The Governance Burrow and the dYdX Foundation are excited to bring you the mid-Epoch 12 governance report! This report provides a summary of all governance related discussions, dYdX Request for Comments (“DRC”), and proposals discussed so far in Epoch 12.

Epoch 11 Review

On July 11, dYdX Foundation hosted a discussion on Discord regarding general updates, current governance proposals, and an Epoch 11 review. The dYdX Foundation also summarized highlights for Epoch 11 in a deck and video.

dYdX - Epoch 12 Mid-Epoch Governance Report

Snapshot Polls

dYdX Grants Program v1.5

On July 12, Reverie posted a snapshot poll following up on the DRC to launch dYdX Grants Program (“DGP”) v1.5 with ~$5.5M in $DYDX. Also Reverie proposed replacing Su Zhu and Zhuoxun Yin as dYdX Grants Trust Trustees, with Lily Liu and Alexios Valonasis.

The poll ended on July 16 and there was almost unanimous support from the community, where 5.8M $DYDX (412 voters) voted “Yes” to launch DGP v1.5 against 14K $DYDX (20 voters) which voted “No”.

DGP v1.5 will focus on fundamental categories that the community will need to manage in V4, laying the bedrock for functional groups to form. This will be achieved by doubling down on the highest impact grantees and expanding the overall scope of the program to tackle additional funding categories.

The core initiatives that DGP v1.5 plans to fund include:

• Asset listing,
• Risk management,
• International growth,
• Analytics, and
• Preparation for dYdX v4.

To accomplish the above goals, Reverie proposed funding the DGP with ~$5.5M in $DYDX. The ~$5.5M budget will ensure the DGP can continue operating until v4 launches.

As next steps, moving the ~$5.5M in $DYDX from the Community Treasury to the Grants Multi-sig requires an on-chain vote, and falls under the requirements of the Short Timelock Executor. This requires 5M $DYDX to create the DIP, a 20M $DYDX minimum quorum, and a 5M $DYDX minimum vote differential.

Adding 15 New Assets to the Starkware Priority Timelock Executor

On June 18, the Snapshot poll to add 10 new assets to the dYdX exchange was created by Reverie. This is a follow up to the previous proposal to add 5 assets. The 15 assets proposed are:

• APE,
• GMT,
• FTM,
• AXS,
• OP,
• WAVES,
• GALA,
• SAND,
• MANA,
• 1000SHIB,
• THETA,
• RSR,
• ZIL,
• VET, and
• ENS.

These assets can be reviewed using the Asset Scoring Tool created by Chaos Labs.

The poll ended on June 22, and the dYdX community almost unanimously supported adding the assets, where 13M $DYDX (279 voters) voted “Yes'', against 401 $DYDX (3 voters) which voted “No”.

Below, we outline the steps for adding new assets to dYdX:

1. dYdX community members post about the new asset they want to be listed.
2. The Asset is listed on the Asset Scoring Tool.
3. New Asset Listing Group creates a proposed list of new assets and gets additional feedback from community members and market makers.
4. Snapshot vote is created to confirm support for adding all of the new assets.
5. If the Snapshot vote passes, the group will proceed with a proposal to be voted on-chain by the community.
6. dYdX Trading will announce when new assets are open for trading.  

As next steps, adding new assets to the dYdX exchange requires an on-chain vote and falls under the requirements of the Starkware Executor. This requires 5M $DYDX to create the DIP, a 20M $DYDX minimum quorum, and a 5M $DYDX minimum vote differential.

Winding Down the Borrowing Pool

On June 16, Sixtant posted a snapshot poll following up a DRC to:

1. Wind down the borrowing pool,
2. Pause the rewards generated by staking $USDC to the Liquidity Staking Pool, and
3. Send the rewards (383,562 $DYDX per Epoch) allocated to users who stake USDC to the Community Treasury.

