[DRC] dYdX Community Staking Proposal

dYdX Chain
41

This proposal is a very bad idea for dYdX community, and most of the posted statements in the forum here are highly self-serving.

  1. Chain Security: The core argumentation of this proposal is massively flawed. It narrates a worry about chain security, while in its essence it is a max extraction proposal by Stride, Stride related parties and Stride related validators.
  • If Reverie would be worried about the chain and economic security, the proposal would have been setting up a real dYdX focused Delegation Program, run by dYdX aligned community leaders, which is not introducing additional risks like this proposal.
  1. Loosing autonomy: By giving up 20M dYdX of voting power, to a cartel of organizations, that due to their inclusion of validators already have much control of the chains that are being operated, will further strengthen and centralize their governance power. This is done through the model of “hidden” governance power, by delegating to aligned and bribed* validators to vote in favor of Stride investors future proposal and against it’s competition. We already have seen this play out on other Cosmos chains. Core dYdX contributors and community members should be wary if you want your chain be controlled by an external party that is not aligned with the success of dYdX, but the money in their own bag.
  • Without a clear, independent and fully autark oversight over the stake and governance power involved, this proposal will reduce the self-sovereignty of dYdX chain and introduce massive economic security. Again, a dYdX focused Delegation Program is much more efficient and aligned to the chain and the goal of chain security.

The core argumentation of this proposal is flawed and the conclusion is a max extraction by Stride and related parties. This proposal seriously risks reducing decentralization, autonomy and self-sovereignty of dYdX.

Better just set up a good delegation program.

The more I see these kind of proposals, the more I believe in how flawed the Cosmos ecosystem governance really is. Validators should not get the voting power of chain stakers.

Disclaimer: I am a contributor to ERIS Protocol, a cosmos yield optimizer also providing liquid staking (not on dYdX). It would just be a pity if dYdX is loosing it’s sovereignty and at the moment I am only fighting for chains and DAOs to keep their control.

*bribe used based on this definition: payment, gift, or favor given to someone, typically a public official or authority figure, with the intention of influencing their actions or decisions in a way that benefits the giver

4 Likes
42

Summary of the dYdX Community Staking Proposal and Community Feedback

Original Proposal Overview:

  • The proposal, co-authored by Reverie and Stride Labs, aims to enhance the dYdX protocol’s economic security by staking 20 million DYDX tokens from the community treasury using Stride’s liquid staking solution.
  • It’s motivated by the rapid growth in USDC deposits on the dYdX chain and aims to address potential security risks by increasing the staked capital.
  • The proposal highlights benefits such as increased protocol security, diversified treasury assets, and the potential for the dYdX community to earn USDC rewards.

Key Points from Community Feedback:

  1. Support with Diversification Concerns: While supportive of enhancing economic security, the community advocates for diversification among liquid staking providers beyond just Stride, mentioning pSTAKE as a potential partner.
  2. Economic Security Considerations: Some community members emphasize Stride’s economic security advantages, yet there’s a broader call for careful provider selection to ensure robust security.
  3. Fee Structure Discussion: The proposed 7.5% fee by Stride has been contested, with suggestions for negotiating more favorable terms and revisiting the reward distribution strategy.
  4. Governance and Autonomy: There’s significant concern over potential centralization and loss of autonomy with the delegation to a single provider, emphasizing the need for maintaining dYdX’s decentralized governance.
  5. Process Deliberation: Calls for a more inclusive and extended discussion period have been made, suggesting the exploration of alternatives like a dYdX-focused delegation program to better align with community interests.
  6. Transparency and Conflicts of Interest: The need for transparency regarding the fee structure and operational costs, along with managing conflicts of interest, especially among validators with stakes in the decision, has been highlighted.
  7. Alternative Solutions and Native Staking: Beyond external liquid staking solutions, there’s interest in exploring native staking through a community-managed program to support smaller validators and further decentralize the network.

Reverie’s Response to Feedback:

  • Reverie intends to proceed with the initial proposal despite the diverse feedback, citing the urgency of bolstering economic security.
  • They argue the proposal is a practical response to current trends and challenges, with Stride offering a viable solution that includes fee concessions.
  • Reverie remains open to leveraging additional providers in the future and emphasizes the importance of community participation in the upcoming signaling proposal.

