Sep 11, 2023

dYdX is gearing up to introduce decentralized order books within its exchange. dYdX Foundation's vice president of strategy David Gogel discusses the move, along with a new report outlining the future of the dYdX ecosystem.

Video transcript

Dydx is gearing up to introduce decentralized order books within its exchange. Joining us now to discuss is Dydx Foundation's Vice President of Strategy, David Gael, welcome to the show. David. Thanks so much for having me. Happy to be here. All right, let's talk about these order books. They're going to be decentralized first. Why? Uh well, uh Dydx is one of the, the leading decentralized exchanges today. Uh The current architecture is based on Ethereum and Star Wars and L two. Um It's been in production for the last two years or so. We've recently hit $1 trillion in cumulate volume on the current version of the product. Um The order books are currently managed on uh centralized servers hosted in the cloud. And this has allowed us to really scale the product and platform while providing uh the benefits of noncustodial treating at scale. Uh However, there's been limits to their current architecture and dydx trading for the last year and a half has really been focused on building the next version of the protocol uh which is dubbed V four, which is an open source version of the protocol that if and when deployed. Uh would really enable for uh decentralization at all parts of the tech stack. And so the order book and matching engine uh would effectively be run by uh validators that could participate in consensus. Uh And really provide a uh trust and non custodial high performance trading platform for people to trade perpetuals. Um So this is very important um in that it really removes central points of failure uh in the trading system. Uh And really allows for non custodial trading at scale uh allowing anyone to trade the products and services offered by the Dydx protocol. So, so nuts and bolts when, when er or rather when users are institutional or otherwise uh uses TYDX, what are they gonna notice that will be different in essence, not so much. Uh The whole goal here is really how do you uh build and scale D five and look and feel like a centralized exchange? But the whole back end uh really leverages um you know, decentralized technology. So today, if you use dydx, it looks and feels like a centralized exchange except really users have full custody of their assets at all time and they interact with smart contracts that really replicate a lot of the, the back end infrastructure that several centralized exchanges provide but do it in such a way that the code is open source transparent, anyone can access the data um and really taking out central points of failure, ultimately V four. And the Dydx chain, well, is kind of the next iteration of that. Um, you know, today we have a lot of institutional investors who currently interact with the exchange. Um They're used to trading with order books. Uh and uh, Dydx is really the leading uh decentralized exchange that is really predicated on the order book, uh based model, which is something that people are really familiar with. What, what would those institutions and, and, and the like that are regulated or, or, you know, might have some regulatory oversight. Um What kind of, um what kind of hurdles will they face in using this now that it'll be more decentralized and, and how do you address it? It's a really good question. Uh Today again, we have a number of institutions that trade on the platform. Uh They're familiar with kind of the order book based model and at least in the current version of the protocol, many have gotten comfortable with uh the on ramps and al front. Today. It's a um you know, US DC margin, unsettled perpetuals uh contract that is available uh to users around the world. Uh But does it is not offered to people in the US? Um or US, persons and institutions have gotten comfortable with, with that construct. Um Again, decentralized exchanges are unique, they don't take custody of, of user funds. Um And so, you know, the, the applicable rules and, and regulations are uh less clear in terms of how they apply to uh D five protocols. And, you know, ultimately it's up to institutions to determine, you know, with their own legal counsel and what their risk appetite is. But so far we've seen really strong adoption with the current version of the protocol and uh very strong interest with our, you know, the current test net. Uh and, and the upcoming launch of uh the V four chain. Uh On that note, you know, the ecosystem is shifting from Ethereum to cosmos. Are there any security concerns with migrating ecosystems here? Yeah. So um there's a lot to consider. Again, the, the V four project has been under development for a year and a half or so. We've distributed uh DYDX tokens on Ethereum to over 70,000 unique addresses and governance participants who have participated in the current version of the protocol. Um Our community uh of token holders has really been driving uh you know, the governance proposal around adopting the next version of the protocol at the U ID chain uh which is based on uh the Cosmos, SDK and Cosmos BFT Consensus Protocol. And so, you know, the big question is how should we migrate our current user base to uh this next platform? Um Ultimately, it's something that the community is currently actively debating. Uh We're expecting kind of open sourcing of the software in the near future. Uh And the Dydx chain to launch subject to a number of governance proposals that are uh driven by, by our community. Uh And ultimately, you know, there are uh security risks uh with any migration, it's a huge undertaking. Um But ultimately, you know, we feel very confident that if the community decides to support this migration, uh that, you know, it is uh the, the, the next big step for the ecosystem, which is really the the launch of the chain. Uh and a whole set of new kind of security considerations with the launch of a, a proof of state Blockchain. You know, speaking of your community, I gotta ask you a judge recently found that tornado Cash meets the bar for being seen as an entity saying that it's an association composed of the founders, the developers and the dow implying that the token holders can, can be seen as people who are participating in this entity. Has that changed the way you think about building out um the ecosystem here? And have you taken any precautions or put any processes in place to protect token holders? Should they face legal action like we saw with tornado Cash or do before that? Absolutely. Uh It's a great question, obviously does are really a new construct. There's been a lot of iterations on what works. What doesn't, uh you know, the Dydx Foundation published a blog post over a year ago now, uh really making the face that the case for uh what we call a based purpose trust, uh which is a structure that, that really helps um you know, potential sub uh limit liability for uh dow token holders um but still provides kind of the on and off ramps with the off chain world from a legal and tax standpoint. In the last two years, we've really seen the Community drive two different subs forward. The first is a grant sub uh that received funding from the Community Treasury and has funded over 100 and 20 or so uh grantees with several million dollars in capital. And then more recently, an operation sub dow that receives uh 6.6 million do uh dollars in capital uh to run community infrastructure on behalf of, of the dow. Um our view, uh you know, is really to support the community in making thoughtful decisions around uh progressive decentralization. And these uh sub does have been an effective tool to be able to drive uh you know, core infrastructure and growth of the protocol uh while really supporting, you know, the 70,000 or so token holders who have participated in in our ecosystem. Um You know, this is an evolving space. Uh But so far, we think that we've, we've taken kind of measured approaches and are quite comfortable with uh our, our approach relative to, to others in the industry. David, thanks so much for joining us this morning and giving an overview of your ecosystem. Thanks so much for having me. That was DYDX Foundation's Vice President. Of strategy, David Goel.

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