Exclusive interview with dYdX Foundation: Only by building your own chain can you truly move forward

Jackand others3Authors
24-02-28 16:06
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Interview: Jack, BlockBeats
Compiled &edited by: Luccy, Ladyfinger, BlockBeats

Since the announcement of dYdX v4 in January 2022 Since then, the community has been discussing the issue of dYdX building its own public chain. v4 is the process of migrating dYdX to its own chain built by Cosmos SDK. v4 and dYdX chain will make the handling fees belong to the token holders, which means we can regard v4 as a handling fee switch for token holders. Introduction.

Interestingly, the discussion about fee conversion just caused a stir on Uniswap not long ago. UNI, which has been launched for 4 years, finally decided to transform and distribute the handling fee dividends to UNI. holder. Unfortunately, the transformation of governance tokens only brought short-term attention to Uniswap. After the price of UNI exceeded $12, it gradually fell back as the topic became less popular.

Related reading: "More than 65% in one hour, a new milestone for the world's largest decentralized trading platform Uniswap

But as the DeFi field The competition between the two largest DEXs, dYdX and Uniswap, is not only about fee conversion. The open source code has also been talked about by the community. Today, dYdX Chain V4 has been successfully launched. In addition to the DYDX token price breaking through previous highs many times, its total DEX transaction volume has already exceeded the tens of billions of dollars. Since January 18, dYdX’s 24-hour trading volume has surpassed Uniswap and ranked first in the rankings.

Launching a new public chain Later, the centralization issue of dYdX has been one of the hot topics in the community, especially regarding its list of active validators and the high commissions of top validators. There are voices in the community questioning whether the higher commissions mean more and more voting rights and control over the protocol itself. In addition, as a defi protocol that focuses on perpetual contracts, how to solve regulatory problems has also become one of the topics of concern to the community.

With these questions in mind, BlockBeats conducted an exclusive interview with Charles d'Haussy, CEO of the dYdX Foundation:

BlockBeats: Please give a brief introduction yourself.

Charles: I am Charles d'Haussy, CEO of the dYdX Foundation. Prior to joining dYdX, I served as the head of fintech for the Hong Kong government. I played a very important role in shaping and upgrading Hong Kong's financial ecosystem, pushing it into a new era of fintech. After working for the Hong Kong government for over three years, I joined ConsenSys, the company behind Metamask, to create ConsenSys' Hong Kong office and manage ConsenSys' business in Asia. During this time, my team and I built central bank digital currencies (CBDCs) at ConsenSys for Hong Kong, Thailand, Australia, South Korea, Dubai, and more before joining dYdX.

I am passionate about both blockchain and Hong Kong, and want to document the development of Hong Kong’s crypto ecosystem. So I wrote a book called "Block Kong", which is available in English and Traditional Chinese. It mainly records different characters in the ecosystem. I wanted to highlight different types of people in the Hong Kong crypto ecosystem, so I selected 21 people to record, such as FTX’s SBF, venture capital fund founders from mainland China such as Sandy Peng, the co-founder of BitMEX and some from Hong Kong Former regulators from the China Securities Regulatory Commission, among others.

This book is my way of giving back to Hong Kong, because Hong Kong has left me such great memories. I had a great career there, made a lot of friends, did a lot of fun stuff, and Block Kong is a fair portrait of all the talent in the area.

About a year and a half ago, I joined the dYdX Foundation, an entity within the dYdX ecosystem, as CEO. dYdX’s original company was dYdX Trading Inc, founded by Antonio Juliano, one of the founders of dYdX, and had about 60 engineers at its New York headquarters. With the progress of the dYdX project, the project has finally begun a stable journey towards decentralization and is now the world's largest sustainable and decentralized exchange protocol.

In this context, dYdX established the foundation in 2021. The Foundation team is about 12 people, plus a few contractors and partners, and the team is spread across more than 10 countries. The main task is to ensure that governance is efficient and high-speed to ensure that the protocol makes good decisions, discusses important topics, and votes on important topics in the most efficient way. We also do a lot of ecosystem launch work. We enabled the community to meet through some online and offline activities, organized community forums, and conducted a lot of global promotion of the dYdX brand.