Conclusion: The discussion around the dYdX Community Staking Proposal reveals a community deeply invested in the protocol’s security and governance. While there is broad support for the proposal’s objectives, there’s a clear desire for more discussion, transparency, and consideration of alternative approaches to ensure the dYdX ecosystem remains secure, decentralized, and aligned with community values.

4 Likes
43

Thanks for this summary! But it all shows that @Reverie being an investor in Stride only cares about how to make Stride bigger.
They don’t care about chain security, that is just a front to enlarge the pie of their investment… that is all that can be concluded from the ignorance from all the other arguments given.

3 Likes
44

Did you just run the text in this forum through ChatGPT and post it?

1 Like
45

As a Validator on DYDX, Kiln.fi supports this proposal. We therefore have decided to cast a YES vote.

We believe that the concerns around lack of economic security are valid and that they should be addressed. We also believe it makes sense to use the DYDX of the Community Pool for staking, in order for it to accrue rewards.

However, we must acknowledge that this is a temporary solution to a long term problem, and that going forward, the community must act to encourage DYDX holders to participate more in staking.

We also believe it would make sense for Pstake to be attributed some additional delegation from the community pool in order to diversify LS provider risks.

1 Like
46

The majority of the community is very aware, and see through it all. Notice other people are now starting to comment on this rather than remaining silent.

Yes, not quite that simply, but it can be a useful tool to help quickly summarize long documents to save others from having to read through the entire thing.

3 Likes
47

It is only a bummer that not even 1% votes against. So the case build by passing this proposal is quite strong to ignore the feedback and just go forwards with the initial plans.

1 Like
49

@LeonoorsCryptoman as pointed out earlier in the discussion, the current governance structure appears to be less effective than its predecessor, which already had its challenges. It operates similarly to a corporate model, dominated by a select group of about 10 validators—who hold the primary decision-making power. This concentration of authority raises concerns about the potential for collusion and undermines the value of community engagement. The prevailing sentiment suggests that community opinions are largely overlooked, if not entirely disregarded. The recent voting patterns, with the notable exceptions of Stable Labs and All Nodes, reinforce this viewpoint. Given this context, it’s advisable for community members to consider reallocating their stakes to Stable Labs and All Nodes, as their actions demonstrate a more community-aligned approach. If currently staking with other validators, it might be worth reconsidering in favor of those who reflect a genuine interest in community feedback.

3 Likes
50

Really great proposal and discussion here. The way I see it, having some form of delegation program that:

  • net increases economic security
  • enables growth of the dYdX treasury from staking rewards
  • supports a diverse set of ecosystem validators through delegations
  • supports projects building on dYdX such as Stride and pStake

is desirable, if thoughtfully applied. The key negatives as I see them would be if there is a too strong dilution of staking rewards for individual stakers, if the resulting delegations are not contributing effectively to the decentralization of the chain, or if the fees are too high.

In absence of a non-profit/foundation/governing body managing this sort of program, using liquid staking providers seems like a great alternative, as they have domain expertise and are more incentivized to provide good results (esp. if they are competing over the delegation amount).

I am personally in favor of the concept of this proposal and the amount proposed seems adequate. I think the diversity points are valid and if additional providers like pStake in addition to Stride want to be supported, the stake amount could probably be increased.

Finally, I do think Stride being more economically secure because of their usage of ICS is a valid point. Also, Stride putting in the idea and work for this proposal shows their initiative to push the ecosystem further, so would personally argue a larger portion of this treasury delegation program going to them seems adequate, though $DYDX governance should decide that.

2 Likes
51

this looks like good proposal

  • stride reduces their take rate to 7.5%
  • 90% of yield is being auto-compounded into dydx - means buy backs
  • 2.5% kept in usdc and accrues to treasury - so community treasury diversifies

and b/c using stride, LST stDYDX can become more liquid in cosmos ecosystem. Paying 7.5% of dividend yields is much lower cost than many other DeFi protocols currently pay to AMM pools like curve to ensure strong liquidity. Having an LST token with strong onchain liquidity is a valuable asset to every DYDX holder and it increases the total scope of potential holders and stakers.