The snapshot poll ended on July 7 and there was almost unanimous support from the community, where 17M $DYDX (580 voters) voted “Yes” against 3K $DYDX (52 voters) voted “No” to wind down the borrowing pool.

Sixtant outlined the changes could benefit the dYdX community because

1. The dYdX community is paying $DYDX rewards for underutilized $USDC capital,
2. Prospective borrowers provided inadequate disclosure, and
3. The structure of the borrowing pool negatively impacts competition among LPs.

Xenophon labs agreed with the main points of the DRC and shared a Dune dashboard to inform further discussion about how stakers and borrowers have interacted with the Liquidity Staking Pool and borrowing pool, respectively.

Additionally, Xenophon labs released a paper detailing their findings around the under-utilization of the Liquidity Staking Pool and alternative uses for $DYDX rewards leftover from the liquidity module if it were to be discontinued.

The alternative options include:

• Partnering with Hummingbot to establish a rewards program for liquidity providers on small-cap markets on dYdX.
• Increasing the R parameter on the Trading Rewards formula to increase the amount of rewards that traders receive and the amount of fees that they pay.
• Burning all the leftover $DYDX from the liquidity module.
• Modifying the Affiliate Program to include an affiliate rewards mechanism that distributes $DYDX pro-rata amongst affiliates.
• Funding additional marketing campaigns.

Deciding what to do with the remaining $DYDX is an important governance decision, and Xenophon Labs recommends further research on:

• Partnering with Hummingbot to incentivize lower-capital market makers to provide liquidity in smaller-cap trading pairs on dYdX; and/or
• Bolstering participation in the self-service Affiliate Program by incorporating the remaining $DYDX as some additional form of reward. Xenophon Labs suggested that further thinking needs to be done to protect against referral farming and to provide proper incentives for referred users to consistently trade on dYdX.

As next steps, winding down the borrowing pool and transferring the rewards to the treasury requires an on-chain vote, and falls under the requirements of the Short Timelock Executor. This requires 5M $DYDX to create the DIP, a 20M $DYDX minimum quorum, and a 5M $DYDX minimum vote differential.

dYdX Request for Comments (“DRC”)

DRC: Revisions/Simplification of Trading Rewards

On July 20, SLN Capital posted a DRC to discuss revising / simplifying the user trading rewards formula. The formula should be simplified to completely remove the Open Interest term, which as research has found adds nothing productive but takes up trading firms margin in order to put on fake large hedged Open Interest positions.

SLN Capital is proposing to:

1. Change Trading Rewards formula to have w = f
2. Reducing the amount of monthly emitted Trading rewards by 25% and have this returned to treasury

For the first point, the changes to the trading rewards formula can be implemented after a Snapshot vote meeting the Minimum Requirements for Binding Snapshot Votes, and dYdX Trading has an epoch grace period to implement the change.

For the second point, the reduction of $DYDX trading rewards per epoch requires an on-chain vote after a successful Snapshot vote.

DRC: Revisions to improve the LP Rewards formula

On July 20, SLN Capital posted a DRC to discuss improving the Liquidity Provider (LP) Rewards Formula.

SLN Capital is proposing to:

(1) Change the LP formula to incentivize competitive quoting near the top of the book by squaring the 'spread' term.

(2) Removing or reducing the stk$DYDX term in favor of more volume weight to reduce barriers for new LPs (v = 0.6, d = 0.35, and s = 0.05). This is especially important for non BTC/ETH markets.

(3) For BTC/ETH, reducing or removing the Quoting weight in favor of Volume weight, as these markets are already successfully bootstrapped. Either v= 0.8, d = 0.15, s = 0.05 or even going straight to volume 1.0 and just providing a straight volume rebate.

All these changes can be implemented after a Snapshot vote meeting the Minimum Requirements for Binding Snapshot Votes, and dYdX Trading has an epoch grace period to implement the change.