The way forward for dYdX

Previously, the dYdX Foundation officially stated that every time a new block is submitted, All fees generated by dYdX Chain will be distributed to validators and stakers, including USDC-denominated transaction fees and DYDX-denominated Gas fees. As of the time of writing, the total pledged amount of DYDX exceeds 100 million, accounting for 10% of the total supply, and validators and stakers can currently earn an annualized return of 19.21% (7-day average).

However, at this high Behind the staking returns are the community’s further concerns about centralization risks. In this regard, Charles d'Haussy said that the DYDX Foundation has a delegation plan to deal with centralization risks, and there are currently three liquid pledge protocols competing to launch liquid DYDX tokens, all of which are moving in the direction of decentralization.

On this road forward, launching your own chain is the key. After all, only by having your own technology stack can you control everything, and products can progress at a very fast speed, otherwise there will always be dependence. Charles d'Haussy believes that any brand that has a large enough audience and wants to have some control over the technology stack is suitable for having its own application chain, and having an application chain does not mean that it is not decentralized at all.

Decentralization is still in its infancy, but progressing well

Charles: One of the DYDX Foundation’s ultimate missions is to work with the validator ecosystem. dYdX’s AppChain paper has been widely discussed, showing how a successful application can start with Ethereum L1 and then become one of the early adopters of L2 like Starkware. Thence, dYdX was one of the early movers in the L2 narrative.

dYdX is indeed a good example of the AppChain paper. After having more and more success with L2, eventually engineers figured out that now was a good time to consider building our own chain and community. This is exactly the journey that many other projects go through, starting with an application, sitting in L1, perhaps expanding to L2, and then eventually building their own chain.

The construction of the dYdX chain was decided by the community. About a few years ago, dYdX Trading Inc took some time to build the software and make the software open source to all people use. After a series of testnets, the dYdX chain genesis block was launched in December 2023. This is very important to the validator ecosystem of the dYdX chain, they ensure performance, they ensure governance, they also ensure staking, and stakers and validators can decide to cross-chain their Ethereum DYDX tokens to the dYdX chain.

If they agree, DYDX tokens can be staked on the dYdX chain and 100% of transaction fees sent directly to validators and stakers. Therefore, this is a very important step. In the life cycle of a DeFi project, you can continuously improve the consistency between token holders and the protocol by becoming a validator or staker.

Today there are many DeFi projects that have governance tokens, but these governance tokens are just governance tokens. Sometimes you see very successful DeFi applications, but token holders can only vote. They are unable to actually capture some of the value created by these agreements. And dYdX may point the way for more projects to build their own chains with community governance support, further aligning the mission of the protocol itself and token holders. Thus, when DYDX token holders decide to stake on the dYdX chain, they will receive 100% of transaction fees in the form of USDC directly through the validators. Because when using the dYdX protocol, the transaction fee paid by dYdX users is USDC.

For stakers, this is a very special experience. You can maintain the security of the chain by becoming a staker or a verifier, and No more receiving native tokens because sometimes the inflation of these native tokens is very high. Therefore, the APY may not actually be as high as imagined. Migrating DYDX tokens does not change the token supply, nor does it change the inflation schedule. Staking DYDX tokens again earns you USDC rewards, when you stake DYDX the APY will be between 10% and 15%, depending on the activity level of the chain, if you trade more, the rewards will be higher. When you acquire USDC, it's the first time you see alignment between token holders and the protocol, with fees charged by the protocol being rewarded directly through validators and stakers.

BlockBeats: In your opinion, what is the biggest difference between v4 and v3? After the v4 update is launched, do you feel that decentralization has improved in terms of node distribution, staking rate, voting rate, etc.?

Charles: DeFi exchanges have two main architectures. One architecture is AMM, such as Uniswap. You can Create your own market with order execution delays depending on block time. So when you decide to trade on an AMM, for example on Ethereum L1, you may have to wait 7 seconds or even 15 seconds until the transaction is finally fully executed, which is not optimal for trading.

Today, the vast majority of cryptocurrency trading still occurs on centralized exchanges because they perform better. Centralized exchanges use an order book architecture, so order books are the most proven and efficient way to run a decentralized exchange. However, decentralization is difficult to achieve.

dYdX is an order book type exchange that has been decentralized on Ethereum. ButdYdX is only decentralized to a certain extentbecause technically speaking, dYdX’s order book on Ethereum cannot be placed on L2 because L2 is not fast enough and does not have enough throughput. So in order to move forward in terms of decentralization, there is aneed to have a fully decentralized order book, so dYdX decided to get rid of Ethereum and L2 and build its own chain to ensure that we as a community do not need to The order book is placed on an AWS server.

