This is the 5th 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 4 Highlights

• Total volume on the dYdX Layer 2 protocol surpassed $61B, with Average Daily Volume surging to $2.2B. Ending Open Interest declined slightly to $1.0B and Total Value Locked increased to $943M.
• ~7.2K unique wallets earned 5.8M $DYDX through trading, liquidity provider, and staking rewards. 43K unique wallets have previously earned $DYDX rewards from retroactive, trading, and liquidity mining rewards. ~21K unique wallets currently hold $DYDX and ~1K unique wallets currently hold $stkDYDX.
• 15 addresses were eligible for LP rewards with the majority earned by 2 market makers. Competition in the pool is still strong. Market makers meeting the 1% threshold in Epoch 4 are now eligible to earn rewards in Epoch 5. 16 addresses (13 existing and 3 new) did more than =>1% of maker volume in Epoch 4, and thus are eligible to participate in the LP rewards program in Epoch 5.
• 711M $USDC from 862 users was staked to the Liquidity Staking Pool. 4 market makers have borrowed $USDC from the staking pool. At the start of Epoch 5, 502M $USDC is staked to the pool and earning $DYDX rewards.
• 36M $DYDX from 1,025 users was staked to the Safety Module. At the start of Epoch 5, 11M $DYDX is staked to the pool and earning $DYDX rewards.
• 36M $DYDX from 1,025 users was staked to the Safety Module. At the start of Epoch 5, 11M $DYDX is staked to the pool and earning $DYDX rewards.
• 7.76% 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 4.
• The forum discussions and proposals continue to cover various important topics. Most notably, the community voted strongly in favor of launching the dYdX Grants Program on Snapshot. If an on-chain vote passes, $6.25M of Community Treasury funds will be allocated to the Grants Committee multi-sig to fund potential RFPs. Separately, the community voted strongly in favor of adjusting the Trading and Liquidity Provider rewards formulas to increase rewards for stakers of $DYDX. The formulas for Trading Rewards and LP Rewards now include holding $stkDYDX.
• Epoch 4 ended on December 21, 2021 15:00:00 UTC. Epoch 4 rewards will be claimable here on December 29, at ~00:08:08 UTC (7 days after the end of the epoch plus a ~9 hour delay). Once tokens have been claimed, they can be transferred, staked to the Safety Module, or delegated to dYdX governance.

Performance Indicators

for Epoch 4 (November 23, 2021 15:00 UTC - December 21, 2021 15:00:00 UTC)

* No addresses were identified as wash trading during Epoch 4.

~21K unique addresses currently hold $DYDX and ~1K unique addresses currently hold $stkDYDX.

~43K 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 4 and will be distributed to 6,448 traders. Trading rewards were distributed proportionally based on a formula rewarding fees paid, $stkDYDX balance, and average open interest.

Competition in this epoch declined, as evidenced by lower fees paid, the sum of all trader scores and the traders eligible for rewards. Decentralized exchanges across the market have experienced declines in volume and daily active users over the last month. A breakdown of the adjusted trading activity and Trading Rewards distribution can be found below:

Source: Foundation Metrics Page

dYdX Trading Inc. did not identify any Ethereum addresses that conducted clear wash trading during Epoch 4. Learn more about Wash Trading here.

As an input to the Trading Rewards calculation, users’ fees paid, $stkDYDX balance, and average open interest were reset to 0 at the start of Epoch 5.

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 4 and will be distributed to 15 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 4, there were 15 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:

16 addresses (13 existing and 3 new) did more than =>1% of maker volume in Epoch 4, and thus are eligible to participate in the LP rewards program in Epoch 5.

As an input to the LP rewards calculation, market maker’s uptime, two-sided depth, bid-ask spreads, $stkDYDX balance, and the number of markets supported are reset to 0 at the start of Epoch 5. New market makers providing >=1% of maker volume in Epoch 5 will be eligible to join the pool in Epoch 6.

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

Liquidity Staking Pool

711M $USDC was staked to the pool over the course of Epoch 4 from 862 users. 383,562 $DYDX were earned over the course of Epoch 4 and distributed pro-rata every second to stakers. A larger user continued to stake 440M $USDC earning the majority of the rewards.

