[DRC] Revenue Share on dYdX

[nethermind]

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

In March 2025, dYdX DAO updated its net revenue distribution as follows:

• 40% to stakers,
• 25% to buybacks,
• 25% to MegaVault,
• 10% to Treasury subDAO.

This research aims to evaluate potential adjustments to the current revenue share distribution in light of the MegaVault’s performance, ongoing buyback activities, staking dynamics, and the overall progress of the project. Recently, community members have proposed buyback allocations ranging from 50% to 100% of protocol revenue. This study seeks to provide a data-driven analysis to support and further the ongoing discussion around these proposals, ensuring that any decisions regarding revenue distribution are grounded in sound analysis and aligned with the project’s long-term sustainability and growth objectives.

The research reviews the current allocation by focusing on the following aspects:

• Is the MegaVault delivering enough value for the protocol?
• Should staker allocations be adjusted?
• Can buybacks meaningfully offset inflation and strengthen token sentiment?

Key Takeaways/ Recommendations

• Reduce MegaVault rewards and product revamp from 25% to 0 - 5%. MegaVault has failed to attract users despite current incentive levels. TVL collapsed from $32M in September to $9M, a 72% decline, indicating poor product-market fit. Compared to other incentive programs like Surge, MegaVault is 3x more expensive to bootstrap volume and liquidity. MegaVault rewards could be reduced and/or combined with product improvements such as quoting in fewer markets, maximizing the revenue impact for the protocol and improving the product performance.
• Increase buybacks up to 75%. DYDX token price has fallen significantly over the past months. At present prices, the protocol could repurchase up to 5% of total supply annually. Historical analysis of DeFi protocols buyback announcements shows market-positive reception, with tokens outperforming 13.9% on average post-announcement. Tripling buyback allocation from 25% to 75% would strengthen tokenomics while signaling confidence to the market.
• Reducing stakers allocation from 40% to 15% - 20%. Despite declining yields over the past year, stakers exhibit strong retention—demonstrating low APR sensitivity. This “stickiness” indicates current rewards are sufficient to maintain network security and decentralization.
• Reduce Treasury subDAO allocation from 10% to 5%. As dYdX prices remain depressed, buybacks should be prioritized over Treasury.

MegaVault

We assess whether MegaVault’s 25% revenue allocation delivers enough benefits to justify the cost.

We assess MegaVault performance across three dimensions:

1. incremental trading volume generated,
2. net protocol fee contribution, and
3. strategy returns excluding the incentives distributed.

We then compare these benefits against the actual incentive costs and benchmark alternative incentive structures such as Surge for cost-efficiency

Key Takeaways

• On average, MegaVault costs in incentives 3.24x-3.76x more than front-end Surge rewards to generate equivalent volume and fees. The protocol pays 14x more in incentives than it receives in net fees generated.
• Excluding incentives, MegaVault has delivered since inception -16.7% annualized returns to investors. The strategy has underperformed consistently since inception, with performance declining sharply from March 2025 onward and deteriorating further following October’s market downturn. Without massive incentive support, the product is fundamentally uncompetitive as a liquidity strategy.

Volume Generated

We look historically at how much volume is generated per of TVL in the Megavault. Excluding some brief spikes at the launch of the Megavault and in March 2025, the annualized volume/ TVL in the vault has remained under $200 p.a.

Trading volumes reflect broader DEX market conditions, which have grown significantly year-over-year. To isolate MegaVault’s performance from market fluctuations, we normalize volumes to $15 billion annually—the average DEX volume over the past three months. This provides a more stable baseline for expected performance.

Since May 2025, the annualized average volume generated by the vault has been around 122 per of TVL.

