This is the 6th 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 5 Highlights

• Total volume on the dYdX Layer 2 protocol was approximately $40B, with Average Daily Volume decreasing to $1.4B. Ending Open Interest declined slightly to $908M and Total Value Locked decreased to $911M.
• ~6.5K unique wallets earned 5.8M $DYDX through trading, liquidity provider, and staking rewards. 44K unique wallets have previously earned $DYDX rewards from retroactive, trading, and liquidity mining rewards. ~21K unique wallets currently hold $DYDX and ~1.7K unique wallets currently hold $stkDYDX.
• 16 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 5 are now eligible to earn rewards in Epoch 6. 17 addresses (14 existing and 3 new) did more than =>1% of maker volume in Epoch 5, and thus are eligible to participate in the LP rewards program in Epoch 6.
• $526M $USDC from 758 users was staked to the Liquidity Staking Pool. 4 market makers have borrowed $USDC from the staking pool. At the start of Epoch 6, $260M $USDC is staked to the pool and earning $DYDX rewards.
• 20M $DYDX from 1,746 users was staked to the Safety Module. At the start of Epoch 6, 20M $DYDX is staked to the pool and earning $DYDX rewards.
• 8.41% 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 5.
• The forum discussions and proposals continue to cover various important topics. Most notably, the community unanimously supported launching the dYdX Grants Program (“DGP”). On January 10th at 16:21 UTC, 752,000 $DYDX was transferred from the Community Treasury to the Grants Committee multi-sig to fund RFPs. The DGP represents one of the largest grants programs in DeFi to fund community initiatives. Second, the dYdX Foundation started a community thread to create a framework to determine eligibility for LPs to borrow $USDC staked to the Liquidity Staking Pool for market-making purposes. Third, the proposal to adjust the LP rewards formula by adding more weight to the spread failed to reach consensus in a Snapshot poll and thus, no changes were made to the LP rewards formula. This Snapshot poll highlighted several issues with using Snapshot polls to change the LP rewards formula and off-chain variables more broadly. As a result, the dYdX Foundation created a thread and included several minimum requirements for Snapshot polls.
• dYdX Tradings Inc. announced its plan to launch the next version of the protocol, V4, by the end of 2022. dYdX V4 will be open source, fully decentralized and no central party (including dYdX Trading Inc.) will have the ability to receive trading fees.
• dYdX Tradings Inc. made two important updates in Epoch 5. First, the maximum leverage available to BTC and ETH was reduced to 20x from 25x, and second, the fee schedule was reduced up to 66% for a minimum of 3 months.
• Epoch 5 ended on January 18 at 15:00:00 UTC. Epoch 5 rewards will be claimable here on January 25, at ~16:06 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.

Performance Indicators

for Epoch 5 (December 21, 2021 15:00:00 UTC - January 18, 2021 15:00:00 UTC)

* No addresses were identified as wash trading during Epoch 5.

~21K unique addresses currently hold $DYDX and ~1.7K unique addresses currently hold $stkDYDX.

~44K 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 5 and will be distributed to 4,876 traders. Trading rewards were distributed proportionally based on a formula rewarding both fees paid, $stkDYDX, 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 2 months.

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 5. 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 6.

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 5 and will be distributed to 16 market makers based on a formula rewarding a combination of uptime, two-sided depth, bid-ask spreads, $stkDYDX, and the number of markets supported.

In Epoch 5, there were 16 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:

17 addresses (14 existing and 3 new) did more than =>1% of maker volume in Epoch 5, and thus are eligible to participate in the LP rewards program in Epoch 6.

As an input to the Liquidity Provider Rewards calculation, market maker’s uptime, two-sided depth, bid-ask spreads, $stkDYDX, and the number of markets supported are reset to 0 at the start of Epoch 6. New market makers providing >=1% of maker volume in Epoch 6 will be eligible to join the pool in Epoch 7.

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

Liquidity Staking Pool

$526M $USDC was staked to the pool over the course of Epoch 5 from 758 users. 383,562 $DYDX were earned over the course of Epoch 5 and distributed pro-rata every second to stakers. A large user continued to stake $440M $USDC earning the majority of rewards. This large use requested to withdraw $240M $USDC over the course of Epoch 5.

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

Source: Etherscan

79 users requested to withdraw before the Blackout Period in Epoch 5. 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 6 Blackout Window (last 2 weeks of the epoch) to withdraw their funds starting in Epoch 7.

The amount of capital staked in the Liquidity Staking Pool has declined for 3 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. A large user requested to withdraw $240M $USDC from the Liquidity Staking Pool. At the start of Epoch 6, there was $260M $USDC staked to the Liquidity Staking Pool. As a result, all borrower allocations decreased and Wintermute reduced their amount borrowed to ~$63M $USDC.

Source: Dune

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

Safety Staking Pool

20M $DYDX was staked to the pool over the course of Epoch 5 from 1,746 users. 383,562 $DYDX were earned over the course of the epoch and distributed pro-rata every second to stakers.

$DYDX staked 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.

102 users requested to withdraw before the Blackout Period in Epoch 5. 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 6 Blackout Window (last 2 weeks of the epoch) to withdraw their funds starting in Epoch 7.

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 5. The Community Treasury now holds 28,539,021 vested $DYDX tokens.

Reverie officially launched the dYdX Grants Program (“DGP”) with 752,000 $DYDX transferred from the Community Treasury to the Grants Committee multi-sig. The Grants Committee, consisting of 8 committee members committed to dYdX community growth, will manage the multi-sig to fund RFPs. So far, the DGP has received over 20 applications. We are excited about the level of community engagement and the diversity of applications.