In the new dYdX, the order book is actually decentralized, but not on-chain. Imagine a typical day at dYdX, perhaps over 10,000 orders per second. These orders are mostly placed by institutional traders or very sophisticated traders who want to have high frequency and be able to place orders and confirm orders very quickly, and the delay in block time is very important for people who want to compete with centralized exchanges. is unacceptable.

So the order book on the dYdX chain is not on the chain, but in the memory of the validator. There are 60 active validators on the dYdX chain, and these validators have two tasks. The first is to verify the chain and mint new blocks. Although the current block time of the dYdX chain is only about one second, the one-second delay is still not enough for a high-level trading experience. Therefore, dYdX engineers designed the new dYdX chain so that the order book actually resides in the validator's RAM memory. The second task is to host a copy of the order book and continuously update the order book. Technically speaking, the order book on the dYdX chain is decentralized, but it will not be affected by the one-second delay just because it is on the chain.

dYdX’s trading volume today is approximately $1 billion, accounting for 1% to 2% of total global perpetual, CeFi and DeFi trading volume. To keep growing in terms of market share, we need to continually improve our stack and trading experience. A few weeks ago we surpassed Uniswap to become the number one and largest DeFi protocol in the world as our trading volume is much larger than Uniswap and this metric will continue to improve due to the decentralization and architecture of the exchange .

In terms of chain performance and decentralization level, currently, more than 8% of the tokens on the dYdX chain have been pledged, and they are placed in the hands of validators. Provides certain support to ensure the security of the chain. This is already a big improvement for a chain that is about two months old and currently has around 150 different validators. You can see Mintscan on the dYdX chain, providing you with a visual understanding of the chain's performance. This data is constantly changing and stakers are being rewarded with USDC.

On the verifier side, By protocol design, there can only be 60 validators in the active set. So there are about 150 different validators who are accumulating as many tokens as possible to become part of the active set. There's a lot of commentary in the community about the centralization of active sets, but just like Bitcoin or Ethereum started out a bit centralized in terms of number of validators and validator power,decentralization will take some time, and currently, the chain is still In the early stages, progress is still being made in terms of decentralization.

We see more and more validators, the types are increasing, and their weight is also growing. For example, Ledger is a validator on the dYdX chain. If you hold Ledger and want to experience DeFi, you can use Ledger Live and stake DYDX through Ledger without using any centralized service. Other validators include Coinbase Cloud, OKEx, etc., who announced that they are working to support DYDX as soon as possible, and staking is the validator business from Kraken. Therefore, you can see that many big players from the cryptocurrency trading world are very interested in the dYdX ecosystem and have already joined it.

In short, the decentralization of the chain is not perfect yet, but it is going well. What I hope people remember and question is, should an application chain be as decentralized as a general-purpose L1 like Ethereum? Or should we get the same level of decentralization for different types of use cases? I don’t think we should pursue the same level of decentralization. If we decentralize a network too much, network performance will also degrade. Therefore, every use case, every chain and every ecosystem needs to find a pragmatic approach and degree of decentralization.

Bitcoin, some call it digital gold, you want it to be as decentralized as possible. Ethereum being a world computer, you want it to be as decentralized as possible. But this also comes with performance tradeoffs. As an application chain, dYdX still has a way to go in terms of decentralization, but this is a good start. We are not necessarily pursuing the same level of decentralization. If you look at the overall level of decentralization in Cosmos, Osmosis has also taken its time to decentralize, dYdX just started its journey two months ago and it's going well so far.

BlockBeats: Among the validators of the dYdX chain, the top validators have relatively high commissions. Will this mean having more and more voting rights and control over the protocol itself after accumulating too much value?

Charles: I think the free market dynamics are at play and each validator can choose a certain level of commission. As more and more people migrate dYdX on Ethereum to the dYdX chain, we will see the distribution of the token improve rapidly. When people choose to work with a validator with a 5% commission instead of a validator with a 25% commission, people will help decentralize those validators.

