Exclusive Interview with dYdX Foundation CEO dYdX Chain Abandons Off-chain Order Book, Aims to Become Public Infrastructure

In-Depth Conversation with dYdX Foundation CEO dYdX Chain Ditches Off-chain Order Book, Sets Sights on Public Infrastructure Status

Author: Daria Krasnova, BeinCrypto; Vishal Chawla, The Block

Translation: Felix, LianGuaiNews

dYdX Chain launched on the mainnet on October 27th, with the genesis block created at 1 am. Charles d’Haussy, CEO of the dYdX Foundation, said, “This marks a huge leap forward for the dYdX ecosystem, representing a completely decentralized new chapter.” In a recent media interview, Charles provided insights on the design of dYdX Chain, its future development, and the current state of cryptocurrencies. He also revealed that dYdX has achieved a trading volume of $1 trillion since its inception, accounting for 1% of the global derivatives trading volume, but he expects dYdX’s market share to eventually rise to 7%.

dYdX Chain

dYdX’s primary developer, dYdX Trading, announced the open-sourcing of the v4 code on October 24th, signaling the launch of the dYdX v4 upgrade. v4 will be an independent L1 blockchain based on the Cosmos SDK (dYdX Chain), where everything from the order book to the matching engine will be part of a decentralized, community-governed project on the independent blockchain, secured by audited smart contracts. The dYdX Chain testnet was initially launched in March this year and has undergone multiple upgrades since. dYdX Chain aims to provide transparent and secure derivative trading, operated solely through code and governed by its user community. The post-genesis phase of dYdX Chain includes the Alpha and Beta stages.

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The Alpha phase focuses on bridging, staking, and security, ensuring the stability and reliability of dYdX Chain, with an emphasis on economic balance, meaning that the value of staked DYDX tokens surpasses the value of on-chain liquidity and other effective security measures. In the Alpha phase, the primary objective of the mainnet is to stress test the network. Over 60 validators are being recruited to ensure network security.

The Beta phase will support trading without rewards. This stage will incorporate traders, LPs, and other essential system components. All activities on dYdX Chain (if deployed on the mainnet) will gradually increase, providing a comprehensive trading experience for all users of the dYdX Chain open-source software.

In addition to the blockchain transition, dYdX Trading plans to relinquish control over various protocol components and cease transaction fees. Governance and decision-making responsibilities will be fully transferred to dYdX stakeholders and ecosystem participants.

In the conversation, Charles mentioned that dYdX previously employed an off-chain order book hosted on AWS, which was accessible externally. However, dYdX Chain adopts a new architecture and abandons the off-chain order book. The order book will reside in the validators’ memory, eliminating the need to wait for block confirmations.

Charles said, “I think in our industry, it’s important to choose who you are and what you do. dYdX chose DeFi. Not half DeFi, half CeFi. You want to be clear about your identity and strive for it. So, stay tuned, and we’ll see dYdX become a public product, a public infrastructure.”

“dYdX market share is expected to eventually rise to 7%”

Charles believes that dYdX will soon become an important resource for the crypto community, especially in the perpetual contracts field:

“When analyzing the market prospects for perpetual contracts, we can see a clear development trajectory from a historical perspective. In the spot market, Uniswap currently accounts for 5% to 7% of global trading volume, demonstrating the growth and importance of decentralized infrastructure. dYdX, which currently holds a 1% market share in the crypto derivatives market, is prepared to follow a similar path. While the timing is uncertain, historical trends cannot be denied. It is expected that dYdX’s market share will eventually rise to 7%. With our continuous progress, the future is indeed hopeful.”

Charles envisions dYdX becoming an important participant in the DeFi space, providing users with multiple avenues for participation. In the current version, the diversity of dYdX’s windows is already apparent, with users accessing its services in various ways. Some users choose the convenience of mobile applications, while others prefer the computer interface. A significant portion of trading volume also comes from institutional participants utilizing API integrations.

The flexibility of accessing dYdX is constantly improving, representing a transition from single interaction to multi-touch. Just as some users interact with Compound without even realizing it, dYdX is similar. Users can access dYdX through official portals, centralized exchanges, insurance products, or various other channels. The overall narrative is the application transitioning into a protocol, eventually evolving into a public product for derivative contracts.

In addition, Charles also presents the secret to DeFi’s success. He believes true success lies in creating exclusive markets. These markets must offer something unique that gives DeFi a competitive advantage and provides clear value propositions to its users.

CeFi Regulation Accelerating the Rise of DeFi

As the conversation unfolds, the discussion delves into crypto regulation. Charles predicts that centralized exchanges will soon be forced to obtain licenses primarily applicable to spot trading.

“I am not against regulation. I believe regulation is important, but teams should consider the specific circumstances and think carefully about it. dYdX is very cautious, and we usually work with many legal advisors and lawyers. For projects that want to join the dYdX ecosystem, we conduct specific analysis and make decisions based on the project’s business. If the project offers services or software, the project team will also be very cautious.”

Paradoxically, this shift may accelerate the rise of DeFi, with centralized exchanges becoming bridges to the decentralized financial world. The birth of the term “DeFi mullet” signifies the fusion of traditional finance (frontend) and DeFi (backend), potentially reshaping the financial landscape in the coming years.

Nevertheless, Charles points out that this is a rather lengthy process, taking at least 5 to 10 years. He believes that painful events like the collapse of FTX make people more aware of the fragility of CeFi infrastructure.

“People realize that they can’t trade forever on CeFi, so they need to explore different areas. They start learning about Curve, understanding how DeFi derivatives work, and start using different protocols. Their first stop is always dYdX. Currently, we account for 1% of the global derivatives trading volume, and since its inception, dYdX has achieved a trading volume of $1 trillion. I think the dYdX testnet also reflects how many people are interested in DeFi and know that a solid infrastructure is being built”

Charles also points out that the current situation is very similar to the early days of the internet. Initially, there were concerns about drugs, weapons, and terrorist activities. Some called for regulation, but these efforts were not significantly effective. Over time, it became clear that internet service providers could establish guidelines, rules, and enforcement measures, but the technology itself remained unregulated.

Charles believes that this conclusion will apply to blockchain technology. Blockchain technology cannot be directly regulated, but the focus of regulation should be on the behavior of operators within the ecosystem.

Bear market evolution

Charles reminisces about the earlier days of the crypto industry when bear markets were both long and destructive, dragging down everyone and every project.

“The early bear market was a problem because the industry was small, and everyone was on a downward trajectory. Today, the crypto industry has expanded a lot. Although the current bear market is still painful for everyone, many people are still building because there is enough funding. When the bull market emerges, some projects will not be too excited; they manage a treasury, and the project can survive and continue building with the funding strength for years. This was impossible in previous bear markets.”

Today, the market environment is completely different. While bear markets may still bring shocks, their duration has significantly decreased. The crypto ecosystem is broader and more resilient. This industry has learned how to adapt and develop, demonstrating a level of maturity that was once unimaginable.

As Charles emphasizes, the most prominent aspect of the current crypto environment is the connection between the crypto market and the broader macroeconomic backdrop. The crypto market is no longer an isolated industry but a financial asset class that coexists harmoniously with the global economy. This shift in mindset and the recognition of cryptocurrencies as a legitimate financial asset category have attracted the participation of a more diverse group of traders. Therefore, macroeconomic factors play a crucial role today.

Related reading: dYdX v4: Improvements in Economic Models and Valuation Outlook

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