Author: Haotian
Recently, I saw @dYdXChinese claiming that its total trading volume has exceeded 120 billion, and 14.9% of the token supply has been staked, with over 20 million USDC allocated to stakers. Overall, dYdX's independent chain has shown promising data indicators since its launch. So, how should we evaluate dYdX's "escape from Ethereum" development journey from L1 to L2 and then to an independent chain? Can the narrative of Ethereum Layer3 application chain bring dYdX back? Next, let me share my thoughts:
1) dYdX is a typical representative of applications born for the trading system, aiming to become a decentralized perpetual contract exchange focused on order book type. Throughout its development over the years, dYdX has faced three core pain points:
It needs strong technical scalability and high performance, as order books require extremely high throughput and low latency for real-time batch matching and execution compared to AMM trading pool types.
It needs to pursue decentralization as much as possible. In the L1 and L2 stages, dYdX had to adopt off-chain centralized server matching for extreme efficiency, but as a DeFi project focusing on trading and competing with centralized exchanges, it must achieve transparency through smart contracts and DAO governance, and deploy nodes to involve the community in governance decisions. (This is also the main reason for allocating a large amount of trading fees to validators and stakers.)
It needs to manage user retention and growth as much as possible. Compared to centralized exchanges, the threshold for on-chain decentralized derivative exchanges is higher, so it needs to provide a better product experience in terms of product design, user interface, trading tools, and risk control. Unlike Uniswap, dYdX is relatively closed in terms of trading system and relies on long-term user retention, especially from fixed user groups such as professional traders and market makers to support its operation.
2) So, why did dYdX create an independent application chain? The answer is that neither L1 nor L2 can meet its extreme performance requirements.
Initially, due to the low performance and high gas fluctuations of the Ethereum L1, dYdX faced competition from Uniswap and chose to migrate to L2. Under the StarkEX layer2 product form, it seemed to have the foundation of low gas and high throughput, but it still fell short of the high performance pursued by dYdX. Therefore, it adopted a compromise solution of off-chain matching of trading data using Starkware zero-knowledge proof on L2 to achieve a high-speed trading engine. However, this solution still relies on off-chain services, leading to frequent criticism of dYdX's "centralization issue."
Following the launch of dYdX V4, dYdX built its own high-performance chain based on the Cosmos SDK, with 60 active validators maintaining consensus mechanisms, including Ledger, Coinbase Cloud, and a continuous staking reward dividend mechanism. With the support of an independent application chain, dYdX has been frequently refreshing various operational data indicators, such as:
Currently, 149 million DYDX tokens (14.9% of the total supply) are staked.
The protocol has distributed over 20 million USDC to 18,991 stakers.
The community has initiated 55 governance proposals to date.
From the data, dYdX's independent application chain is gradually realizing its original vision of becoming a super decentralized perpetual exchange. At least, dYdX has determined its ultimate application chain form and only needs to focus on continuous user and trading volume growth in the future.
3) Now that dYdX has its own independent kingdom, from a business perspective, today's dYdX should be the future that many L1 and L2 applications aim to achieve.
One cannot help but ask, since L1 and L2 are currently over-congested at the infrastructure level and there are expectations for the narrative of layer3 super application chains, theoretically, shouldn't it be possible for dYdX to develop on Ethereum's layer3 application chain?
The answer may disappoint most people.
- dYdX focuses on the trading system business of decentralized derivative trading, and its initial positioning is to cultivate an independent user base and data growth model, becoming a custom application chain.
Although layer3 can customize gas tokens, consensus mechanisms, and validation rules, the core interoperability capability of layer3 application chains and the key asset settlement still rely on the Ethereum mainnet, which would also limit dYdX.
- Even Uniswap currently does not have mature conditions to build a layer3 application chain based on Ethereum. The ecosystem liquidity depth on layer2 and the performance barriers of settlement on layer1 (high gas fees) still limit their potential to become layer3 application chains. Especially the extremely scarce user and market liquidity on layer2 makes it difficult for application chains built on layer2 to have stable user groups and trading depth, especially considering dYdX's high requirements for decentralization, order book matching performance, and trading experience.
Therefore, dYdX's departure from the Ethereum ecosystem to create an independent application chain is both an active escape and a choice constrained by the underlying performance limitations of Ethereum. (From another perspective, although the Ethereum ecosystem infrastructure has become overheated, there is still a great need for it.)
This actually exposes a prominent problem of the multi-chain narrative of layer3 applications: mature applications like dYdX with established users and markets may not necessarily be satisfied with custom requirements, and some applications that start as application chains may not receive the overflow effect of strong ecosystem liquidity from L1 and L2 in the layer3 environment in the short term.
In conclusion, dYdX's positioning and development trajectory in the crypto ecosystem are quite unique. Although it has to some extent "succeeded" and, like protocols such as Uniswap and AAVE, continues to have stable business expansion and growth in a turbulent market environment.
However, dYdX's path to success is not something that many applications on L1 and L2 can easily replicate at present. In fact, Uniswap has already provided the answer: it is difficult to escape reliance on the Ethereum ecosystem and can only continue to optimize in the stack of L1, L2, L3, etc., as most applications will have almost no survival without the fundamental liquidity provided by the public chain.
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