It is still early days and there is some progress being made towards the usability of the dYdX chain. For example, OKEx has announced that it is implementing a DYDX native token, which will help provide more choice and better distribution. But so far we haven't seen any wrongdoing. While there is some centralization at the top, there are also long tail validators supporting it.

There are two things that promote the decentralization of the chain. First, the dYdX Foundation has a delegation program where we delegate most of the tokens available to the Foundation to validators. For now, the dYdX Foundation has a very transparent policy in its delegation program and we delegate to validators outside of the top ten. Therefore, we are accelerating decentralization. Second, if you observe the DYDX community forum carefully, you should know that there are currently three liquid staking protocols competing to launch liquid DYDX tokens. In addition to Stride, Quicksilver Protocol and Persistence One are also launching a new Liquid pledge plan. The way they select validators is also consistent with the guidance the Foundation has been sharing with the community. These liquid staked tokens will not be validated with the top ten or top twenty validators, depending on their own criteria. This will greatly accelerate the decentralization of the chain.

Build an application chain and control your destiny

BlockBeats: There have been a lot of comments recently about Ethereum Dancun updates and L2 discussions, especially EIP-4844. People expect huge improvements in throughput and transaction costs, so do you still think building app chains is a better choice than L2? What happens if the layers get lower?

Charles: I think application chains make sense. The first thing to be clear about is that AppChain is not for everyone. Suppose we decide together to start our own brand of candy, and we name our brand "Jack and Charles Candy." Because we started out small, we chose to open a store on Taobao and start selling our candies. In this way, we basically leveraged Taobao's infrastructure and customer base to launch our brand. Maybe a year or two later, our "Jack and Charles Candy" brand became very successful. At this time, we no longer need to rely on Taobao’s logistics and e-commerce solutions. We can have our own website and e-commerce platform, giving us more control over our future.

So, if you are big enough, you can have your own chain and have complete control over the technology stack. This allows you to build the best L1, the best L2, and if you like, the best L3, and even reuse it. If you always have applications running on a common blockchain that works for everyone, you may be doing very specific things, but you want to be the best in the world in this area, so you have your own chain, which is useful for It is truly optimized for the area you focus on.

Just like a young startup might start selling on Taobao and later start having its own website. The general direction is always that as long as you are big enough, you can have your own technology stack and control everything, and the product can advance at a very fast speed, otherwise there will always be dependence. Think about how many DeFi applications today rely on Ethereum or other L2s, and they may not be as successful as expected due to high transaction fees. Essentially, they are waiting for someone else to do the job. Maybe in time, maybe late, before reaching full potential. So why don't you grow and then take control of your own destiny and build something for your own space so you can grow fast.

The final point is consistency with token holders. If the application is running on L2, then token holders will still feel frustrated somewhere, after all, even if it is successful on the L2 network, the token has no use other than governance. If you build your own chain and the token can be turned into a utility token, then the alignment of incentives for token holders to secure the chain and receive rewards makes a lot of sense, which is a very strong value proposition. What difference does it make to UNI holders if Uniswap is on-chain with only $0.01 per transaction? Maybe more trading volume, but as a token holder, you can’t make your tokens work.

The application chain can make the tokens work. Imagine if Jack and Charles decided to create their own restaurant, we could have a small storefront, but then there would only be so many customers that could come. If we decide to open our own small restaurant in a food court, there will be many customers buying the product and then getting traffic, which is cheap and easy to start with. After your restaurant is successful, when you know your customers really like your food, then you open your own restaurant and make more profits. Your shareholders will be happier, your users will be more satisfied, and you can change the decor and do whatever you want to more successfully realize your restaurant's potential.

BlockBeats: In addition to DeFi, what other types of applications will build their own application chains?

Charles: Large retail brands, as well as any brand that has a large enough audience and wants some control over the technology stack, are suitable for having their own app chains. Having an application chain does not mean that it is not decentralized at all, but there are different degrees of decentralization, and it is a broad concept. Suppose I open a Starbucks, I might want to have a chain where I can control certain aspects, such as loyalty points that require a special set of rules in China, and another set of special rules for loyalty points in France, then My chain needs to be able to adapt to these needs. If I implement these requirements on other blockchains, they may not give me the option, but tell me that I can only build it the way the chain already exists. Maybe the chain will be upgraded in the future, but maybe not .

