A lot of the criticisms to this proposal tend to focus only on maximizing short term value for stakers / validators and miss the big picture. Breaking these down here:
Staking Rewards Reduction
As a Stride contributor, I understand the concerns here. There are currently ~25m DYDX tokens staked with Stride, making Stride (and its dYdX treasury stake) one of the more impacted parties by this rewards reduction.
However, DYDX stakers should be looking toward long-term sustainable solutions to protocol growth rather than their own individual rewards. As indicated from the report, the current model simply is not working.
A DYDX staker who delegated 1 DYDX on November 10, 2023, has since earned a staking yield of 12.5%. However, due to DYDX’s price decrease, the value lost on the staked capital has eroded the staker’s net worth by 52%.
Yes, DYDX stakers have enjoyed one of the better USDC yields out there, but if the token value decreases over time at a rate exceeding that yield, the yield is not contributing to long-term value growth for stakers, leading them to exit their DYDX positions. At the same time, the protocol doesn’t benefit in any way from that yield. 100% of the trading fees are effectively being extracted from the protocol, forcing everyone to rely on DYDX token sales for growth initiatives. We need a tokenomics mechanism targeted at growing dYdX’s core trading audience and reducing our reliance on trading incentives.
The megavault portion of this tokenomics proposal accomplishes this quite well, in my opinion. The megavault is designed to facilitate deeper trading liquidity, especially in longer-tail markets that tend be lower volume but also draw in new traders more frequently than BTC/ETH/SOL. The vault has the potential to be one of dYdX’s largest trader onboarding mechanisms in its history.
The goal of the vault is to increase overall trading activity, which grows the protocol and increases trading fees. The increased trading fees also increase megavault TVL, which compounds this effect, creating a positive growth flywheel that may also see a positive impact on the price of the DYDX token. Given this mechanism targets both growth and yield, it has the potential to be strictly better than the current model (frankly I have pretty high conviction that it will be). Additionally, as has been mentioned, this could lead to a reduction in trading incentives in the future, which will result in less DYDX entering open market circulation.
The vault is unprofitable right now, but this is arguably a good thing. It means that traders tend to trade favorably against the vault’s liquidity. If traders win, they tend to keep trading. In the absolute worst case where the vault isn’t profitable in the future, directing revenue here makes it a valuable loss-leader for dYdX.
Validator Set Reduction
I’m very strongly in favor of reducing the validator set, but not for the reasons proposed here. There’s been a lot of commentary here about validator profitability, even by the proposers.
To me, this is less of an issue of profitability (as noted in the report, on most chains validators seem happy to run unprofitably) and more of a performance issue. dYdX is a trading platform that relies heavily on optimizing trade execution speed and low-latency. The biggest bottleneck on this right now is the time that it takes for validators to come to consensus.
If traders lose value because of latency, they won’t trade here. Reducing the set to 30 will reduce instances of this occurring. It truly is that simple.
Further, and as I’ve repeated on numerous occasions, large validator set sizes do not have a meaningful impact on overall decentralization.
Note: In the event that this does pass, Stride will also have to adjust its delegation program for dYdX and move delegations around. We’re already thinking through what this could look like and expect to have a plan out in the coming weeks (subject to this passing).
Treasury Diversification
This is already a very long comment, so I won’t spend time on the benefits of diversifying treasuries generally (hopefully most of us agree that doing so is valuable), but I strongly recommend this article for people interested in the value of treasury diversification:
The proposal to direct 10% of revenue to the treasury subdao is a great first step toward a robust and diversified treasury for dYdX. A USDC-denominated treasury will reduce reliance on DYDX spends, as well as become a good metric for protocol valuation in and of itself (it’s hard to imagine a protocol with a billion-dollar treasury being worth anything less than a billion dollars, for example).
Conclusion
In sum, I’m very much in favor of this proposal as written. I think it creates a strong growth flywheel for dYdX where one does not currently exist, and brings revenues for stakers to a more reasonable valuation while increasing the likelihood of those revenues increasing.