally, these addresses were excluded from and potential eligibility for the Liquidity Provider Rewards program for Epoch 3 and their volume was excluded from calculations as well. Learn more about Wash Trading here.

• $$0x95be0e89de08b4737c0e001009c4d3806adbc686$$
• $$0x10b88f81ecaa49ddd9131c8e0ee0ae8c3d68dbc0$$
• $$0xaa0c3d6fd25aa2c23aed2659197ef39aea306172$$
• $$0x9484ab54c989b70ac6217691d1beeb0fe3c223fa$$
• $$0x5a748ebd4bb44e84aa4eeb9c2ff552c2f75f6a12$$
• $$0x34f96c533e62b26df1f3dda4d2bd71b3b6a68e58$$
• $$0x09dfca476107067bfc57133cae51996c4d7532a4$$
• $$0x6da84543579c7cceaef670adcba060e58286b660$$

As an input to the Trading Rewards calculation, users’ fees paid, and average open interest were reset to 0 at the start of Epoch 3.

Learn more about the trading rewards program in our documentation, or our recent blog post.

Liquidity Provider Rewards

1,150,685 $DYDX were earned over the course of Epoch 2 and will be distributed to 7 market makers based on a formula rewarding a combination of uptime, two-sided depth, bid-ask spreads, and the number of markets supported.

In Epoch 2, there were 8 addresses in total eligible for LP rewards. The following chart displays the rewards distribution by market maker over the course of the epoch:

Source: Liquidity Provider Rewards Dashboard

The Foundation Metrics Page has maker volume charts to see which addresses did >=1% of maker volume in a given epoch:

18 addresses (8 existing and 10 new) did more than =>1% of maker volume in Epoch 2, and thus are eligible to participate in the Liquidity Provider rewards program in Epoch 3.

As an input to the Liquidity Provider Rewards calculation, market maker’s uptime, two-sided depth, bid-ask spreads, and the number of markets supported are reset to 0 at the start of Epoch 3. New market makers providing >=1% of maker volume in Epoch 3 will be eligible to join the pool in Epoch 4.

Learn more about the trading rewards program in our documentation, or our recent blog post.

Liquidity Staking Pool

$867M $USDC was staked to the pool over the course of Epoch 2 from 1,435 users. 383,562 $DYDX were earned over the course of Epoch 2 and distributed pro-rata every second to stakers.

Staked $USDC by address at the end of the epoch is as follows:

Source: Etherscan

301 users requested to withdraw before the Blackout Period in Epoch 2. These inactive $USDC funds can now be withdrawn and are no longer earning $DYDX rewards. Users must request to withdraw their funds before the Epoch 3 Blackout Window (last 2 weeks of the epoch) to withdraw their funds starting in Epoch 4.

We are excited by the amount of capital staked in the Liquidity Staking Pool. dYdX Foundation has been working to provide the tooling to facilitate market maker borrowing from the Liquidity Staking Pool.

Market makers began testing borrowing functionality from the Liquidity Staking Pool:

Learn more about the trading rewards program in our documentation, or our recent blog post.

Community Treasury

Approximately 766,703 $DYDX vested in the Community Treasury over the course of Epoch 2. The Community Treasury now holds 26,224,209 vested $DYDX tokens.

We hope to see the community participate more actively in governance and distribute vested $DYDX on an ongoing basis through contributor grants, community initiatives, liquidity mining, and other programs.

Learn more about the community treasury in the documentation.

What's next?

Epoch 2 has ended

Welcome to Epoch 3! Epoch 3 started automatically on October 26, 2021 at 15:00:00 UTC and will end on November 23 at 15:00:00 UTC.

Epoch 2 ended on October 26 at 15:00:00 UTC. Epoch 2 rewards will be claimable on the governance dashboard on November 3, at ~20:04 UTC (7 days after the end of the epoch plus a ~29 hour delay. The Merkle update process is still a new process with coordination between parties that requires manual verification when bugs come up and we're working on ironing these out. Once tokens have been claimed, they can be transferred or delegated to dYdX governance.

Circulating supply

6.64% of the total $DYDX supply (excluding unearned Retroactive Rewards transferred to the Treasury and the $DYDX vested in the Community Treasury) is considered liquid at the end of Epoch 2. These earned $DYDX tokens can be claimed in perpetuity.

Claim your $DYDX rewards

The Merkle root was proposed on-chain on October 27 at 08:04:02 PM +UTC and the 7-day waiting period has begun. The Merkle root proposal was delayed by ~29 hours. All earned $DYDX can be claimed on Wednesday November 3 at 08:04:02 PM +UTC. Once tokens have been claimed, they can be transferred or delegated to dYdX governance.

The Merkle tree data, which is a list of (address, reward) pairs, is available here.

Under the hood, the Merkle Distributor smart contract will distribute $DYDX token rewards according to a Merkle tree of balances. The tree will be updated at the end Epoch 2 with each user's cumulative reward balance. An update is performed by setting the proposed Merkle root to the latest value returned by the oracle contract. The proposed Merkle root can be made active after a waiting period has elapsed. During the waiting period, dYdX Governance has the opportunity to freeze the Merkle root, in case the proposed root is incorrect or malicious. Root updates can be unpaused by a ShortTimelockExecutor.

Governance Forums

DIP 1 - Safety Module Recovery & Staker Compensation - FAILED

A dYdX Improvement Proposal (DIP) was submitted on-chain to restore functionality to the Safety Module, to allow users who are currently staked to withdraw their funds and receive an additional 10% of their staked amount, based on community consensus. With 500+ unique addresses voting with 86M $DYDX, and less than 0.1% voting against the DIP, sentiment was strongly in favor of the proposal. However, since the DIP did not meet the 100M $DYDX minimum quorum required for a Long Timelock vote to pass, the proposal failed.