So I think large applications, large retail brands, gaming applications, video games will all have their own chains because they can choose performance, they can choose specific specifications , you can choose different things. Butowning your own chain requires a critical mass of scale, which isn’t for everyone. So this is something that comes later in the growth of the agreement or project.

The future vision of dYdX

We all know that open source code is in the spirit of blockchain Core, bringing transparency to developers so they can conduct reviews, detect bugs, and improve quality. The encryption community has always been full of resentment towards BSL. Not long ago, Blast was ridiculed by the Ethereum OG group for changing the license "MIT" in the OP code to "BSL".

In June last year, Uniswap launched the V4 version to continue the V3 version of BSL. This move once aroused opposition from many community members. On the contrary, dYdX has always adopted the MIT license and made the V4 code completely open source, allowing dYdX to be fully controlled by the community. The parent company dYdX Trading INC behind it has also become a public welfare company. In Charles d'Haussy's view, unrestricted open source code is the embodiment of dYdX's core value of DeFi and the best proof of its commitment to openness.

Related reading: "V4 code does not adopt a commercial license, dYdX and Uniswap part ways on the open source road

As an L1 chain, dYdX is focused on Chain for DeFi services, but only for perpetual contracts. As the difference in trading experience between CEX and DEX continues to shrink, and regulatory pressure on CEX increases, Charles d'Haussy believes that perpetual contract liquidity on CEX will eventually flow to DeFi. And from a regulatory perspective, regulation mainly regulates operators, not the technology itself.

In order to become the largest DeFi protocol in the world, what DEX needs to do is not to avoid regulatory issues, but to actively showcase DeFi. Regulators hope to have a healthy market environment, and DeFi is a transparent market. In the long run, the goals of supervision are highly consistent with the services provided by DeFi.

Comprehensive open source, focusing on the core value of DeFi

BlockBeats: Why dYdX decided to adopt Open source technology? What vision do you envision?

Charles:Unlike Uniswap, which uses a commercial license to open source its software, dYdX has been fully open source from the beginning. Not only is the user interface (UI) open source, but the code on the chain is also open, and you can completely copy dYdX. The dYdX chain's license is the MIT license, which means you can use it freely. Therefore, we do not have any restrictions on the use of open source.

Our commitment to DeFi is deeper and we focus more on transparency and the core values of DeFi. We have been involved in the DeFi field since 2018 and do not pursue any exclusive advantages. If the dYdX chain is a product of a certain company, then that company may protect its interests through a commercial license, which typically limits the use of the product for two to three years. Different from this, dYdX is completely open source and jointly managed by the validators on the chain. There is no company behind it and it is owned by the community and validators. Therefore, dYdX embodies the DeFi spirit more purely than some other projects. Our unlimited open source code is the best proof of our openness and commitment.

BlockBeats: Will there be developers developing on the basis of dYdX v4 code in the future, and then there will be opportunities for cooperation in the ecosystem? ?

Charles:Actually, this is already happening. In the dYdX ecosystem, there are approximately five different types of entities. The first entity is the dYdX community, which is the largest entity. dYdX’s governance and decisions are determined by DYDX token holders by voting and proposing new proposals. They speak out through forums, Discord, and more. There are four entities behind the community, one of which is dYdX Trading Inc., the original company behind the dYdX code. They are based in New York and their CEO is Antonio Juliano. They open sourced the code in a very candid and open way and also changed the status of the company to become a public benefit company rather than a for-profit company, so dYdX Trading is another company within dYdX.

The dYdX Foundation where I work is a non-profit entity registered in Zug, Switzerland. It is a non-profit DAO in the Crypto Valley area. This DAO was created by the community. Essentially, the DAO is allocating funds and dYdX grants for people to build additional features and software on top of the dYdX chain. There is also a DAO created and managed by the community, and a DAO operated by dYdX. These five entities constitute the dYdX ecosystem.

I think of a lot of different dashboards that help people understand the chain. For example, Mintscan has a page specifically set up for dYdX, where you can see all statistics. This is an additional company built on top of dYdX. Since the ecosystem is growing and Kepler usage is very high, centralized exchanges are starting to enable staking for their users.

