Assessing the Impact of Trading Rewards Reduction on dYdX's Active User Base: A Quantitative Analysis

Governance/DAO Discussions
21

To assess whether the reduction in the number of rewards has impacted the overall trading volume, I would like to compare the changes in trading volumes for the BTC and ETH pairs on Binance and major DEX perp exchanges.

I focused exclusively on these pairs to eliminate the influence of other trends such as meme coins. Furthermore, these pairs constitute the majority of the trading volume on dydx.

I’ve excluded Level Finance from the table under consideration, given the widespread belief that it predominantly involves wash trading.

I have used data from Epoch20 onwards, as the dydx API does not provide data prior to February 14, 2023.

The data being compared represents the average daily trading volume for the respective pair over the corresponding period

As everyone can observe, dydx is even falling behind Binance, despite the current market trend favoring DEX in terms of volume.

GMX and especially Kwenta are showing much stronger metrics.

The reduction in token issuance was supposed to positively influence the market evaluation of the token, yet we are witnessing the opposite effect.

Last but not least, Epoch 23 has seen a significant decline in trading volume. I understand that information is still insufficient at this point, but I will share a comparison of Epoch 23 with Epochs 20-22 across all exchanges

It appears to me that an account that was receiving up to 30% of rewards has left dydx.

However, we will be able to state this with certainty at the end of the epoch

Sources:
dydx API
Perpetual DEXs Insights (GMX, Perp, Kwenta, GNS) (dune.com)

22

Hey @antonio, @Callen_Wintermute and everyone in this thread.
It looks like dydx lost half of its trading volume and fees as a result. The trading volume for epoch 23 was only $15.7 billion, which is scary after the $30 billion in epoch 22.

We lost our biggest farmer, 0xa6159589a0c2449fdb89017abdd43493496d2d92 (Mirana), who earned only 24k dydx rewards in epoch 23 (compared to around 570K in epoch 22).

Maybe it’s good for the ecosystem, but a nearly 50% drop in volume is bad news.

I’m not saying it’s because of the reward cuts, but this kind of drop requires urgent investigation.

23

Frankly, I am not taken aback by this turn of events; it was entirely foreseeable. It serves as a prime illustration of the necessity for a Risk Council within the new framework we are set to propose shortly. The idea of decreasing rewards by a staggering 45% during such an embryonic phase of this protocol should never have been tabled for voting. A Risk Council would have almost certainly forestalled such an occurrence. It remains a mystery to me how the inherent risks tied to such a radical shift could have been overlooked, especially following the recent significant reduction of rewards by an already considerable 25%. Let me clarify that this is not meant to be a personal affront or critique of any kind. I am merely presenting the facts as they are. The key takeaway here is that there are valuable lessons to be learned. We must apply these learnings to prevent similar occurrences in the future.

1 Like
24

Hey @RealVovochka, agreed that the drop in volumes isn’t too surprising given the reduction in rewards. Across the board however MM firms are withdrawing from crypto (e.g. HRT, Jane St, etc) given the regulatory uncertainty and recent SEC actions, making liquidity and volume harder to access for all exchanges (not just dYdX).

Given this broader landscape and through the launch of v4, it’s important to maintain momentum for volumes in order to cement dYdX’s position as the firm leader in the Perp DEX space. While the most important metric is “total fees paid” (as Antonio described earlier), an increase in the democratization and efficiency of rewards paid is another area we can target to build in stability. This way a couple traders aren’t responsible for a nearly -50% decrease in volume.

Future decreases in rewards could follow a longer-term reduction plan that creates less of a “reduction shock” that drives away larger farmers and subsequently leads to a massive decline in volume. While implementing a “Risk Council” as mentioned by @Kagan would go a long way, it’d likely introduce more bureaucracy to an otherwise well-functioning DAO. It’d have to be implemented carefully with a targeted mandate: DAOs in crypto tend to have combative forum discussions with little progress, which we wouldn’t want to happen here.