DRC: dYdX - Ecosystem Values

On June 13, dYdX Trading Inc. led by founder and CEO Antonio Juliano announced the dYdX company values highlighting a core set of principles and values Trading Inc. follows. dYdX foundation echoed these points and aligned themselves with these principles such as think 10x bigger, act like a founder, and ruthlessly priortize impact, etc.

The foundation posted a DRC to encourage discussion around the topic and adopt a common set of values across thedYdX DAO and ecosystem. This will be important moving forward as multiple different individuals and groups will be contributing to the ecosystem especially come V4.

DRC: Ambassador Program Voting/Polling System (Aragon on Polygon)

On July 11, A DRC was made by Alucard.eth to deploy a voting system using Aragon on Polygon for each ambassador to create on-chain votes to decide on internal proposals, structure creation, role selection/removal, etc. Furthermore, creating a public voting dashboard will add transparency to decision-making and help to see which ambassadors are active.

Active Discussions and Announcements

dYdX Dune Dashboard

The ambassadors in the Analytics Burrow are pleased to announce the launch of the dYdX Dune dashboard. Dune is the industry standard when it comes to crypto analytics dashboards. Now, the dYdX community and crypto industry alike can access a vast range of high-quality data from the protocol.

Hedgies - Lens Protocol Collaboration

On July 14, the dYdX Foundation announced that all Hedgie holders can mint their Lens profile on Lens protocol. This is a follow-up to AndyGG’s post to establish a Hedgies-Lens Protocol collaboration to obtain early access.

Lens Protocol, built by the Aave team, allows developers to create Web3 social networks on top of the protocol itself, letting creators take full ownership of their content. Lenster is one such social network that intends to be a decentralized version of Twitter.

Currently, Lens profiles are restricted to the public, and having early access allows Hedgies project to solidify its brand name in this promising network providing another free marketing channel and an opportunity for the community to test a new protocol. In addition, it could become a source of revenue for Hedgies community in the near future.

The first Lenster post with the Hedgies official account was open for the community to collect. It was a limited collection that got sold out in only 19 hours and served to attract the first 100 followers to the account.

Governance Burrow Venomics Research

The governance burrow is starting a governance research series to create a discussion that will help educate the community more broadly.

Part 1 - The series begins with a deep dive into VeNomics and its utility.

Part 2 - Part 2 covers vemodel pioneers: CRV (a time-weighted voting and value accrual mechanism that stabilizes the price of assets used in defi such as stablecoins and synthetic wrapped assets), FRAX (fractional-algorithmic stablecoin protocol) and their utility.

Part 3 - Part 3 covers an overview of Perp v2 as an iteration of the vemodel with commentary from the Ambassadors. The vePERP (vote-escrow model) is where vePERP is used to vote and a multiplier is received on PERP locked in the Locking Vault.

Part 4 - Part 4 covers Maple Finance to compare an alternative model (xModel) to VeNomics. Additionally governance colloborated with the risk analysis burrow to understand the trade offs of using the vemodel.

dYdX community leaders as Grants Delegated Domain Allocators

Subhash Kari started a thread discussing the possibility of having decentralized community members / working groups run grants for the domain of their expertise on behalf of the foundation. Subhash Kari argues that when a grants program is run by a centralized committee, it has the following shortcomings: blind spots (members might have expertise in one domain, but are left lacking in another), burnout (a committee of 5-8 members gets overwhelmed with application volume resulting in burnouts).

Subhash Kari also states that the ideal solution is to make the grants program more decentralized by implementing the delegated domain allocators framework where a domain expert community member runs a grant program for that domain on behalf of the Foundation.

Conclusion

As we advance towards dYdX V4 - The dYdX Chain, the dYdX community will have a larger role in the development of the dYdX ecosystem and increasing the utility of $DYDX. So far, we are excited by the level of governance participation. The proposals and dYdX Request for Comments (“DRCs”) featured in this governance report demonstrate that the dYdX community is aligned with the long-term success of the dYdX protocol.