Fees Generated

The MegaVault provides liquidity that facilitates taker trades on the protocol, generating fees both from its own taker trades and from taker trades it supports by supplying liquidity to other users. Since the vault automatically obtains the best positive fee tier, attention can be focused on taker fees generated by other users’ liquidity. For a simplified, optimistic revenue estimate, we assume all vault trades are maker trades (which generate taker fees for the protocol). In September 2025, the average taker fee was 2.9 bps, with the protocol retaining 1.45 bps after redistributing 50% through the Surge Program. Given an average annual trading volume of $122, each $1 in MegaVault capital generates about 1.77 cents in trading fees for the protocol annually, which is relatively low compared to the capital deployed.

Cost to the Protocol

The chart below shows annual Megavault rewards (MegaVault Reward APY) funded solely by dYdX’s 25% revenue share allocation (excluding other fees).

For each $1 of Megavault TVL, dYdX distributes on average $0.25 annually from the revenue share to attract $122 in annual trading volume—yet captures only $0.0177 in annual protocol fees. This means the incentive cost is about 14 times higher than the vault’s benefits to dYdX, making it a low-return initiative. We note that recently, the amount distributed to Megavault users has risen significantly, reaching $0.50 annually per $1 of TVL deposited.

By comparison, the front-end rewards program in September cost $1M, generated $1.58B in volume, and earned $535K in fees, or $267K net after Surge rewards.
Thus, the MegaVault is roughly 3.5 times more expensive than front-end rewards for generating equivalent trading activity.

We also note that introducing a fee holiday on selected markets could be a more cost‑effective way to boost trading volumes, since both current options distribute more rewards than the fees generated.

MegaVault Competitiveness
In this section, we assess the MegaVault’s performance as a product, excluding revenue share. Without incentives, the vault’s annualized return stands at –16.7%. Performance remained stable until March, then declined steadily, with a sharp drop in October following the altcoin flash crash.

To attract liquidity, the protocol must offer substantial incentives—around 35% per year since inception—which is significantly higher than those distributed to standard liquidity pools.

Recommendation

The performance of MegaVault as a market making product has been particularly disappointing since inception and has remained attractive at the cost of large revenue share redistributions. So far Megavault has failed to generate significant value for the protocol in terms of extra volume versus its cost.

We believe that this can be better achieved by other rewards initiatives such as fee holidays, Surge rewards and rewards tailored to front end traders. As a result, we recommend reducing the revenue share. The product needs significant revamping in terms of capital efficiency and performance before allocating significant rewards to the scheme.

Buybacks

Key Takeaways

• dYdX currently allocates 25% of its revenue share to buybacks. At current prices, this accounts for between 1.3% and 1.7% of diluted supply annually.
• Increasing buybacks following a reduction in MegaVault incentives would create more buying pressure and send a positive signal to traders.
• Whilst dYdX price levels remain depressed, we recommend prioritizing buybacks over staking and Treasury DAO allocations. A 75% allocation could buyback up to 5% of total diluted supply annually.
• Based on past announcements from other DeFi protocols, we estimate that this could lead to an average 13.9% price outperformance versus ETH.

Impact on Diluted Supply

Buybacks effectively reduce token inflation and are well-regarded by traders and fundamental investors. The DYDX token, currently depressed after losing 72% over the past year (as of October 21, 2025), makes buybacks especially impactful.

Assuming a $20M annual protocol revenue and various revenue share allocation to buybacks, we analyzed the annual percentage of diluted supply that could be repurchased based on the dYdX token price.

With the token priced between $0.30 and $0.40, current annual buybacks range from 1.25% to 1.67% of diluted supply and they could be increased between 3.75% and 5% should the revenue share allocation increase to 75%.

Impact on Sentiment

Buybacks also boost investor sentiment. To quantify this, we analyzed major 2025 buyback announcements and their impact on token price—excluding ongoing programs like Hyperliquid’s buyback since TGE. On average, the token outperformed ETH by 13.9% in the two days following buyback announcements.

Stakers Allocation

Staking secures the dYdX chain and encourages token holder loyalty, supporting long-term token price appreciation.This section measures staker sensitivity to APR changes analysing the effect of the November 14, 2024 governance vote (proposal 182). The vote reduced staker revenue allocation from 100% to 40%, creating a significant yield decline. We analyze this policy change to determine whether increasing staking rewards would generate substantial buying pressure from stakers seeking to maximize returns.

