Author: Paul Veradittakit, Partner of Pantera Capital; Translation: Golden Finance xiaozou
Key points of this article:
We believe that dYdX V4 is a major upgrade in the field of decentralized finance (DeFi).
The platform’s transaction volume exceeded US$1 trillion, using the Cosmos SDK to launch a more autonomous and scalable blockchain infrastructure, enhancing throughput, de- Centralization and staker alignment.
dYdX’s perpetual futures trading provides the crypto market with greater capital efficiency and adaptability.
dYdX V4 switches to an independent blockchain, solving throughput/scalability issues and bringing better decentralization and sovereignty features.
In short, we believe that dYdX V4 breaks through the boundaries of DeFi and provides a more efficient, safer, and more user-centered trading environment.
1. Introduction to dYdX
In the ever-changing field of decentralized finance (DeFi), dYdX has become a groundbreaking protocol, significantly This facilitates the trading of perpetual futures contracts (often referred to as “perps”). It is completely different from the traditional centralized exchanges that have long dominated the financial field.
Perpetual futures contracts are the core of dYdX. These financial instruments have a prominent place in crypto trading due to their unique features. Unlike traditional futures contracts, perps do not have a fixed expiration date. This means traders can hold their positions indefinitely, avoiding rollover risk. The pricing of these contracts is affected by the balance of long and short positions, which directly determines the regular settlement funding rate between traders. This innovative approach to perpetual futures contracts results in a more dynamic and adaptable trading environment, ideally suited to the 24/7 nature of the cryptocurrency market.
However, this shift goes beyond perpetual futures and represents a fundamental shift in the cryptocurrency space toward decentralized exchanges (DEXs). This shift is driven by a variety of factors, including regulatory pressure and restrictions faced by centralized exchanges. DEXs like dYdX aim to provide a blockchain-based platform that brings greater decentralization and autonomy to users’ assets and trading decisions. What sets dYdX apart is its unique ability to empower traders with greater leverage, allowing them to scale their trading positions up to 20x their collateral, injecting new opportunities into DeFi trading strategies and broader risk management strategies.
Given the progress of decentralized finance, it is clear that 2023 is a year of substantial growth and pioneering for dYdX. The platform has made great progress this year, such as dYdX successfully upgraded to V4, trading volume exceeded 1 trillion US dollars, and so on. This progress illustrates the shift in DeFi trading models, highlighting higher throughput, user sovereignty and comprehensive financial tools. Its V4 upgrade program takes this groundbreaking protocol to the next level. The upgrade includes the deployment of a customized chain based on the Cosmos SDK, supplemented by a decentralized off-chain order book and matching engine. I believe this is a major leap forward in efficiency, scalability, and innovation in the DeFi space.
2. Cosmos: Powerful Infrastructure
The Cosmos network is a revolutionary ecosystem designed to solve scalability and interoperability issues in the blockchain field. It envisions the creation of an “Internet of Blockchains” in which different blockchains can remain sovereign, process transactions quickly, and communicate with each other in a decentralized manner. The network is powered by a proof-of-stake consensus algorithm and uses its native token ATOM for governance and transaction fees. The Cosmos SDK, the framework for building blockchains within this network, stands out for its modular design, allowing developers to efficiently create customizable, interoperable applications. This infrastructure is the foundation for enabling scalable, connected dApps, laying the foundation for advanced platforms such as dYdX V4 to leverage these capabilities to enhance DeFi trading performance and user experience.
3. The necessity of dYdX V4
The demand for dYdX V4 arises from a combination of technical limitations, market demand and the strategic vision for the future of decentralized finance. As the DeFi field booms, users are looking for high-throughput platforms that can trade quickly and continuously. High gas fees further exacerbate this problem, making user profits and the platform less attractive. dYdX V4 uses the Cosmos SDK to become a standalone blockchain, addressing these challenges head-on by promising to significantly increase transaction throughput, reduce transaction costs, and tailor on-chain logic for complex and high-frequency trading needs. This upgrade is more than just a performance enhancement, I believe it is a necessary evolution to maintain and expand dYdX’s leadership position in the highly competitive and evolving DeFi market.
4. dYdX uses Cosmos SDK to create its own chain
dYdX uses Cosmos SDK to create its own chain, and dYdX V4 marks the beginning of dYdX operating as an independent blockchain A major leap forward. This strategic upgrade includes an off-chain order book and matching engine designed to deliver high throughput and is a complete overhaul of the platform infrastructure. The move to a dedicated chain is expected to not only increase transaction throughput by 100 times, but also provide near-zero gas fees, enable more complex on-chain logic, and expand the scope of decentralization. These new enhancements are carefully designed to upgrade the platform’s scalability and responsiveness, catering to the complex needs of today’s traders and setting unprecedented standards in the ever-evolving DeFi space.
Choosing Cosmos as the underlying framework further strengthens these advantages. Known for its powerful performance and strong commitment to decentralization, Cosmos is a perfect fit for the needs of a decentralized exchange. Its architecture is designed to significantly increase scalability and interoperability, thereby shortening transaction times and reducing transaction costs. Together, these features enhance the trading experience. Additionally, the decentralized nature of Cosmos aligns with dYdX’s vision to foster a resilient and less centralized ecosystem, which is critical to reducing regulatory risk and enhancing user sovereignty. Therefore, these factors drive the platform towards a more advanced, efficient, and sustainable future of decentralized trading.
5. dYdX Team
The advantage of this project lies in its strong and solid management team, which is composed of crypto-native founders with rich traditional software and financial backgrounds. Antonio Juliano, the founder and CEO of dYdX Trading Inc., was an experienced software engineer at Uber, Coinbase and MongoDB. He received a computer science degree from Princeton University in 2015. His teammate working alongside him is Chief Operating Officer George Xian Zeng. He is not only the co-founder of an e-commerce personalized AI discount tool company, but also served as the product director of Facebook and a senior manager at McKinsey. His educational background is an MBA from the Wharton School and a finance degree from Princeton University. In addition, Charles D’haussy, CEO of the dYdX Foundation, served as global business development director and general manager of Asia Pacific at ConsenSys, with outstanding performance during his nearly four years of tenure. Prior to that, he served as head of fintech at sovereign wealth fund Invest Hong Kong. This experienced and diverse team has the ability to drive projects to success in the crypto space.
6. Conclusion
In short, I believe that dYdX V4 is a major leap forward in the field of decentralized finance. The upgrade addresses key issues faced by DeFi platforms and provides a unique solution. By migrating to the Cosmos SDK and creating your own chain, dYdX V4 promises greater performance, lower costs, and greater decentralization. Positive attitudes toward miner extractable value (MEV) and improved data privacy measures further enhance its appeal to traders. With a strong team at the helm, I believe dYdX is well-positioned to lead the growing DeFi space and set new standards for efficiency, security, and user empowerment. Essentially, dYdX V4 is a milestone that expands the possibilities of decentralized finance, opening up exciting opportunities for traders and the entire DeFi community.
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