[DRC] dYdX Ecosystem Development Program (fka dYdX Grants Program)

Proposals
2

The dYdX Ecosystem Development Program

As mentioned earlier, the DEP is an evolution of the dYdX Grants Program, and will continue to perform many of the same activities. The launch of dYdX Chain created a new landscape for contributors, one that has required a few changes. With contributors able to directly contribute to the dYdX protocol, we need to work with a new class of partners and service providers that are comfortable working with counterparties who have long-term funding. It also requires working closely with other dYdX stakeholders on a longer-term strategic plan in order to identify the highest leverage areas to fund.

With these changes in mind, we felt that “dYdX Ecosystem Development Program” better captured the scope and spirit of our focus.

With this shift, we envision redesigning the program to operate at a better and bigger scale. The collaborative nature of an open-source protocol gives us the confidence to increase the scope of our grants, heightening their impact on dYdX. Below, we outline some initials improvements to our process:

1. RFP Design and Applicant Sourcing

RFPs (Request For Proposals) are designed to recruit contributors for specific needs or improvements of the protocol. Previously, the DGP drafted new RFPs based on user feedback and industry standards.

Now, in a more collaborative setting, the DEP can work alongside core contributors such as the dYdX Operations Trust, the dYdX Foundation, and dYdX Trading to deliberately design RFPs targeting specific areas of improvement for the protocol. This transforms RFPs from broad ideas for grants to detailed technical specs with a clear understanding of the objectives and scope.

More specifically, dYdX Trading plans to publish technical specifications outlining opportunities for contributions in areas of their product roadmap. Armed with these detailed specs, the DEP can source the right candidates to deliver an even greater impact on the dYdX protocol. Through this process, core contributors can focus more of their bandwidth on critical areas while the larger roadmap continues to be delivered upon. We also gain the benefit of expanding our contributor base on the protocol and product, growing a healthy ecosystem of talented participants.

With better RFPs, we also receive better applicants. Instead of putting out an open call for ideas, we can focus on the requirements and eligibility criteria needed from a successful contributor. We’ll leverage our collective networks to source the right contributor for the job, improving the RFP turnaround and maximizing the impact of the grant.

2. Service Provider Engagements

Previously, the dYdX v3 protocol’s closed-source development made it harder to engage with professional service providers, which required lengthy agreements and a clear understanding of the protocol’s direction. In the shift to the dYdX Chain open-source software, we can now confidently engage service providers with longer-term agreements, opening up new opportunities for grants and services for the protocol.

Due to their lack of formal entity and structure, engaging with DAOs is a common challenge for service providers. Facing a DAO is not always an option. Instead, the DEP is well positioned to work with these providers, acting as the face of the protocol for agreements. Our presence improves the services and contributors available to the protocol.

These types of agreements were already worked on in previous versions, including grants with providers like Cosmostation, Strangelove Labs, Numia, and Skip. We can leverage our experience of structuring, negotiating, and doing diligence on these agreements to improve the process with the DEP. The lengthier term for this proposal will also give us more confidence and operational flexibility to engage in longer term agreements, which typically improves the terms for us.

3. Longer-term Initiatives

The DGP’s original scope included funding contributors to perform certain functions and projects on behalf of the community, which might eventually scale to subDAOs or working groups.

With dYdX Chain, core functions important to the protocol’s health and success have transitioned to the community. It’s now more important than ever for the community to actively manage the protocol. The DEP will launch initiatives that fund contributors to take on these roles on a more permanent basis for the community, improving efficiency and success. While these initiatives often have full-time grantees responsible for carrying through the core of the execution, the DEP plays a leading role in the ideation and creation of these initiatives, as well as an ongoing, supporting role in the execution and follow-through.

Below are a few examples of initiatives worth highlighting:

Existing Initiatives

1. MEV Protection:

As outlined in previous blog posts, MEV is a potentially existential threat to dYdX Chain, threatening the user experience which is the most important thing for an exchange. We had line of sight into this problem, and have worked with the dYdX Trading team to formulate a strategy against malicious actors. We funded a few industry-leading grantees (Skip Protocol, Chorus One) to work on research, acting as thought partners to provide additional support.