Key Takeaways

• Despite cutting staking yield from 9.38% to 4.17% by reducing staker revenue allocation from 100% to 40%, staking participation rose from 31.49% to 34.01% of total supply in two months.
• Only 17.9% unstaked, showing strong commitment and confidence among stakers despite lower rewards.
• As a result, a reduction of the revenue share to 15-20% is recommended to prioritize buybacks.

Impact of the Revenue Share Reduction

Historically, DYDX staking has remained relatively stable with no clear relationship to APR fluctuations.

In November 2024, the protocol reduced staker revenue allocation from 100% to 40%, cutting staking yield from 9.38% to 4.17%. Despite the yield reduction, staking participation increased to 34.01% of total supply (247.5M tokens) within two months—up from 31.49% (236.4M tokens).

Only 17.9% of stakers unstaked within two months, demonstrating strong commitment to maintaining their positions

Recommendations

We recommend prioritizing buybacks in light of the depressed DYDX price and the opportunity to create sustained buying pressure and long-term token value. At current levels, the protocol could repurchase up to 5% of total diluted supply annually, ranking dYdX among the top protocols in terms of buybacks. This strategic shift would be funded by reallocating revenue away from the currently underperforming MegaVault—which saw a 72% decline in TVL—and reducing allocations to stakers and Treasury. Increasing buybacks from 25% to 75% of protocol fees is expected to strengthen market confidence and reinforce tokenholder alignment and boost price while supporting the ecosystem’s long-term growth.

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.

[staza]

Thank you. Great and super useful analysis!

[thquattro]

Thank you for this in-depth analysis. Based on the insights we’ve gathered, I believe an allocation of 80% to buyback and 20% to stakers would be ideal. The Megavault is a great product that hasn’t yet reached its full potential, mainly due to a lack of liquidity in my opinion. It should, I think, receive some support from the community treasury to help address this liquidity gap. In any case, we’re clearly moving in the right direction.

[Dmitriy]

Great analysis, but I don’t know - seeing a single -20% candle today, after a -90% drop two weeks ago, and -99% from the all-time high… I’m not sure anything can help at this point. It doesn’t look like a healthy or organic market anymore. The price chart looks more like a rug pull of some meme coin with a $1000 market cap. Any large token purchase is immediately offset by sell orders when you look at the volumes. I don’t know who’s dumping such large amounts at these prices, but it’s clear they’re not interested in the project — which, in turn, makes the project effectively non-viable from an investment point of view.

The token already meets several criteria for being flagged with the “Monitoring → Delisting” tag on Binance.
There are dozens of posts on Binance Square calling for its delisting.

As much as we don’t want to admit it — it looks like the end.
Since Binance updates its monitoring and delisting list quarterly, there are reason to believe the token will be put under monitoring in January and delisted by spring.

[lawrencechiu]

Token price is NOT the end of the story

[Cosmic_Validator]

@nethermind

Increase buybacks up to 75%. DYDX token price has fallen significantly over the past months.

@nethermind

Reduce Treasury subDAO allocation from 10% to 5%. As dYdX prices remain depressed, buybacks should be prioritized over Treasury.

We don’t agree with this, this won’t have any effect to ‘pump’ the DYDX price, most likely the opposite effect, the staking yield is already very low leading to less incentive to buy DYDX to stake it. Moreover, a lower staking yield would lead to further unstaking and selling of DYDX leading to a negative price impact. Thirdly, the revenue for validators is so low already while the infrastructure and bandwidth costs are some of the highest in Tokyo. The evidence of this is that many dYdX validators have been winding down and to stop this trend and keep the network with enough validators and decentralized the staking rewards % need to be increased, certainly not reduced

@nethermind

Based on past announcements from other DeFi protocols, we estimate that this could lead to an average 13.9% price outperformance versus ETH.

