[DRC] dYdX Community Staking Proposal

We support the prospect of utilising idle DYDX and allocating it to Liquid Staking Protocols. We agree for the following reasons:

  • The top 10 DYDX validators hold majority voting power (2/3rds). Liquid Staked DYDX on Stride is evenly split among the top 28 validators, and will continue to decentralise further. Allocating DYDX through Stride would improve the resilience and security of the DYDX chain.

  • Stride is an established Liquid Staking Protocol being active since 2022 and holding $150 million TVL. Stride is the most liquid LST in a number of chains including Cosmos, TIA, and DYDX.

  • 20m additional DYDX staked will dilute the rewards from 21% to approximately 18%, still high enough to incentivise users to stake their DYDX.

  • At the time of the proposal the required notional value to gain 2/3rds voting power for a malicious attack is approximately $912m of DYDX. Therefore, while increasing the amount of staked DYDX will help secure the protocol further, there is no immediate threat or urgency.

  • The treasury currently has 230m DYDX (80m unstaked, 150m vesting over 2 years). 20m DYDX is a realistic amount to proactively use for decentralisation and to earn yield for the treasury. The additional 20m DYDX staked will increase the total staked amount by 8.6%.

However, we understand the proposal to diversify DYDX exposure into pStake. This is a nuanced topic which requires deeper discussions.

  • Diversifying into both LST protocols aligns with our idea of decentralisation.

  • The terms laid out by pStake (0% fee + 20% revenue share of all additional liquid staked DYDX) are more attractive than those put forward by Stride. We urge Stride to reconsider their terms given the recent proposals from pStake. With current terms almost 1m USDC in yearly fees would go to Stride.

  • We raise concerns about pStakes low current total value of DYDX staked ($180k) and believe further discussions about the economic security about pStake is warranted.

  • Allocating 20m to Stride and allocating additional DYDX instead of splitting the amount further dilutes current DYDX stakers. For these reasons it makes sense to continue discussions about splitting DYDX.

The initial proposal by Reverie and Stride Labs mention two key reasons to utilize DYDX in LSTs. Our view is that both these benefits are further increased by splitting the DYDX among Stride and pStake:

  • Increased Chain security by decentralising: pStake deposits to 37 dYdX chain validators, while Stride deposits to 28 validators. Simulations from pStake demonstrate the positive effect that splitting up 20m DYDX will have on decentralisation (dYdX Community Staking Proposal Examples - Google Sheets)

  • Value Accrual for DYDX treasury: pStake terms are 0 fees and 20% of revenue sharing on all staked DYDX accrued. These terms are substantially better than those proposed by Stride (7.5% fees). DYDX would benefit from splitting the stake.

While we support the utilisation of idle DYDX in Liquid Staking Protocols, we disagree with the decision to allocate 20m DYDX to Stride. We strongly believe this is an important proposal which requires further discussion to consider all aspects of decentralization, security, and alignment for DYDX holders.

  1. This decision requires detailed discussions rather than aiming for a quick voting turn around. Based on the terms offered by pStake and community feedback, the voting for this decision has started prematurely. Therefore we believe further discussions are warranted.

  2. We recognise the conflict of interest demonstrated by Stride validators and Stride investors. As highlighted by RealVovocha, the large majority of yes votes are Stride validators and investors that directly benefit from the increase in delegated DYDX this proposal would bring them.

For these reasons we voted abstain.