The dYdX Foundation released a post-mortem of the failed DIP. It appears that restoring functionality to the Safety Module and compensating affected stakers may have been better treated separately so that the community can consider each of them independently.

DIP 2 - Reducing the volume threshold % for market makers to qualify to receive Liquidity Provider Rewards - PASSED

The Snapshot vote concluded with a record 764 unique voters and 55M $DYDX in agreement. The majority of the community (399 voters & 86% of $DYDX) supported to reduce the threshold to 1%. An off-chain DIP to reduce the Liquidity Provider rewards volume threshold for market makers from 5% to 1% was submitted by jteam0x at DeFianceCapital. Market makers meeting the 1% threshold in Epoch 2 are now eligible to earn rewards in Epoch 3.

DIP 3 - Safety Module Recovery - CANCELED & RESUBMITTED

A separate on-chain DIP was created on October 25th at 04:49 PM UTC by Dan Robinson from Paradigm. 20M $DYDX were required to submit a Long Timelock DIP. User snapshots were recorded on October 26th at 04:49 PM UTC, approximately 1 day after the DIP was created, at which point the proposal transitioned to an active state. A 10-day Voting Period on the proposal is now in effect until approximately November 5th, 04:49 PM UTC. For the proposal to pass, at least 100M $DYDX tokens are required to vote, with at least a 100M $DYDX in vote differential between yes–no votes.

UPDATE: Unfortunately, the Foundation later discovered that the DIP for the Safety Module Restoration did not include the correct inputs. The proposal will fail to execute and was cancelled. Paradigm later resubmited a new version of the DIP, available for voting soon.

UPDATED: A revised on-chain DIP was created on November 1st at 05:04 PM UTC by Dan Robinson from Paradigm. 20M $DYDX were required to submit a Long Timelock DIP. User snapshots will be recorded recorded on November 2nd at 05:04 PM UTC, approximately 1 day after the DIP was created, at which point the proposal transitioned to an active state. A 10-day Voting Period on the proposal will then be in effect until approximately November 12th, at 05:04 PM UTC. For the proposal to pass, at least 100M $DYDX tokens are required to vote, with at least a 100M $DYDX in vote differential between yes–no votes.

DIP 4 - Safety Module Staker Reimbursement and Compensation - PASSED

An on-chain DIP was created on October 27th at 05:38 AM UTC by DeFiance Capital / Three Arrows Capital. 5M $DYDX were required to submit a Short Timelock DIP. User snapshots were recorded on October 28th at 05:38 AM UTC, approximately 1 day after the DIP was created, at which point the proposal transitioned to an active state. A 4-day Voting Period on the proposal is now in effect until approximately November 1st, at 05:38 AM UTC. For the proposal to pass, at least 20M $DYDX tokens are required to vote, with at least 5M $DYDX in vote differential between yes–no votes.

UPDATE: With 150 unique addresses voting for the DIP with ~32M $DYDX, and less than 0.1% voting, the community voted strongly in favor of passing of the proposal. Any address can now call the queue method to move the proposal into the timelock queue. After a proposal passes and is queued, there is a 2 day short timelock delay before the proposal becomes executable. There is then a 7 day execution grace period, during which the DIP must be executed.

dYdX Trading Updates

New features

dYdX Trading, Inc. launched several new features for the exchange, including:

• Email notifications are here! Sign up and verify your email to receive email notifications for account changes, trade updates, and more!
• Saved trade preferences - Your advanced trade options for each trade type will now be saved upon placing an order. Returning to the app will automatically load your last used trade type and advanced options!
• Leaderboards - View the top traders during a trading competition or within an overall timeframe! Choose between relative P&L and absolute P&L and compare with your own ranking. Toggle your privacy settings for rankings (display wallet address or username) in the preferences modal.
• Added an epoch dropdown on the rewards data page to allow easy viewing of historical rewards data.
• Take profit limit orders - New order type! Place a take profit order to take profit on a position whenever the index price reaches a specified threshold.
• Cancel / clear all orders - Nifty new buttons allow you to easily batch cancel / clear your orders. You can now easily manage your orders across your entire portfolio or for a single market.
• Trading competition - the first trading competition ran from Sep 30 to Oct 7 with over $250K in prizes! Read more about it here. Stay tuned for the next one!
• Deposit promo - An ongoing deposit promotion is available for new users or accounts with less than 1000 $USDC on Oct 13 @ 14:00 UTC. Deposit 1000 $USDC or more and receive an additional 75 $USDC bonus. Read more about it here.
• Added new "Orderbook animations" preference that can toggle orderbook animations to help with performance issues.
• Currency switcher - Toggle between the base asset and USD in the trade box to allow for easy order amount input in either currency!
• Market favorites - Click the star next to each market to favorite a market for easy access.

For more frequent updates, check out the $$#dev-blog$$ channel on Discord.

New market launches

dYdX Trading, Inc. launched the ALGO-USD and ZEC-USD Perpetual Contract markets. Eligible traders outside of the United States can trade with up to 10x leverage, cross margining, and zero gas fees.

Hummingbot Bounty Hunt

Check out the winners from the recent dYdX - Hummingbot Bounty Hunt! Read more here.

Learn how to start market making on dYdX in less than 30 minutes here.

Check out a new spot <> perpetuals hedger strategy now available to Hummingbot users here.

Increased Position Sizes

Due to increased liquidity on the exchange, maximum position sizes have been increased for many markets. Check out the new sizes here.

Recent Press

Mainstream media covering dYdX: 🚀

• Forbes - How A 19-Person Cryptocurrency Startup Surpassed Coinbase In Daily Trading Volume
• Bloomberg - DeFi Upstart dYdX Briefly Overtook Coinbase in Crypto Trading