This is just pure speculation

@nethermind

Reducing stakers allocation from 40% to 15% - 20%. Despite declining yields over the past year, stakers exhibit strong retention—demonstrating low APR sensitivity. This “stickiness” indicates current rewards are sufficient to maintain network security and decentralization.

This is just not true. The ‘stickiness’ is because the dYdX treasury subDAO, the Foundation and other entities keep the tokens staked, but regular stakers have been leaving due to the low yield and also validators have been leaving because a low staking yield means low validator revenue. The network security and decentralization doesn’t depend only on the stakers variable but in the validators as well, the number of dYdX validators has been dangerously decreasing, the active set was reduced already to 50, but then it had to be reduced to 42 because even there were 50 spots available so many validators have been leaving that there weren’t even enough validators to fill the 50 spots. At this rate, the network will become more centralized over time with just a few validators controlling the network going back to the start, since dYdX v3 moved to v4 and out of Ethereum precisely to improve its decentralization with a decentralized validator set that keeps the orderbook decentralized, and Nethermind is suggesting once again ideas that hurt dYdX’s decentralization. Following the previous proposals of Nethermind what results did we see? Drop in dYdX price, drop in trading volumes, drop in staking yields, many validators winding down operations. The goal and priority right now for dYdX should be 1)How to increase trading volume and remain competitive for the long term and 2)How to increase the revenue for validators so that enough validators remain for the long term with quality infrastructure to ensure that dYdX can remain reliable and decentralized. I recommend to keep 25% for buybacks, 10% for Treasury subDAO and 65% for stakers. Or much better this proposed solution by @staza ‘Proposed Value (for Trial): 100% to buybacks for three months (November 1, 2025 - January 31, 2026); staking rewards for validators/stakers paid from Community Treasury at levels matching current 40% share (estimated ~$2-4M over three months based on annualized fees). Megavault liquidity program remains funded at current levels via treasury if needed to maintain competitiveness.’

Analysis and Proposals on dYdX Chain and DYDX Tokenomics

Introduction Since the genesis of dYdX Chain on October 26, 2023, dYdX Chain has generated $232B in trading volume and distributed $39M in USDC to dYdX Chain validators and stakers. On August 12, 2024, dYdX Trading announced the dYdX Unlimited software featuring significant improvements to the dYdX Chain open-source software, such as permissionless market listings, MegaVault, the potential for revenue sharing, and an Affiliate Program, among other things. Despite product achievements, the DYDX…

Also, Nethermind originally suggested: ‘Protocol Revenue Distribution
a. 50% of all protocol revenue routed to the MegaVault.
b. 10% of all protocol revenue routed to the Treasury subDAO.’, so initially Nethermind suggested up to 50% protocol revenue removed from stakers and used for Megavault, now Nethermind admitted Megavault was a failure and recommends 0% distribution for Megavault. Initially Nethermind didn’t suggest or even mention any % for Buybacks. The other recommendations of Nethermind to halve the validator set received strong opposition and centralization concerns and was not implemented, and the other suggestion to close the Bridge has now led to a lot of community pressure and upset ethDYDX long term holders. And these failed recommendations of Nethermind were funded with large amounts of money from dYdX Grants which also questions how dYdX Grants is using money that should bring value to dYdX and not the opposite.

Buybakcs were only first mentioned a few months ago in March 2025 dYdX Launches First-Ever DYDX Buyback Program did this buyback program provide any results? In March 2025 the DYDX token price was around $0.65 and currently it is $0.3, over a 50% price drop since the introducion of buybacks. Before the introduction of buybacks the DYDX price was always much higher which shows buybacks didn’t bring any DYDX price ‘pump’ but rather the opposite. I suggest to change the % for Megavault and Buybacks to 0%, for treasury to 5% since it is well funded already and 95% for stakers and it was before and the original idea when moving from v3 to v4

[staza]

Thanks a lot for your comment. Very informative. Can we continue discussion under 100% buybacks DRC? I will answer there

