About Nethermind Research
Nethermind DeFi Research provides technical research and advisory services to venture capital firms, hedge funds, and protocol teams. Our focus areas include protocol due diligence, quantitative modeling, tokenomics design, and risk analysis. All outputs are grounded in cryptoeconomic rigor, delivering actionable insights and technically sound recommendations.
Nethermind Research received a grant from dYdX Grants to review dYdX Chain incentives, dYdX fees, the distribution of net revenue and tokenomics, among other things.
Background
Exchanges often use fee holidays to attract users and boost volume. We’re exploring strategic implementation for dYdX, particularly for SOL markets aligned with dYdX’s upcoming Solana spot exchange launch, and major altcoins as a competitive differentiator. This research assesses fee holiday effectiveness based on past competitor programs.
Key Takeaways
To assess the potential impact of a SOL fee holiday for dYdX, we can examine Drift’s previous experience with fee holidays:
- Drift’s fee holiday likely resulted in significant wash trading, accounting for 41% of the total volume increase for BTC and 72% for ETH.
- After adjusting for wash trading, the BTC fee holiday was more effective in generating new volumes. This increase was equally distributed between new and existing users. On a like-for-like basis, the fee holiday boosted genuine BTC volumes by 306% compared to 96% for ETH.
- Drift’s volumes dropped by 30–50% following the competition from new protocols like (Aster, Pacifica, Lighter) and general market pullback. While fee holidays have a positive impact on volume and number of traders, dYdX should be conscious of the market forces affecting the magnitude of impact.
- Open Interest saw only modest growth for both BTC and ETH, raising concerns about the long-term sustainability of the volume increases.
- Accounting for wallets active two weeks post-program, the fee holiday enabled Drift to sustainably expand its user base by 16.5% for ETH and 11.8% for BTC.
- Offering a SOL fee holiday is a strategic opportunity for dYdX, as it is rarely offered by other exchanges except Aster. This could help drive initial volumes at launch and attract new traders.
- Similarly, fee holidays on other altcoins like XRP—which have already generated volume on dYdX—could attract new users and diversify the trader base, currently dominated by BTC and ETH.
Recommendation
We recommend fee holidays on dYdX as they are effective cost-effective growth drivers that attract new users and increase volume. Drift’s program demonstrated strong results: while volumes contracted when the program ended, retained users and sustained volume above pre-holiday levels validated the approach.
Strategic implementation on altcoins offers significant upside for dYdX. Fee holidays on targeted markets would differentiate dYdX from competitors, diversify revenue beyond BTC/ETH dominance, and bootstrap volumes for the upcoming spot market launches.
Report
For more details, please refer to our research report
Next Steps
We are looking for feedback from the community. We are aiming to submit a formal governance proposal with final details in the upcoming days.
Disclaimer
It is important to note that this report only contains research data points and theoretical proposals for their independent evaluation by readers. All of the proposals in this report would require an active governance decision by the dYdX community to be implemented(and, in certain cases, and in addition, the collaboration of certain ecosystem participants, such as the treasury subDAO, for example). Nethermind has no control over any decision to implement any of the proposals mentioned in this report or the way that they may be implemented.
Nothing in this report should be considered as financial, legal, tax or any other form of advice, nor as an instruction or invitation to act by anyone. This report has been prepared and is being published for informational and educational purposes only.
Kindly note that this proposal is not intended to create a contractual relationship between Nethermind and the receiving party. Any engagement of services shall be subject to a separate agreement that outlines the terms and conditions of the engagement. Please note that the contents of this proposal may be subject to intellectual property rights owned by Nethermind.