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

Source: Etherscan

93 users requested to withdraw before the Blackout Period in Epoch 4. 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 5 Blackout Window (last 2 weeks of the epoch) to withdraw their funds starting in Epoch 6.

The amount of capital staked in the Liquidity Staking Pool has declined for two epochs. dYdX Foundation has been working to provide the tooling to facilitate market maker borrowing from the Liquidity Staking Pool. 4 market makers borrowed $USDC from the staking pool.

Source: Dune

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

Safety Staking Pool

36M $DYDX was staked to the pool over the course of Epoch 4 from 1,025 users. 383,562 $DYDX were earned over the course of Epoch 4 and distributed pro-rata every second to stakers.

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

At the beginning of Epoch 4, there was strong community backlash against large investors staking their locked tokens in the Safety Module. In the event of a shortfall, $DYDX staked to the Safety Module could be slashed. As a result, investors would be in default of their obligations and would be required to purchase an equivalent amount of $DYDX.

While investors are technically permitted to stake their locked tokens, the dYdX Foundation requested for investors to not stake their locked $DYDX and to withdraw any $DYDX currently staked. Several large investors unstaked their $DYDX. Investors are required to comply with the transfer restrictions enforced through contractual agreements with the dYdX Foundation. The dYdX Foundation will continue to monitor investor wallet addresses and work with larger investors to ensure competitive returns from the Safety Staking Pool.

94 users, including 3 large investors staking their locked tokens, requested to withdraw before the Blackout Period in Epoch 4. These inactive $DYDX funds can now be withdrawn and are no longer earning $DYDX rewards. Users must request to withdraw their funds before the Epoch 5 Blackout Window (last 2 weeks of the epoch) to withdraw their funds starting in Epoch 6.

Learn more about the safety staking pool in our documentation, or our blog post.

Community Treasury

Approximately 766,703 $DYDX vested in the Community Treasury over the course of Epoch 4. The Community Treasury now holds 27,757,615 vested $DYDX tokens.

Reverie’s Snapshot vote to launch a $6.25M dYdX Grants Program funded by the community treasury was strongly supported by the community. A Grants Committee, consisting of 8 committee members committed to dYdX community growth, will manage a multi-sig to fund potential RFP’s. Launching the dYdX Grants Program requires on-chain voting under the requirements of the Short Timelock: 5M $DYDX to create the DIP, 20M $DYDX minimum quorum, and 5M $DYDX minimum vote differential.

We hope to see continued participation in governance and active distribution of 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 4 has ended

Welcome to Epoch 5! Epoch 5 started automatically on December 21, 2021 at 15:00:00 UTC and will end on January 18, 2022 at 15:00:00 UTC.

Epoch 4 ended on December 21 at 15:00:00 UTC. Epoch 4 rewards will be claimable on the governance dashboard on December 29, at 00:08:08 UTC (7 days after the end of the epoch plus a ~9 hour delay). Once tokens have been claimed, they can be transferred, staked to the Safety module or delegated to dYdX governance.

Circulating supply

7.76% 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 4. These earned $DYDX tokens can be claimed in perpetuity.

Claim your $DYDX rewards

The Merkle root was proposed on-chain on December 22 at 00:08:08 UTC and the 7-day waiting period has begun. Epoch 4 rewards will be claimable here on December 29, at ~00:08:08 UTC (7 days after the end of the epoch plus a ~1 hour delay). Once tokens have been claimed, they can be transferred, staked to the Safety module 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 of each epoch 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 can freeze the Merkle root, in case the proposed root is incorrect or malicious. Root updates can be unpaused by a ShortTimelockExecutor.

Governance Forums

DIP 6 - Launch the dYdX Grants Program (DGP) - DRC SNAPSHOT PASSED / DIP REQUIRES ON-CHAIN VOTE

The Snapshot vote concluded with a total of 326 unique voters and over 18M $DYDX. With almost 99% of voters (17.9M $DYDX and 264 voters) in agreement, the community strongly supported allocating $6.25M of Community Treasury funds for the creation of a dYdX Grants Program.