[DRC] Three-Month Experimental Trial: Allocate 100% of Net Protocol Fees to DYDX Buybacks and Fund Validators from Community Treasury

Summary: This DRC proposes a three-month trial to send 100% of dYdX Chain’s net trading fees to DYDX buybacks. This boosts token value accrual, similar to Hyperliquid’s model. During the trial, validator and staker rewards come from the Community Treasury to keep network security strong without splitting fees. The goal is to test better P/E ratios and market cap efficiency amid current undervaluation. It reverts automatically after three months unless governance extends it. This builds on the pr…

[eguegu]

I believe the following fee distribution structure would be preferable:

• Buybacks: 25% → 75%
• Community Treasury SubDAO: 10% → 5%
• MegaVault: 25% → 0%
• DYDX Stakers (Validators): 40% → 20%

The buyback structures of BNB and HYPE have been successful in generating revenue and returning value to holders. Similarly, perpDEX projects like Apex and Aster have attracted significant attention and contributed to increased liquidity through their buyback programs.

An increase in the token price can lead to greater awareness and potentially attract more users to try the platform. Therefore, this should be the top priority.

On the other hand, I think a 0% allocation for the MegaVault is appropriate.

Under its current structure, it does not generate any APR, so there is no incentive for new users to deposit funds. Consequently, there is no reason to allocate capital to it. The focus should first be on designing a Vault that can consistently generate a stable APR of 10-20%.

[Cosmic_Validator]

@eguegu

An increase in the token price can lead to greater awareness and potentially attract more users to try the platform. Therefore, this should be the top priority.

Buybacks were introduced in March 2025, since then the DYDX token price dropped by over 50%. dYdX v4 users are traders and the collateral is USDC, they don’t need any DYDX to ‘use the platform’, the ones who need DYDX to use the platform are the DYDX stakers who buy DYDX to stake and get staking yield, so if you reduce the staking yield dYdX will lose many users who will unstake and sell DYDX because the risk/reward for locking DYDX in staking won’t be interesting anymore and also no new users will buy DYDX to stake. I know several large dYdX stakers who after staking rewards were reduced from 100% to 40% unstaked and sold their DYDX. dYdX v3 on Ethereum initially didn’t even have a token and it worked very well, because as mentioned users only need a stablecoin as collateral for perps trading. Then it created the DYDX token as a governance token still in v3. When it moved to v4 apart from governance token DYDX then become also a staking token to secure the dYdX v4 network and receive part of the trading fee revenue and the DYDX become then necessary as part of PoS to secure the network, so there was an incentive to buy DYDX to stake and get a share of the trading fee revenue. And since then the trading fee revenue itself was very low given the low trading volumen, then this share of the trading fee revenues was even reduced to just 40%, largely reducing the only incentive to buy and hold DYDX

@eguegu

The buyback structures of BNB and HYPE have been successful in generating revenue and returning value to holders. Similarly, perpDEX projects like Apex and Aster have attracted significant attention and contributed to increased liquidity through their buyback programs.

Other PoS projects have some inflation to reward stakers but dYdX is special because there is 0% inflation, staking revenue comes only from trading fee and this revenue has been very low since 2023 when v4 launched. Then this staking revenue was further reduced to just 40% of the trading fee revenue. Other PoS projects can do whatever they want with trading fee revenue because the security of their PoS is separated and based on some inflation mechanism, but in dYdX is totally different so these comparisons are dangerous and flawed

[CryptoCrew]

Thanks for the thorough analysis!

Per CryptoCrew’s standing policy (since 2023), we generally abstain from proposals that directly change reward distributions or incentive allocations (e.g., stakers, buybacks, Treasury, MegaVault), unless there’s a clear security or procedural risk. We leave the decision in the community’s hands and will vote Abstain if this proposal moves on-chain.

Kind regards,
CryptoCrew Validators

[staza]

@CryptoCrew

unless there’s a clear security or procedural risk

But please communicate us back at any point you such such risks.