We combined that initial research with a more practical way to mitigate and deter MEV, forming a seven-person MEV council responsible for monitoring, reviewing, and flagging MEV activity on dYdX Chain on behalf of the community. This presents a credible threat to any bad actors that would damage the trading experience. Going forward, we’ll continue to explore new methods of improving the user experience and protocol health with regards to MEV, whether it’s through research, infrastructure, or other implementations.

  1. Launch Incentives:

The migration to dYdX Chain from dYdX v3 presented users with a tough hurdle, asking them to bridge funds to a new protocol with changes in the trading experience. To improve the likelihood of early migration and maximize the launch effect of dYdX Chain, we worked with stakeholders to implement a community-run incentive program that would attract more users.

We funded grantees to conduct research on the migration (Xenophon) and explore an efficient program (Chaos) that was approved by the community through a proposal. Chaos is now leading the launch incentives program, allocating $20M of the community treasury to reward early adopters of dYdX Chain. The program is applying a lot of lessons learned from previous research on effective trading behavior, preventing wash trading, and building loyalty. Looking ahead, we’ll explore additional incentives to further growth and user adoption on dYdX Chain as the initial launch hype begins to fade. Our goal is to continue promoting dYdX in an effective manner, allocating the treasury with intention and impact on efficient rewards.

Potential Future Initiatives:

  1. A validator and/or staking initiative that is tasked with maintaining efficient distribution of voting power across the active set. Validators play a critical role in maintaining the protocol with governance participation, software upgrades, and network restarts. A low or inefficient distribution of voting will damage resiliency and increase dependency on a few validators. With the launch of liquid staking protocols like Stride, the community can have a say in the delegation of staked tokens in the active validator set – taking ownership of improving validator performances.

  2. On dYdX Chain, the community is responsible for different protocol parameters, some of which include risk-related adjustments to dYdX markets. The DEP may explore ways to help the community govern these parameters more efficiently, protecting the protocol from unforeseen risks. Contributors can conduct regular monitoring, scenario analysis, risk assessments, and build the necessary infrastructure for responding to market environments and attacks on the insurance fund.

  3. Incentives, like the launch rewards funded to onboard users to dYdX Chain, may continue to play a role in attracting new users and growing the protocol. As previously researched, rewards programs must be constructed in a thoughtful manner to avoid excessive spending, scan for undesirable activities like wash trading, and prevent gamification from participants. Regularly updating the incentive mechanism is needed to keep rewarding honest, desirable activities only. Contributors could manage these programs to maximize the return on investment for the community.

These are just a few of our ideas today. We expect many more opportunities to develop as the protocol continues to evolve.

We think the DEP will be equipped to take on better and bigger projects that continue to build and promote the dYdX protocol. Though we expect some targets to change as the dYdX Chain grows, we highlight a few immediate focus areas below. For each category, we include project examples and funding ranges. Funding ranges are based on similar projects funded in previous versions.

Protocol Infrastructure and protocol-related services

The DGP has played an important role in supporting protocol infrastructure for dYdX Chain, including projects like CCTP development for bridging USDC, a testnet Indexer service, and now funding Mintscan as the primary explorer. We expect the need for this funding to increase as the protocol’s infrastructure grows and more services are needed to support its needs.

Examples:

  • Additional indexers and API services
  • Relayers, chain monitoring tools, and full node support
  • Explorers, wallets, and staking services
  • General improvements to protocol interaction and developer experience.

Funding range per grant: $100,000 - $500,000

Protocol and Cosmos Development

dYdX Chain opens up new possibilities for contributors to participate in the development of the open-source dYdX protocol, either directly or through improvements to the Cosmos stack. We aim to work with talented engineers to focus on areas of development not already covered by core contributors, and that work to strengthen the underlying chain.

Examples:

  • Adding new modules to the dYdX protocol (e.g. Cosmwasm)
  • CosmosSDK and CometBFT development
  • Collaborating with core contributors to ship new protocol features
  • Partnering with other protocols to build composable services and add-ons

Funding range per grant: $50,000 - $300,000

Growth Efforts

Growing the protocol, whether it’s through user adoption, increasing liquidity, or improving the accessibility of DYDX, remains a top priority with dYdX Chain. For this phase, we are focusing on longer-term projects and partnerships that continue to promote dYdX as the leading perpetuals exchange.