Grants will include both small and large projects with grantees ranging from single individuals to institutional teams. A Grants Committee, consisting of 8 committee members committed to dYdX community growth, will manage a multi-sig to fund potential RFP’s. To submit a potential RFP and to get updates on activity, follow the dYdX Grants Program.

Reverie drafted an on-chain DIP to launch the dYdX Grants Program by moving $6.25M from the Community Treasury to the Grants multi-sig. Launching the dYdX Grants Program requires on-chain voting under the requirements of the Short Timelock: 5M $DYDX to create the DIP, 20M $DYDX minimum quorum, and 5M $DYDX minimum vote differential.

DIP 7 (off-chain) - Trading & LP Rewards Formulas - EXECUTED

The Snapshot vote demonstrated strong community consensus in favor of adjusting the Trading and LP rewards formulas to increase rewards for stakers of $DYDX. With 864.6K $DYDX (99.82% and 312 voters), the majority of the community supported updating the formulas to include holding $stkDYDX.

The changes should incentivize the utility of $DYDX, usage of the dYdX protocol, and protect the dYdX protocol by increasing the size of the pool.

An off-chain DIP to include $stkDYDX as a variable in the Trading Rewards and LP Rewards formula was submitted by Jeffrey Walfred. $DYDX smart contracts do not directly control the liquidity mining formulas, so no on-chain vote was required to update the formulas. The formulas for Trading Rewards and LP Rewards now include holding $stkDYDX.

Other active governance discussion threads

A community thread is actively discussing a potential proposal to update the LP rewards formula by adding more weight to the spread. The change is intended to encourage LPs to actively put orders as close to mid-price as possible and to contribute to the long-term growth of liquidity. More information about LP rewards can be found here.

dYdX Trading Updates

AWS outage

On December 7th, a major AWS outage impaired the functionality of the dYdX exchange for nearly 8 hours. The community was critical of dYdX’s reliance on a centralized server (AWS in this case). The dYdX team expressed that decentralization is a long process and that they remain committed to fully decentralizing the dYdX exchange to avoid similar issues in the future. Read more about it here.

Deposit Proxy Smart Contract Vulnerability

On November 27th at approximately 05:00 UTC, dYdX Trading, Inc. was notified of a critical vulnerability in the proxy smart contract that handled deposits to the dYdX exchange. Around 12:00 UTC, the dYdX Trading Inc. team executed a white-hat hack to rescue approximately $2M of vulnerable user funds. The dYdX team paid 500K $USDC to the user who reported the bug, reimbursed all users who paid gas fees to revoke the contract and fully reimbursed users who lost any capital (if they revoked the smart contract approval). More information about the deposit proxy smart contract vulnerability is available in the post mortem linked here.

New features

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

• dYdX funding rate is now listed on coinglass.com. Compare dYdX funding rates with other leading exchanges! Read more about it here.
• A collaboration with L2Beat to build a state explorer for layer 1 data. Read more about it here.
• dYdX Trading Inc. launched gasless deposits at the end of Epoch 3. Gasless deposits were disabled on November 27th because of a security issue with the deposit proxy smart contract. Read more about it in the post mortem. The dYdX Trading team is working to restore gasless deposits in Epoch 5 to cover gas costs for all new users who deposit at least 1000 $USDC on their first deposit and existing users who deposit at least 2000 $USDC in 1 transaction. Read more about it here.
• dYdX Trading Inc. started to provide free swaps for certain ERC20 assets to be exchanged for $USDC via the 0x API. Swaps via the 0x API were disabled on November 27th because of a security issue with the deposit proxy smart contract. Read more about it in the post mortem. The dYdX Trading team is working to restore swaps via the 0x API in Epoch 5. Read more here.

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

Social

• The dYdX content competition was extended until December 31, 2021. Start 2022 off right by earning up to 50K $USDC for creating content about dYdX. Read more about it here.
• Congratulations to Plankton, the winner of 125K $USDC in dYdX’s second trading competition!
• dYdX - Perpetual Maxima (Messari Hub Analyst(s)) offers an indepth look into dYdX and dYdX’s scaling strategy.
• dYdX was featured on Benzinga!