[AndresNodes.Guru]

Aggressive buybacks can help support the DYDX market narrative, but cutting validator and staker rewards -currently one of the token’s few practical utilities - introduces a tricky trade-off. lower incentives may gradually push smaller and independent operators away, narrowing participation and making the ecosystem feel more centralized over time. Buybacks alone can’t replace organic demand: without stronger participation incentives and real growth in trading volume, this starts to look more like financial engineering than a long-term strategy. Ideally, this shift would be paired with additional mechanisms that keep contributors engaged and motivated, so the network benefits not only from buyback pressure but from healthy, sustainable activity across the stack, and we hope these measures will follow

[thquattro]

That’s why I think increasing the staking revenue by 10% and the buybacks by 25% is a good idea.

[staza]

Thanks. What’s your opinion on this one?

[DRC] Three-Month Experimental Trial: Allocate 100% of Net Protocol Fees to DYDX Buybacks and Fund Validators from Community Treasury

I also support this one to create immediate buy pressure and significantly reduce circulation supply, but conducted within limited period - 3 months and with the following fees structure: Buybacks - 80% Staking - 15%, also we will reward stakers with fixed APR using community treasury to mitigate temporary pressure Community Treasury - 5% Megavault - 0% All remaining unlocks must be postponed Surge - must be stopped in a way it is conducted at this moment. The stake-to-earn initiative like I …

[Nemus_Stakecito]

We at Stakecito support a high buyback model for DYDX. Whether that means 100% for a short trial or 80% in a more balanced setup. What matters most is that a large share of protocol fees goes directly into DYDX buybacks and permanent burns.

Buybacks alone are good, but buybacks with burns are better. When tokens are permanently removed from circulation, every dollar of protocol revenue creates lasting value for holders (not temporary price action that can be reversed later).

If higher buybacks and burns lead to a higher DYDX price, that becomes the strongest form of marketing the protocol can have. A price driven by protocol performance, not emissions, signals confidence and attracts new liquidity, more traders, and deeper staking participation.

We’re flexible on the exact percentage. Whether the community prefers 100% or 80%, both paths move us toward the same goal: real revenue should translate into real token value.

Here’s how we see the natural progression:

• Phase 1: 80–100% Buy & Burn — If needed, treasury temporarily funds validator rewards while impact is measured

• Phase 2: Community review after 3 months — adjust ratios based on data and feedback

• Phase 3: ~50/50 split between burns and staking rewards — long-term, balanced tokenomics

DYDX already has strong fundamentals. Now it’s about aligning incentives so that protocol success flows directly to tokenholders. Buybacks and burns make that link permanent. We’ll support whichever high-buyback configuration the community — stakers, validators, and traders alike — feels most comfortable starting with.

[nethermind]

Thank you for all your feedback on the proposal. We plan to submit the revenue share proposal early next week. The new allocation will be as follows:

• Buybacks: 75%
• Stakers : 15%
• Community Treasury: 5%
• MegaVault: 5%

[staza]

There is another DRC for 80% to buybacks for 3 months which passed preliminary voting.

[moshen]

good,I fully support your proposal.

[Cosmic_Validator]

@staza analyzed the three revenue share models with data and numbers , coming to the conclusion that model 3 (95% for stakers and 5% for treasury) provides the best results: 80% of fees to buybacks for 3 months - #64 by staza

Also he already submitted a proposal for a trial period with 80% buybacks why are you now submitting a redundant and same proposal? Nethermind a year ago presented four proposals for dYdX, yet Nethermind didn’t even take the time to study how dYdX works, in their report they thought that dYdX staking rewards come from inflation of the token rather than trading fee revenue: Analysis and Proposals on dYdX Chain and DYDX Tokenomics - #3 by Cosmic_Validator All the proposals that Nethermind presented last year were a failure. Megavault was a failure, another proposal a failure before even going to voting so it wasn’t voted, the trading volume didn’t increase and closing the bridge was also a failure leading to all the recent drama regarding the bridge closure

[staza]

(post deleted by author)