Examples:

  • Liquidity and user incentive programs to drive adoption
  • Partnering with major marketing platforms to promote dYdX
  • Adding support for DYDX on more platforms and exchanges
  • Increasing the adoption of noble USDC in the ecosystem

Funding range per grant: $50,000 - $300,000

Risk and Protocol Maintenance

The launch of dYdX Chain includes with it the transition of protocol parameters, including risk functions like liquidity tiers and margin functions, to community ownership. Maintaining markets, the insurance fund, collateral requirements, and more will all be critical to the success of dYdX.

Examples:

  • Market maintenance initiative to govern market listings, updates, and delistings
  • Protocol debt monitoring and market volatility protections
  • Margin and market parameterization governance

Funding range per grant: $50,000 - $500,000

Community Growth

Fostering an active and productive community remains a critical goal for the DEP. The dYdX community should be a fun and engaging environment that’s welcoming to newcomers and rewarding to loyal participants.

Examples:

  • Community events and event attendance sponsorships
  • Content creation opportunities
  • Promotional campaigns with dYdX Merch and reward incentives
  • Contributor loyalty program to reward active participation

Funding range per grant: $2,500 - $50,000

Below, we outline a formal proposal for this new vision of the DEP.

Operational Details

Term

We propose the DEP be approved for up to 24 months of operations. A 24-month operating time frame offers a few benefits to the DEP and dYdX community:

  • Flexibility: Allows the DEP to engage in longer-term initiatives and plan over a multi-year timeframe. We strongly believe the most impactful work we do will take place over many months, and having a longer time horizon offers more flexibility in what the dYdX community can achieve.
  • Longer-Term Contracts: Having a 24 month operating time frame makes professional vendors and service providers more comfortable working with us. Over the DGP’s existence, we have worked with numerous industry-leading professional service providers (e.g. Chaos Labs, Xenophon Labs, Strangelove Labs, Skip Protocol, Cosmostation, Keplr, RockawayX Labs, Numia, and more). Having a longer-term time horizon allows service providers to engage the DEP with more confidence, making them more likely to collaborate with the DEP on longer-term initiatives.

At any point in the 24 month timeframe, the dYdX Chain governance community can choose to pause or cancel the program.

Structure

In its last term, the DGP introduced a new structure, including more contributors that allowed for specialization across categorical grants and functions. We found success in the program, particularly focusing on different funding opportunities. Community grants can be funded rapidly, while larger service provider engagements take weeks or months to negotiate. Assigning contributors to focus on these areas allows for a more efficient, streamlined funding process.

We propose the following contributors be assigned to manage the DEP:

Grantors

The Grantors are responsible for drafting RFPs, sourcing candidates, submitting grant recommendations, and supporting active grantees with their projects.

Strategic Initiatives

  • Reverie:

    • Reverie helped launch the DGP and has served in a lead position since its inception.
    • Reverie has dedicated considerable time and resources to dYdX as a full-time contributor for the past two years. Specific responsibilities have included:
      • Working closely with various dYdX stakeholders (dYdX Trading, dYdX Foundation, validators, users of dYdX Chain, and partners), to formulate a broader strategy for the dYdX ecosystem. We have recurring touchpoints with the dYdX Trading and dYdX Foundation teams to identify focus areas, important RFP opportunities, and strategize on the right partners to bring on.
      • Acting as a strategic partnerships arm for the protocol, helping execute long-term partnerships from inception to follow-through.
      • Managing the grantee workstream, from putting out RFPs to reviewing legal contracts to working with grantees throughout the lifecycle of a grant.
      • Playing a role in specific workstreams.
        • We have led the formation and execution of the MEV Mitigation Council, which has played a role in detecting and mitigating MEV activity on dYdX. Thus far, we have identified a significant discrepancy which was resolved with the Council’s help, improving the user experience for traders.
        • Played a supporting role in dYdX launch incentives, helping design the program and execute its goals.
    • Reverie will dedicate three contributors to dYdX - Carl Bergman, Derek Hsue, and Federico Daffina Minicucci. This represents an increase in scope and commitment compared to v1.5, which is necessary to match the growing scope and impact the DEP plays in the ecosystem.

