[DRC] Liquidation Rebate Pilot Program

dYdX Chain
1

Summary

This proposal seeks community approval to launch a one-month pilot Liquidation Rebate Program starting December 1, 2025, that rewards traders with points and potential rebates of up to $1M for experiencing liquidation events. The program is designed to retain traders and attract additional volume to the dYdX ecosystem during challenging market conditions.

We request an allocation of $1M in DYDX from the Community Treasury for funding the program. The program report and actual distribution will be submitted via a separate community spending proposal once the program has been completed.

Abstract

The Liquidation Rebate Program introduces a gamified incentive layer for traders who are liquidated on dYdX. Participants will earn liquidation points for each qualifying event, allowing them to compete on leaderboards and become eligible for rebates paid out after the end of the month.

By reducing the net cost of liquidation events for the most active and highest-value users, the program aims to improve trader retention, increase engagement, and strengthen dYdX’s positioning within the broader perpetuals trading landscape. The pilot will run for one month, starting December 1 until December 31, 2025, with a total funding of up to $1M in DYDX from the Community Treasury, subject to a future distribution proposal.

Motivation & Rationale

Liquidations are an unavoidable component of leveraged trading. However, for high-intent traders who meaningfully contribute to open interest, volume, and fees, liquidation-related losses can be a point of friction that negatively impacts long-term retention, particularly during periods of heightened volatility.

Across the industry, several perpetual exchange platforms have begun experimenting with mechanisms that offset trader losses or provide retention incentives tied to liquidation. Aster has launched Machi Mode, distributing liquidation points, while Variational is currently incentivizing traders through Loss Refunds. This shift reflects a broader competitive trend: exchanges increasingly recognize that supporting active traders through downside events can materially enhance user loyalty and trading consistency. Introducing a Liquidation Rebate Program enables dYdX to experiment with a similar dynamic that emphasizes fun, competition, and loyalty.

Preliminary data show that traders who frequently experience liquidations also represent a substantial share of platform activity and fee generation, underscoring the value of retaining them through targeted incentives. From November 1 until today, there have been ~32k liquidations from 1.4k addresses. These addresses have contributed $9.6B in volume and $450k in fees. Meanwhile, the top 20 liquidated addresses amassed $8.5B in trading volume, accounting for over 84% of the total exchange volume over the period.

A structured pilot Liquidation Rebate Program allows the community to evaluate whether such an incentive reduces churn, encourages continued participation after liquidation events, and strengthens dYdX’s competitive position

Specification

  • The Liquidation Rebate Program will operate as a points-based system in which users earn liquidation points for each qualifying liquidation of a leveraged position.
  • Points accumulated throughout the month-long pilot will position users on a leaderboard that determines their eligibility for rebates.
  • At the end of the pilot, top participants will receive a percentage rebate of their liquidation amounts, distributed proportionally based on leaderboard ranking.
  • The program will have a funding pool of up to $1M in DYDX, allocated from the Community Treasury. We will deliver transparent reporting at the end of the pilot and the distribution proposal. This proposal does not seek to distribute funds at this time; it only authorizes the launch of the program framework.

Next Steps

We invite the community to provide feedback on this proposal. If there is no significant objection, we will submit the on-chain text proposal on Thursday, November 27, 2025.

1 Like
2

While the Liquidation Rebate Program has strong potential to improve trader retention, the proposed leaderboard-ranking distribution model introduces structural inefficiencies and fairness issues.

First, leaderboards inherently concentrate rewards into a very small subset of users, disproportionately benefiting the highest-volume or most aggressive traders. This contradicts the stated goal of improving retention across the broader population of liquidated users. Under the current structure, hundreds or thousands of affected traders would receive no meaningful rebate, despite contributing fees, open interest and liquidity to the protocol.

Second, leaderboard systems encourage perverse incentives. A competitive ranking mechanism may unintentionally motivate traders to take excessive or artificial risks to climb the leaderboard—introducing moral hazard, unnecessary volatility, and worse overall trading behaviours. A rebate mechanism should stabilize user experience, not gamify liquidation severity.

Third, tying rewards only to top-ranked addresses reduces the program’s ability to measure its true impact. A pilot designed to test retention should emphasise breadth of participation, not just depth among the top 1–5% of users. A narrow distribution provides weak signal on whether the program benefits the wider trader base, making post-pilot analysis less reliable.

A pro-rata distribution model—rebates paid proportionally to each user’s liquidation loss—directly aligns incentives with actual impact. This approach:

  • ensures fair compensation for all participating users, not just a small elite cohort

  • mitigates competitive or risk-seeking behaviour

  • provides a cleaner, more representative dataset on user retention across segments

  • aligns with the pilot objective: evaluating whether a rebate reduces churn and improves loyalty at scale

In short, the leaderboard system dilutes fairness, introduces behavioural risk, and limits the program’s evaluative value. A proportional-rebate model is more equitable, safer, and better aligned with the stated purpose of the pilot.

3 Likes
3

dYdX faces structural challenges in its product evolution. The platform’s frequent version overhauls create substantial migration friction for users and liquidity providers, preventing long-term accumulation. Its uncompromising pursuit of full decentralization further constrains the trading experience, resulting in slower execution, reduced smoothness, and an overall usability gap compared to platforms that offer near-centralized performance.

The market-making environment presents another set of issues. Fully open on-chain data increases strategy-exposure risks, making high-quality market makers more likely to leave—especially when returns are already thin. Additionally, the chain lacks meaningful incentive structures, support mechanisms, or profit-sharing models at the protocol level, reducing the attractiveness of staying or scaling market-making operations.

Meanwhile, competing platforms are pursuing entirely different strategic vectors—such as buyback programs, points systems, and incentive frameworks—that position them more competitively. Without corresponding initiatives, dYdX is gradually falling behind as gaps in user experience, performance, and ecosystem incentives continue to widen.

1 Like
4

I’ve just submitted proposal-321.
Don’t miss the chance to vote.

5

We struggle to see how this pilot could benefit the ecosystem. Incentivizing liquidations through a ranking or point-based system feels fundamentally misaligned with responsible trading. Every element of the proposal — points, leaderboards, rebates tied to liquidation events — introduces the kind of moral hazard we should avoid, not encourage.

If the intention is to support high-intent traders facing unexpected volatility, a much simpler and safer approach would be to consider a proportional rebate mechanism rather than a competitive structure that risks promoting reckless leverage.

In its current form, we cannot support this proposal.
pro-delegators-sign

6

A reward for getting liquidated?
I’ve never read such nonsense.

Trading should be rewarded so traders have an incentive to stay, but being rewarded for getting liquidated makes absolutely no sense…

(You got liquidated? Here’s a $2000 reward to get liquidated again.)

Those who generate profits should be rewarded because it benefits the ecosystem. What’s the point of rewarding someone who is liquidated and no longer has the funds to continue trading?

4 Likes
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When will be more info about the liquidation rebate program? about the points leaderboard the percentage of liquidation that would give back etc.It would be nice some example also , so all will be clear and transparent

1 Like
8

bro just discovered how casinos and sport betting work

the most profitable financial industry in human history

1 Like
9

Since when do people who lose their money on Casinos and Sport betting get a Reward ?

The most profitable financial Industry in human history is the Trading Market :wink:

1 Like