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 5 has ended

Welcome to Epoch 6! Epoch 6 started automatically on January 18, 2022 at 15:00:00 UTC and will end on February 15, 2022 at 15:00:00 UTC.

Epoch 5 ended on January 18 at 15:00:00 UTC. Epoch 5 rewards will be claimable here on January 25, at ~16:06 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.

Circulating supply

8.41% 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 5. These earned $DYDX tokens can be claimed in perpetuity.

Claim your DYDX rewards

The Merkle root was proposed on-chain on January 18 at 16:06 UTC and the 7-day waiting period has begun. Epoch 5 rewards will be claimable here on January 25, at ~16:06 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) - EXECUTED

An on-chain DIP was created on January 2nd at 23:02 UTC by the Reverie team to launch the dYdX Grants Program (“DGP”). Under the Short Timelock, 5M $DYDX was required to submit the proposal and the voting period lasted for 4 days. The dYdX community unanimously (47 voters & 32M $DYDX) supported launching the DGP. After a 2-day timelock delay, 752,000 $DYDX was transferred from the Community Treasury to the Grants Committee multi-sig. The Grants Committee, consisting of 8 committee members committed to dYdX community growth, will manage the multi-sig to fund RFPs.

So far, the DGP has received over 20 applications. We are excited about the level of community engagement and the diversity of applications. You can learn more about the dYdX Grants Program or submit an application here.

DIP (off-chain) - Add Liquidity Providers' Incentive on Spread - FAILED

On January 10th at 17:00 UTC, a community member created a Snapshot poll to adjust the LP rewards formula by adding more weight to the spread. The change to the LP rewards formula was intended to encourage LPs to put orders as close to mid-price as possible and to increase the distribution of LP rewards. Although more individual addresses voted in favor of the proposal (153 v. 37), the majority of $DYDX (5.9M $DYDX / $stkDYDX and 67% of votes) voted in favor of keeping the formula the same.

Other active governance discussion threads

The dYdX Foundation started a community thread to create a framework to determine eligibility for LPs to borrow $USDC staked to the Liquidity Staking Pool for market-making purposes. $DYDX holders may vote to change the following parameters: (1) adding new LP borrowers, (2) removing existing LP borrowers, and (3) changing the allocations of borrowed $USDC to approved borrowers. The initial framework is only a recommendation, subject entirely to governance’s implementation of a framework following discussions and proposals.

The Snapshot poll to adjust the LP rewards formula by adding more weight to the spread highlighted several issues with using Snapshot polls to change the LP rewards formula and off-chain variables more broadly. The dYdX Foundation created a thread and included several minimum requirements for Snapshot polls that are binding and result in changes to off-chain variables:

• Voting Choice – Binary voting options,
• Voting Delay – 6570 blocks,
• Voting Period – 4 days,
• Minimum Quorum – 1M (0.1% of total supply),
• Minimum Vote Differential – 67% of votes, and
• Execution Grace Period – 1 Epoch.

dYdX Trading Updates

V4: Our Path Towards Full Decentralization

dYdX Trading Inc. plans to launch the next version of the protocol, V4, by the end of 2022. dYdX’s mission is to build the world’s leading crypto trading platform. dYdX V4 will be open source, fully decentralized and no central party (including dYdX Trading Inc.) will have the ability to receive trading fees. All aspects of the protocol that can be controlled will be fully controlled by the community. Decentralization will drive radical improvements in transparency, safety, fairness, and equality of opportunity. Read more about it here.

Max Leverage Reduced to 20x

On January 14th, the maximum leverage available to BTC and ETH markets was reduced to 20x from 25x. As a result, initial margin requirements in these markets increased to 5% from 4%. Leverage was reduced to better protect traders from liquidations and to keep in line with evolving industry standards. Read more about it here.

Fee Reduction

On January 18th, dYdX announced that the fee schedule was reduced up to 66% for a minimum of 3 months. $DYDX holdings discounts are still applicable for further discounts as well (with a 2 bps taker fee floor). The fee changes were implemented to keep in line with the market fee schedules of both centralized and decentralized crypto exchanges. dYdX fees are now extremely competitive with major exchanges in the industry. Read more about it here.

New features

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

• One-click testnet deposits are now available on dYdX. Explore the exchange, try out our trading flows, and test run your new trading strategy. Read more about it here.
• dYdX Trading Inc. relaunched gasless deposits 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. relaunched free swaps for certain ERC20 assets to be exchanged for $USDC via the 0x API. Read more here.
• Trading Leagues will go live on January 25, 2022 at 15:00 UTC. Prove that you're one of the top traders in crypto! Read more here.

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

Social

• The dYdX content competition concluded and winners will be announced publicly in Epoch 6. First place in each category will receive $30K $USDC. Read more about it here.
• The dYdX Grants Program (DGP) is officially accepting applications! The DGP represents one of the largest grants programs in DeFi to fund community initiatives. You can read more about it here or submit an application here.
• Antonio, founder and CEO of dYdX Trading Inc., spoke about the dYdX protocol on Empire! Read more about it here or watch it here.
• dYdX was featured on the Daily Gwei! Watch it here.
• dYdX was featured on the Defiant! Read more about it here.
• dYdX partnered with EPNS to launch decentralized push notifications. Read more about it here.
• dYdX Foundation is hiring! Join us as a Governance Growth Lead, a Marketing Associate, or a Business Operations & Finance Associate.
• dYdX Governance is now live on Boardroom. Get insights into governance, operations, and DAO activities. Read more about it here.