We have people building bridges, people building connections with other projects, and people building new clients for dydx in new languages. So the dYdX chain is an L1 sovereign chain and a permissionless chain. But it is a specialized chain and cannot be built on top of it like a general purpose chain, there are already people building on or close to dYdX, but the chain is actually optimized for one use case.

It can be said that dYdX is Formula 1 of trading. You can't do NFT, you can't do data availability, you can't do various things on dYdX. If you want to build it, you must consider that it can't do various things like L1, otherwise the performance will decrease. In the app chain ecosystem, people don't build apps the same way, and the ecosystem doesn't grow the same way, because everyone comes here with a very focused use case and mission. dYdX is a chain that serves DeFi, but only for perpetual contracts.

BlockBeats: dYdX has its own mascot Hedgies NFT. In the future, will we see airdrop incentives between the dYdX chain and Hedgies NFTs?

Charles:This It's not up to me, it's up to the community to make the final decision. Some very talented people are working hard to breathe new life into the Ethereum-based dYdX NFTs, so I wouldn’t be surprised if we see these pop up around the dYdX chain in the next few months.

Back to the question about airdrops and incentives, incentives now are more powerful for the ecosystem. Trade on dYdX today and get rewarded when your trades are executed. You don’t need to look forward to airdrops or fake some activities, you just need to use the product and you will get rewards. The community has allocated 20 million DYDX tokens to traders trading on the dYdX chain, which I think is the best incentive. They create a virtuous cycle that is more sustainable and impactful, and doesn’t just attract a short-term audience chasing the next airdrop.

Moreover, rewards from the dYdX exchange can be obtained within two seconds, and the rewards will come as soon as the transaction is completed. You can do whatever you want with this reward, you can sell it immediately, you can use it to stake, and you can get USDC as a reward for staking. You can spend these USDC however you want, you can send them back to Ethereum, you can send them back to Osmosis and buy other tokens, diversify your portfolio.

Rewarding protocol pledgers with USDC is a better incentive than some tokens that don’t know how to use them or whether they can exist for a long time. award. dYdX’s stakers being rewarded with USDC is very attractive to many people. In a context that has experienced many currency crashes, when you have access to the largest decentralized exchange protocols and receive USDC rewards as an active staker, it is very good for those in places that have experienced currency crises. A powerful proposition. But central banks in many other parts of the world are printing money. So I think this is more about the long-term vision around dYdX rather than playing short-term games with NFTs and airdrops.

Blockbeats: For traders in the Chinese community, what do you think is the most attractive incentive of dYdX for them? Will there be more incentive programs in the future?

Charles: I think there are 4 aspects of the most attractive incentives, in addition to the immediate transaction rewards just mentioned In addition to staking DYDX to earn USDC, it also includes a CEX-like trading experience and a 20 million trading incentive plan. The dYdX chain is designed to provide a trading experience with a fully decentralized architecture while maintaining a user experience similar to CEX. It includes a fully decentralized, off-chain order book and matching engine capable of scaling to throughput orders of magnitude higher than any blockchain can support.

In addition, the dYdX chain has launched a DYDX token launch incentive program worth $20 million, and you can earn DYDX tokens by accumulating points. The more points you have, the more generous DYDX rewards you get. Traders have the opportunity to earn DYDX rewards totaling up to $20 million, which is an additional incentive on top of the rewards they can already earn by trading. Traders can also monitor their ranking on public leaderboards to ensure they receive a share of the incentive prize pool.

Blockbeats: Some community members reported that it is inconvenient to bridge assets to the dYdX chain, which may affect the liquidity growth of the dYdX chain. Are there any future solutions to address this issue?

Charles: If users want to deposit assets to trade on the dYdX chain, there are currently two main option, that is to withdraw via CEX and deposit funds from a wallet that is connected to the dYdX chain. Currently, OKX and Coinbase are the only CEXs that can be transferred directly to the dYdX chain. Currently, there are several other proposals underway to make onboarding to the dYdX chain easier.

Related reading: "dYdX Chain's online process

Optimistic about the perpetual contract to achieve faster and more Many transactions

BlockBeats: There are many protocols currently emerging. What do you think of the future of perpetual contract protocols?