I also see lots of comments here about staking yield being diluted. To me misses bigger picture. In this proposal the current DYDX stakers are only actually “loosing” 7.5% of the net value they’re currently collecting from staking yield.

  • The 90% being used for buybacks still accrues to current stakers - just as value accrued to their staked dydx tokens instead of as USDC dividend yields.

  • The 2.5% going to a community governed treasury also accrues to DYDX holders indirectly because it’s community governed. Building up the usdc treasury holdings is very important so we don’t have to keep selling DYDX tokens to fund things like the Ops Subdao, just like we did a couple months ago. DYDX sales like these to raise USDC budget are actually much more dilutive to tokenholder value than this current proposal.

In future, community should discuss updating the accruals here to diversify treasury assets further - so even higher % of fees collected stay in USDC accruing to treasury, and a smaller % of fees go to buy-backs. E.g. a 50/50 split seams reasonable … maybe even higher…using the bull market to build up USDC treasury reserves is much better strategy than being forced to raise cash in bear markets…

1 Like
52

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.

Screenshot 2024-03-22 at 17.13.58
Screenshot 2024-03-22 at 17.13.581192×724 23.6 KB

  • 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.

7 Likes
53

We, as a validator for dYdX, Stride, and a member of the Stride dYdX liquid staking set, fully supports the proposal to enhance economic security measures for the dYdX Chain.

With the network’s rapid growth, the risk of malicious activities targeting it has increased. Therefore, we must take steps quickly to safeguard against potential threats.

However, we believe that concentrating all funds in a single protocol could carry some risks, and we should consider this measure as a temporary solution.

To ensure the network’s long-term security, we must encourage more participation from DYDX holders in staking activities and explore ways to diversify LST providers to make the network more resilient.

54

Hello dYdX community.

The dYdX community has voted in support of liquid-staking 20M DYDX from the dYdX Chain Community Treasury with Stride via a text governance proposal ( 83% ‘Yes’ votes).

Given the relevance of this governance proposal, before the on-chain proposal is launched and the dYdX Chain Community Treasury potentially starts accruing USDC staking rewards (from the 2.5% fee reduction offered by Stride) and other staking rewards directly, the dYdX community may need to consider the potential short term vs long term tax consequences stemming from staking rewards accruing directly and regularly to the dYdX Chain Community Treasury.

Further, and in connection with this, the dYdX community may also consider potentially forming a treasury management subDAO in the future.

4 Likes
55

Based on the feedback above from the Foundation, we think it’s best to revisit the proposal’s reward accrual mechanism. The distribution of USDC may lead to unintended tax implications for the community and tokenholders, potentially complicating any benefits gained from diversifying the treasury to USDC.

Because of that, in the final executable proposal, which we aim to post next Monday, we will propose allocating all rewards claimed (92.5% of all rewards) to auto-compounding DYDX back into the staked position, instead of the original plan of distributing the 2.5% rebate in USDC back to the community pool.

This approach gives the community more time to decide on how best to claim rewards from a tax and/or legal perspective, while continuously improving protocol security.

If there’s future clarity on tax implications for USDC inflows to the treasury, Stride can always update the implementation to include a USDC distribution. For now, our primary goal is to improve the protocol’s security, which this proposal continues to accomplish.

Stride will need to perform an additional software upgrade to accommodate this new distribution mechanism. Our plan is to submit the final treasury spend proposal next Monday, once the Stride proposal has been approved and final tests completed.

1 Like
56

I think this is a bad move. It only gives more VP controlled by 1 LST-provider, which is something which is heavily contested by multiple persons on this forum in the past period.

And that share will only grow via this route, like a flywheel.

So I am not sure whether this change does right to all concerns mentioned in the past period though.

I am not so sure (but maybe I am reading it differently though) that changing to an autocompounding position was the intended goal of @dYdXFoundation. Maybe some clarification can be given if the change is what they meant to achieve?

