Hello dYdX community!
Iâm Thomas Hoang, the Founder of a validator community from Viet Nam. I have a few topics Iâd like to discuss, hoping we can work together towards contributing more to the dYdX chain. There are four main issues raised by the Nethermind:
1.Protocol Revenue Distribution:
-50% of the protocolâs total revenue is allocated to the MegaVault.
-10% of the protocolâs total revenue is allocated to the Treasury subDAO.
-When the protocolâs annual revenue exceeds $80M, the Treasury subDAO may consider implementing a buy & stake program.
The initial decision to allocate 100% of the revenue (transaction fees from the dYdX DEX) to stakers is an unsustainable approach.
This solution was more of a short-term stimulant for dYdX, suitable for only a few months, yet it has been maintained for over a year. Therefore, redistributing platform transaction fees to the Treasury subDAO and MegaVault is reasonable.
Over the past year, platform fees have generated approximately $39 million USDC from a trading volume of around $232 billion.
Distributing 50% to the MegaVault would amount to about $19.5 million USDC.
Allocating 10% to the Treasury subDAO would result in around $3.9 million USDC.
To achieve an annual dYdX revenue of over $80 million, a trading volume of around $480 billion would be needed.
The rewards for stakers would then be around $15.6 million USDC for the total of 237.46 million dYdX currently staked. In the past year, staking 1 dYdX token yielded approximately $0.065 USDC, with the value of dYdX also decreasing. This raises the question: what incentive do holders have to support platform security? Security staking on the dYdX chain would see a significant decline.
According to the proposal, having dYdX stakers receive only 40% of platform transaction fees is unlikely to attract stakers and holders to the dYdX chain ecosystem. In comparison, several major PoS projects are doing the following:
Solana: Mints nearly 2 million SOL tokens annually (approximately $340 million) to reward stakers.
Injective: Mints around 7.2 million INJ tokens annually (valued at approximately $151 million) as staking rewards.
Similarly, Sei, Sui, Aptos, and Celestia also significantly increase token supply to reward stakers.
What does this imply? Other major chains rely on minting new tokens to reward stakers, while dYdX relies solely on an annual fee reward of $15.6 million USDC, which is quite small.
If we want to build a strong dYdX chain, a combined approach is needed: 40% of platform fees in USDC plus an additional amount of newly minted dYdX tokens as rewards for stakers. This would create the needed incentives and make the platform more competitive.
In summary, there are currently $15.6 million USDC allocated for stakers and 16.9 million dYdX tokens allocated for traders, which is relatively modest in terms of incentives. If the proposal to allocate 60% of platform trading fee revenue to the MegaVault and Treasury subDAO goes forward, it would be necessary to add dYdX token rewards to make the incentives balanced.
2.Validator Profitability:
2.1 Reducing Validators or Reducing Block Time
Is there any official report indicating how much latency on the dYdX chain would decrease if the validator set were reduced by 50%, from 60 validators to 30? Letâs consider the approaches taken by other chains such as Injective, Solana, and Sei, which have successfully reduced block times to achieve very low latency.
Injective has a block time of 618ms.
Sei Network has a block time of 420ms.
Solana has a block time of 400ms.
Thus, for the dYdX chain, we could consider two potential solutions:
Maintain 60 validators and reduce the block time to 500ms â how would this affect dYdX latency?
Reduce the validator set to 30 while keeping the current block time at 1000ms â how would this impact dYdX latency?
The more optimal approach should be chosen. However, as stated in the Nethermind teamâs report, their suggestions lack specific data or in-depth analysis, which makes it difficult to be convinced by their claims.
2.2 Top Chains in the Industry Are Expanding Validator Sets
Thereâs a clear trend where smaller chains are reducing their validator sets, while larger chains are expanding theirs. If dYdX chain reduces its validator set, it might be positioning itself as a smaller chain, thus lowering its value as a âblue-chipâ project and a pioneer in decentralized derivatives (Perps DEX).
For instance, BNB chain initially had 21 validators and has now expanded to 45 validators.
If the validator set is reduced, the dYdX chain may diminish its own value and lose its leading position.
2.3 The Claim That Validators Are Unprofitable and Should Be Reduced Is Unreasonable
The Karpatkey Foundation will be managing 40 million dYdX tokens and staking them across 60 validators, which will impact the profitability of smaller validators. Over the past year, most validators on the dYdX chain have operated at a loss; however, they have continued to contribute and compete fiercely to secure a place in the top active set.
2.4 Criteria for Selecting 30 Validators to Run on the dYdX Chain to Encourage Competition
What are the selection criteria for the 30 validators chosen to run on the dYdX chain to foster competitiveness? Currently, the top validators hold around 86% of the total stake, with Stride delegating to 26 teams, each receiving 927,732 dYdX tokens. When Stride selected these 26 validators, there was no specific, publicly reported criteria, leaving many teams competing to demonstrate who contributes the most to the dYdX chain.
Over the past year, many smaller validators from positions 31 to 60 have worked hard and made significant efforts. Are we sure that the top 1-30 validators have contributed the most to the dYdX chain, or are they simply familiar teams that have received delegation, such as from Stride?
2.5 Latency Reduction Solutions for the dYdX Chain and Discussion
Option 1: Place all 60 validators in Japan (Tokyo) and reduce the block time to 500ms, which would result in a significant improvement in speed.
Option 2: If the validator set is reduced from 60 to 30, but validators remain widely dispersed across regions such as Europe and Asia, resulting in unchanged latency, what would be the next steps?
Currently, only 40 validators are based in Japan, while 20 are located in Europe and other Asian countries, which significantly impacts the actual latency of the dYdX Chain. Instead of reducing the validator set, requiring validators to operate from Japan could greatly improve latency.
Validator Location Map for dYdX Chain
The dYdX team made the decision to decentralize by moving from V3 to V4, making the order book and matching engine decentralized.
Naturally, if reducing the validator set proves effective by bringing validators closer together and reducing block time to 500ms, we would support the solution to reduce the validator set.
3.Reducing Trading Incentives by 55%
Over the past year since the mainnet launch, around 16.9 million dYdX tokens have been awarded as incentives to traders on the dYdX chain. This roughly equates to 72,844 dYdX tokens rewarded per $1 billion in trading volume.
Is this incentive excessive? With a trading volume of $1 billion, the reward amounts to only 72,844 dYdX tokens (around $72,844 if each dYdX token is valued at $1). What detailed report supports this reduction? Could you provide the source?
4.Cease support for the wethDYDX Smart Contract
Since the launch of the dYdX chain on October 26, 2023, approximately 22.6% of the ethdYdX supply has not migrated to the dYdX chain. The team proposes to issue a six-month notice (starting from the date the proposal is approved) to encourage holders of the dYdX token on the Ethereum chain (ethdYdX) to migrate to the dYdX chain. After this period, support for the wethdYdX smart contract would be discontinued.
We are early contributors to the dYdX chain, and we are enthusiastic about continuing to support and contribute even more to the future of the dYdX chain.
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