Charles: I am very optimistic about the future of perpetual contract protocols in DeFi. The perpetual contract market is the largest market in cryptocurrencies, with an order of magnitude smaller than the spot market. The reason why I am bullish is first of all because there are many innovations. Secondly, because DeFi can often introduce new types of assets and new listings faster than centralized exchanges. ThedYdX community aims to add over 500 different trading pairs and new markets. This means more transactions can be made faster.

On the other hand, simply put,dYdX is also discussing and building a permissionless marketplace. This will allow users to self-launch new markets on dYdX in a permission-less manner, opening up the potential of perpetual contracts. Allowing financial innovators to develop new markets with perpetual contracts, although more specifically crypto markets, you can imagine any market traded on CME. Why not open perpetual contract markets in DeFi for oil, rice, sugar, wheat, corn, etc.? At present, the carbon credit market is very isolated. There are carbon credits in China, Europe, and the United States. So why not open a perpetual contract for the carbon market? When there is a complete infrastructure, financial markets will tend to converge, and perpetual contracts may be one of them.

The final reason is that todayabout 98% of perpetual contracts are traded on centralized exchanges. As global regulation advances, more and more exchanges are able to obtain licenses. In Europe, Asia and other places, more and more licenses are being granted to exchanges. However, these licenses are only granted for the spot market. So when Binance got its license in France, the French regulator told them, we're only giving you a spot license and you have to stop offering perpetual contracts to French customers, and the same thing happened more or less in almost every market. Regulators only grant spot market licenses and centralized exchanges must stop futures trading. Therefore,more and more futures liquidity will not find a centralized trading venue to trade perpetual contracts, and the liquidity of perpetual contracts will naturally flow to DeFi because DeFi is more open.

And dYdX is very well positioned in terms of liquidity, surrounding ecosystem, and speed of innovation. The Uniswap spot market started from scratch and now accounts for 10% to 15% of the global spot market share. Everyone in the market will now consider using Uniswap first. Today, perpetual contracts on DeFi only account for 1% to 2% of the market. To me,the room for growth is very obvious.

Blockbeats: The sustainable DEX space is growing rapidly. In your opinion, why are people currently paying particular attention to this space?

Charles: As the difference in trading experience between CEX and DEX continues to shrink, there is currently little interest in this area attention becomes more important. dYdX has been the leading perpetual DEX for years, praised for its ability to mimic the CEX trading experience. In recent years, dYdX has focused on the successful development and launch of the dYdX chain, an independent blockchain based on the Cosmos SDK, which was successfully launched in October 2023. Now, as we enter 2024, the dYdX community’s focus has turned to significantly improving the interface and experience for traders, and opening up market functionality that does not require special permission. This is a unique feature that only DEX can provide.

Blockbeats: The permissionless marketplace has attracted a lot of attention in the future roadmap released by dYdX. For many perpetual protocols, liquidity initiation for small-cap altcoins is particularly difficult because the counterparties are LPs and traders. How does dYdX plan to solve this problem?

Charles: Today, traders on the dYdX chain can propose proposals in the "new-market widget" interface of dYdX The new perpetual contract market allows anyone holding 2,000 DYDX to propose a market. While the process of adding new markets to the dYdX chain is already permissionless, there are still several technical limitations, notably the Oracle data feed, which currently limits the types of assets that can be added to the protocol. Once the voting for the new market ends, the proposer’s 2,000 DYDX will be returned.

We recognize the liquidity challenges associated with small-cap altcoins. Currently, users of proposed new markets can adjust any market parameter, including liquidity levels. These liquidity levels include large-cap, mid-cap, and long-tail coins. Large-cap coins are BTC/ETH, mid-cap coins have at least 8 stable Oracle data sources, bilateral liquidity is greater than 50,000, and the 30-day average daily spot trading volume is greater than 100 million US dollars. Others are long-tail coins.

Can be found at dYdX Documentation View assets with stable Oracle data sources.

Currently, all new market launches must pass governance and require the participation of validators and DYDX holders. The next version of the permissionless market aims to completely remove friction from the process and provide a streamlined way for any trader to create new markets on the fly, aligning incentives between protocols and traders. dYdX Trading Inc. envisions that future versions of the dYdX Chain software will allow the creation of any perpetual market as long as the asset has an oracle price.