3 Likes
57

Since signalling proposal passed I have noticed a 27M USDC decrease in TVL
While staked dydx raised to 118M dydx or around 13M USD increase at today’s prices.
The peak TVL was at the last day of the signalling proposal (157M)
Now it’s around 130M USDC
I used the data from the link Reverie provided Lenses

This information was incorect. From March 7, 2024, to March 15, 2024, the net inflow was approximately 28,492,050 USDC. To assert that it was +100M is either a significant error or a deliberate manipulation.

Given those factors there absolutely no need to stake such huge amount from community treasury. The only winner in this situation is Stride protocol.

I think we have to postpone any staking from the community treasury while all teams prepared better proposals.

3 Likes
59
  1. I don’t understand why you need to make me and everyone else that uses Stride staking feel as 2nd class citizens by granting a protocol treasury that already controls hundreds of millions of dollars a competitive advantage. It feels like I’m being conspired against with backroom deals. Over 2.5% less fees…??

Sad, and I expect more of this in the future.

  1. Will the DYDX Community treasury also be eligible for the Stride stDYDX airdrop?
60

Either cut the fees for everyone, or just charge 10%.
It’s a fairness issue.

If Stride starts on this foot granting special privileges to some actors based on purely negotiation power, doesn’t that just seem unfair to everyone else that participates in the protocol? Stride already charges exorbant fees.

All of this over 2.5% less fees, just states more corruption is coming?

All the rules are now bendable, it just depends on how much negotiating power you bring to the table.

Obviously the average user can never bring the same negotiating power to the table as a protocol treasury or VC. Perhaps those users should use a different staking protocol from Stride.

Is that not a bad signal to send to users over a 2.5% fee reduction?

It definitely leaves a foul taste in my mouth as a user and investor in both DYDX and Stride.

Everything else is good in the proposal.

1 Like
61

Hey, just to clarify, the dYdX community treasury will not be eligible for the stDYDX airdrop.

1 Like
62

We, Crypto Learning Club, stand opposed to the delegation of the community’s treasury through an external liquid staking provider, as it threatens the long-term prosperity of dYdX.

Even though we initially backed Proposal#44, upon reflection, we have decided to oppose both Proposal#47 and Proposal#49.

Delegating the community’s treasury through a liquid staking provider leads to a reduction in the Annual Percentage Rate (APR) for currently staking users. This arrangement favors only the liquid staking provider and certain validators selected to receive stakes from the LSP, raising significant concerns:

1. The decrease in APR may diminish the attractiveness of dYdX tokens, making it more difficult to attract new stakers.
2. It could create a sense of inequality among validators.

To ensure dYdX’s long-term growth, it is essential to boost the number of active traders and increase the token’s value.

Yet, reducing the APR for stakers to temporarily increase validators’ fees does not serve the community’s best interests. Validators should see their profits rise with the growth in transaction fees as the trader base expands substantially.

Moreover, validators not chosen by the LSP encounter discord due to the absence of delegations, potentially leading to conflict. A united effort among validators to maintain the chain is much preferred.

While we do not oppose the concept of Liquid Staking, leveraging the “Community Pool” for such purposes is problematic. It is imprudent to implement changes that do not benefit the traders/stakers.

Presently, it appears that validators and the LSP are prioritizing their interests. We need to reconsider from the perspective of contributing to the long-term development of dYdX and its users.

Admittedly, there may be security enhancements as a result of this delegation, but we believe that the negatives far outweigh any possible positives.

Additionally, at the time of the initial post, we anticipated the APR to drop from 21.32% to 18%, but dYdX’s trading volume is heavily influenced by market conditions and has yet to stabilize.

Currently, this month’s APR stands at 18.85% (dipping to a mere 13.17% this week!).

スクリーンショット 2024-04-03 185322
スクリーンショット 2024-04-03 1853221426×344 48.4 KB

Considering that staking 20M dYdX from the treasury could consistently lower the APR by 2-3%, this change is hardly beneficial for stakers.

With less than five months since the release of v4, we suggest starting with a smaller amount experimentally or waiting until the platform’s growth stabilizes before making such a significant change.

6 Likes