Decentralized order book exchange dYdX is leaving the Ethereum blockchain to create its own chain in the Cosmos ecosystem. The move came as a surprise, as the project defines itself as offering “advanced crypto-financial products based on the Ethereum blockchain.”
The exchange is a unique platform offering lending, borrowing, perpetual futures, and margin and spot trading. Users connect their wallets in a similar manner to a standard decentralized exchange and then deposit funds into dYdX storage via a smart contract. However, funds are still only available through users’ wallets, unlike centralized exchanges. The hybrid offering makes dYdX unique in the Ethereum ecosystem.
dYdX described move as “rebuilding dYdX as a standalone Cosmos-based blockchain with a fully decentralized, standalone, order book and matching engine.” The rebuild will be the fourth version of the DEX using the Tendermint consensus mechanism.
Through the use of the Cosmos SDK, the migration will allow the new version to offer, among other things, “complete decentralization”. In addition, Cosmos offers near-unrivaled interoperability through the IBC protocol. The current dYdX token is an Ethereum-based ERC-20 token using StarWare’s StarkEX to facilitate layer 2 functionality. However, the move to Cosmos will allow the dYdX platform to offer a truly accepted token on its own blockchain and governance system.
An independent blockchain using the Cosmos SDK dYdX will have its own level 1 token, validators and staking mechanisms. As such, it will not be responsible for Ethereum upgrades and will not have any issues that may arise ahead of the Proof-of-Stake merger scheduled for September 2022.
“Each validator will run an in-memory orderbook that will never be tied to consensus…the orderbooks that each validator keeps end up being consistent with each other. In real time, orders will be matched by the network. The resulting transactions are then fixed on the chain for each block. “
dYdX states that it is “embracing a radical change in technology” and that Cosmos is an ecosystem that will allow it to continue to improve in line with its vision.
The main reason for leaving dYdX is the high bandwidth requirements for running a decentralized system with a live order book. This trading engine is “critical to the trading experience that traders and institutions require” and requires it to process over 1,000 transactions per second. Staying on Ethereum, dYdX sees issues with scaling this offering:
“The fundamental problem with every L1 or L2 we could run on is that none of them can even come close to the bandwidth needed to run a top-notch order book and matching engine.”
After the transition, traders will no longer have to pay gas fees for transactions, but instead pay fees based on completed trades, which will then be paid to stakers and validators.
Refusal of layer-2
On Ethereum dYdX should use Starquar level 2 offer some of their products such as perpetual contract markets. Previously, the platform was trying to move towards layer-2 to lower gas fees and allow the exchange to scale.
“Ethereum can process around 15 transactions per second (TPS), which is not enough to support the explosive growth of DeFi… Tier 2 scaling solutions – in the form of rollups – free up the Ethereum base layer by offloading execution, resulting in lower gas costs and increased throughput. capacity without increasing network load.
The transition of dYdX itself would require ERC-20 token holders to agree to the change, as “DYDX, the dYdX protocol protocol token, is managed by its holders… dYdX Trading Inc.” has no control over how it is used.” The new protocol will be completely open source and we are currently committed to new developers to help with the move.
Credit : cryptoslate.com