The final state of the "permissionless market" may include instant and permissionless market launch capabilities, allowing anyone to launch any market, offered through the LP vault Instant liquidity to ensure sufficient liquidity on all markets, scalable oracles to enable perpetual contract trading on any asset, cross-margin and segregated margin at the protocol layer for enhanced risk control.

Related reading: " 2024 Product Roadmap

Blockbeats: An obvious trend in this field is that perpetual contract protocols are experimenting with different types of perpetual products. Including indices, NFTs, etc. Will dYdX add more asset types to its product list in the future?

Charles: The benefit of having a completely permissionless open source protocol is that the dYdX governance community can decide to build and add to the content of the agreement. There is a lot of excitement in the community around vaults, permissionless markets, prediction markets, indices, real assets, multi-collateralization, NFTs, and more. The dYdX chain will eventually become the infrastructure for the largest DeFi protocol in the world, and we are excited to see what the dYdX community will build.

Related reading: "Considerations about new trading pairs and permissionless markets on the dYdX chain

Actively demonstrate DeFi and ensure protocol implementation compliance

BlockBeats: Recently, DeFi has received increasing regulatory attention. Do you see regulatory challenges as DYDX decentralizes?

Charles:Since 2018 Since then, dYdX has been committed to the development of the DeFi field. As a community and ecosystem, it remains highly aware of regulatory issues and very much welcomes regulation designed in the right way. For example, dYdX began geographically restricting sanctioned countries early on and enabled anti-money laundering (AML) and U.S. Office of Foreign Assets Control (OFAC) inspections on the dYdX chain, ensuring a clean and healthy market environment.

Over time, we are seeing regulatory improvements. I believe that in the next two to five years, regulation will be the same as Internet regulation has developed over the years, mainly regulating operators rather than the technology itself. You cannot directly regulate a technology like Bitcoin, but you can regulate platforms that provide Bitcoin access, such as exchanges. In the DeFi space, we are also making progress towards ensuring a compliant foundation for protocol implementation.

While dYdX does not perform any KYC, it has been actively engaging in anti-money laundering (AML) efforts for many years. This means that if unknown funds try to enter the protocol, they will not be successful. The process is very simple and does not require any human decision-making, the protocol automatically utilizes the help of third-party service providers to analyze incoming funds. You can’t claim to be the largest DeFi protocol in the world if you can’t enforce the most basic compliance standards. A healthy market is key to long-term success, and dYdX takes this very seriously and reflects this in the code’s multiple implementation choices.

Regarding the ups and downs and worrying moments of regulation, I don’t think we’re done talking about regulation yet. But like many in the industry, we seek clarity. Operators in the ecosystem welcome thoughtful regulation of DeFi. At the end of the day, this is a technology and we want to make sure regulators understand it properly.

Within the dYdX ecosystem, we will be very responsible and proactive in explaining and demonstrating DeFi. The goals of educating regulators and proving that DeFi can achieve have a lot in common with what regulators want to achieve. Regulators want a healthy market environment, and dYdX serves as a good example of DeFi, showing that everything is transparent: if someone makes a front-loaded transaction, you can see it; if there is a maximum extractable value (MEV) , you can also see it, and you can take steps to combat it.

How confident are you that its order book is fair compared to a centralized exchange? You can really only make assumptions. But in DeFi, the order book is transparent to you and you know exactly what everyone is doing. So by using DeFi, we have a responsibility to prove that you can achieve a purer market environment, which is something that is critical to driving regulatory progress. I truly believe that what regulators want to achieve is highly consistent with what DeFi can provide.

BlockBeats: Many developers doubt whether they should build products or create protocols in the DeFi ecosystem. As a leader in DeFi, dYdX It is very gratifying and encouraging for those developers.

Charles:The best proof of true optimism about the DeFi industry is that 99% of central banks are building CBDCs (Central Bank Digital Currencies), Most of these currencies are built on blockchain technology. This means that central banks, governments, and regulatory agencies recognize the importance of this technology in promoting healthy market practices and increasing transparency. With CBDC, you can understand what’s happening on the chain and understand what’s going on in DeFi. If something goes wrong, you can point it out and try to fix it. When faced with a black box, you don't know what you don't know. Therefore, the fact that governments are developing CBDCs shows that they understand blockchain technology and that, eventually, fair regulatory measures will come.

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