  • RoboMcGobo:

    • Robo served as Community Grantor in the previous term, while also contributing to a number of strategic initiatives. Robo is an active contributor to multiple Cosmos protocols, including dYdX, Osmosis, and Stride.
    • Robo’s participation will include playing a supporting role in the Strategic Initiatives bucket, helping to recruit grantees, release RFPs, and manage the grantee workstream from inception to execution.
    • Robo will also play a supporting role in other workstreams the DEP works on.

Community Initiatives

  • Mackay:
    • Mackay served as Community Grantor in the previous term. Mackay is an active contributor to protocols, having previously served as dYdX Ambassador and now serves on the board of directors at the Blockchain Acceleration Foundation.

Operator

The Operator is responsible for payments and financial reporting in the DGP.

  • Lemma Solutions: Lemma served as operator in the previous term. Lemma Solutions is a DAO service provider specializing in operational processes and financial workflows.

All Trustees and the Enforcer already sit on the trust, having served in the previous term. We propose no changes to our Trustees or Enforcer.

Trustees

  • Felix Lutsch (Lead Trustee): Previously overseeing business operations at Chorus One, Felix is now a strategic advisor to staking protocols and actively contributing to DAOs.
  • Abra Tusz: Abra is chief of staff at the Interchain Foundation, working closely with developer teams to foster the right culture throughout the interchain ecosystem.
  • Colin Chan (0xCChan): Colin has been an active member of the dYdX community for many years, as both a previous grantee and dYdX Ambassador. Colin is also conducting research on incentives across the crypto ecosystem.
  • Bora: Bora manages protocol partnerships at Keplr, giving her a breadth of experience and knowledge of the interchain ecosystem.
  • Wintermute Trading: Wintermute is an active market maker and contributor to the protocol. Callen, governance lead at Wintermute, is regularly submitting proposals and contributing to the growth of dYdX.

Enforcer

  • Cliffton Lee: Previously worked at the dYdX Foundation where he learned all the ins and outs of the dydx protocol, Cliffton is now leading DAO relations at the Arbitrum Foundation.

Budget

At the time of writing, the DGP has $1M in funding remaining in available funds. To scale the program appropriately for another 24 months, the DEP is requesting an additional $12M in DYDX funding from the community treasury.

This budget takes into account previous spending in the past two years, and factors in the new scope for DEP. The increase in funding will give us the firepower to support impactful grants, engage with multiple providers, and ready the program for any and all new strategic opportunities in the next year.

Below is a rough breakdown of the DEP’s anticipated focus areas for funding:

Funding Categories

Category Funding
Infrastructure $2,500,000
Protocol Services $2,000,000
Development $1,000,000
Growth $2,000,000
Risk and Maintenance $1,000,000
Ecosystem $500,000
Total $9,000,000

A few notes on the Funding Categories:

  • This “Funding Categories” breakdown is subject to change based on market needs. As dYdX Chain evolves, certain categories may be more or less emphasized than originally planned.
  • Both the” Strategic” and “Community Initiatives” may fund things in each of the categories. There is no maximum funding amount per Strategic or Community Initiatives bucket.

Below, we outline a budget for operating the DEP on a 24-month term:

Compensation
Contributors
Grantors (Strategic Initiatives) (2) $74,000 / month total (Reverie $70k, Robo $4k)
Grantors (Community Initiatives) (1) $3,500 / month*
Operator $2,000 / month
Trust Members
Lead Trustee $3,000 / month
Other Trustees (4) $6,000 / month ($1,500 each)
Enforcer $1,500 / month
Operating Expenses
Legal $100,000*
Maintenance / Infra $50,000*
Total Budget (24 months) $2,310,000

A few notes on this budget:

  • The increase in Reverie’s compensation is there to match the increase in workload and contribution since dYdX Chain launch. After dYdX Chain launched, the scope of this subDAO increased dramatically, and there were many new areas Reverie began working on and leading. Examples include the creation of the MEV mitigation council, centralized exchange support, supporting the new rewards program, and planning new asset listings, all of which required extensive preparation, research, and coordination.
    • Typical startup compensation structures involve a combination of cash and upside. But seeing as taking in token upside is not recommended from a legal perspective, we believe the cash-focused compensation model is fair.
    • Three contributors from Reverie will be contributing to dYdX, with two of whom will be spending a majority of their time contributing to dYdX.
    • Ultimately, the DEP is a catch-all vehicle for working on impactful ideas that can improve the protocol. As dYdX Chain continues to mature, we think the number of impactful areas that the DEP can impact will only increase. The pricing reflects Reverie’s commitment to leading the program under the revised scope, as well as having the ability to take on new initiatives that arise.
    • Reverie’s compensation comes out to ~$300k a head, which takes into account salary, benefits, and other overhead (legal, finance, etc) that is a standard part of operating a business. The budget also bakes in a small profit for Reverie, in order to maintain its ongoing operations.
  • Legal and maintenance costs are estimated based on previous terms, but are subject to change if new needs arise.
  • The Trustees may revise the budget above based on needs and changing environments. This could include rotating personnel, bringing on additional support, and other actions. The Trust must have the operating flexibility to adapt with the evolving dYdX ecosystem. All changes will be disclosed to the dYdX community.
  • The DEP may add/remove contributors throughout this term. Any changes to the Trustees and/or Enforcer will be subject to a governance vote in line with the trust agreement. Changes to Grantors or Operator will be conducted by the Trustees and shared with the community.
  • The DEP may conduct treasury management operations, which can include diversifying DYDX into stablecoins or staking.

Full Request

The DEP is requesting a total of $12M DYDX to support its operations and funding budget over the next 24 months. Below is a breakdown of this request:

Category Amount
Funding Budget $9,000,000
Operations $2,310,000
Operating Budget $11,310,000
Volatility Buffer $690,000
Funding Total $12,000,000
v1.5 Leftover Funds $1,100,000
Total DEP Budget $13,100,000

As seen above, the DEP will have a total buffer (funding request + leftover funds) of $1,790,000. We believe this is prudent to protect the program from market volatility, and to allow for unexpected funding needs throughout the term. Any leftover funds may be returned to the community treasury if needed at the end of this term.

DYDX Amount

The amount of DYDX will be determined using a 7-day trailing TWAP taken on the day of our proposal submission. Information on the calculation process will be shared in the forum prior to the proposal going live.

Changes to the dYdX Grants Trust

As part of this proposal, we would like to receive community endorsement for the following changes to the dYdX Grants Trust:

1. Name Change

The dYdX Grant Trust will change its name to the dYdX Ecosystem Development Trust. Though this change is not strictly necessary, we believe that it’s appropriate for the trust’s name to reflect the activity and namesake adopted by the community. The underlying purposes of the trust will not be changed since they still reflect the activity and goals of the DEP.

2. DGP Multisig Addition

Today, the trust holds all of its assets on an Ethereum-based multisig which is strictly defined in the trust agreement. To account for the transition to dYdX v4, the DEP will also custody funds on a dYdX v4 multisig. We propose adding the following address to the definition of DGP Multisig, which will also be renamed to DEP Multisig, dydx16jll55tag2aj3c4mtysptefn8d274dmdsxvank.

Trustees will use the following dYdX Chain addresses for their dYdX Chain Multisig signatures.

  • Bora Nam: dydx1t3ttmn3e005k0rje2kj98vwpmnt0zsdx64n3ey
  • Wintermute Trading LTD: dydx17tecxwpqxpe7egk7rpqyte9ffwhyrwtghyrk4n
  • Abra Tusz: dydx1l6ggj9dha5m6fvp5699x8tqclenxqzygpjgjv5
  • Felix Lutsch: dydx100qmjwhcs0yuadyyla6ryd9ahmp9uxhv5lyt8k
  • Colin Chan: dydx1zrr8l2enn7mqjt9f2kgg9l82fma3lhn7xygf2k

The transaction threshold for this wallet is also 3 of 5 approvals.

3. Address Change for Wintermute Trading LTD

Wintermute would like to update the address they use for signing transactions on behalf of the DEP. We propose changing the signing address on Ethereum transactions for Wintermute Trading Ltd from 0x8d8100705Fb6676B97BCaC87617eE4704c5d00F3 to 0xABe7d66c65B2C921B8bdad85ff3Dd7baFaCcdC50

Proposal

We propose launching the dYdX Ecosystem Development Program for 24 months with a new allocation of $12M in DYDX tokens from the community treasury. We look forward to everyone’s thoughts and comments on this proposal.

Proposal Timeline

  • Forum Post: 02/13/24
  • AMA: 02/15/24
  • On-chain vote: 02/19/24
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