Simple Summary
This proposal seeks community approval to transfer 10M USDC from the Insurance Fund to three independent recipients:
- 2.5M USDC to the dYdX Operations SubDAO
- 2.5M USDC to the dYdX Foundation
- 5M USDC to the dYdX Treasury SubDAO
The remaining amount (~7M USDC) will be retained in the Insurance Fund as a protocol backstop.
Abstract
The Insurance Fund is one of the protocol backstops against trader insolvency on dYdX Chain. It is continuously funded by the liquidation penalty and currently holds approximately $17M USDC. Stress testing against current and projected open interest levels demonstrates that a ~$7M retained buffer should prove sufficient to absorb losses in various realistic adverse scenarios given the protocol’s per-market risk parameters and liquidation engine, including events materially exceeding the most severe incidents recorded on the protocol to date.
This proposal seeks to transfer 10M USDC from the Insurance Fund to address three independent pressing capital needs:
- Extending operational runway for the dYdX Operations SubDAO, whose DYDX-denominated budget has substantially depreciated since the last community fundraise
- Providing the dYdX Foundation with additional resources to support ecosystem development for an extended period of time. This follows the diligent utilization of the initial three-year community funding from January 2024, which is now nearing its conclusion
- Providing the dYdX Treasury SubDAO with an additional discretionary USDC reserve, which may be used for additional yield generation activities, strategic initiatives when they arise, buybacks or other purposes within the limits of the Treasury subDAO’s community mandate
The proposal, if enacted, would leave the Insurance Fund with a remaining balance of ~7M USDC, which shall remain as a protocol backstop, unless otherwise agreed by the community via governance.
Motivation / Rationale
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The Insurance Fund’s ~$17M current balance has grown steadily through liquidation fee accruals, accruing approximately $613K per month on average, but has not been materially drawn upon since the October 2025 Chain Incident, which compensated user losses in the amount of 462K USDC.
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Against a current open interest of approximately $60M, the fund represents a 28.3% coverage ratio (11.7% after the $10M withdrawal). Stress test analysis (see the Risk Analysis section below) demonstrates that $7M should be an appropriate minimum buffer; the remaining $10M is therefore idle capital, producing no outputs or returns for the ecosystem, while the dYdX community faces genuine capital constraints across its operational entities.
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The dYdX Operations subDAO is responsible for operating and enhancing the infrastructure for the dYdX Chain. Its third mandate (approved in September 2024) budgeted approximately a $23.3M spend over 36 months. The most recent DYDX funding tranche of $11.65M (approved in March 2025) was valued at approximately $1.16M at the time of writing, given the DYDX token’s price decline to $0.09, representing more than a 90% reduction from the assumed price at the time of mandate approval. The Operations subDAO’s stablecoin reserves are projected to sustain operations only through May 2026. A 2.5M USDC allocation would provide a stablecoin-denominated runway for the Operations subDAO until February 2027. The Operations subDAO may require additional funding in the future if it is required to operate beyond that date.
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The dYdX Foundation is a Swiss non-profit entity whose statutory mandate encompasses governance enablement, community support, fostering ecosystem growth and adoption, promoting technical and strategic integrations, global marketing and communications, and brand protection, among other things. The Foundation’s expenses, such as staffing, legal, contractors, and events, are predominantly USD-denominated, making DYDX an inefficient funding currency, especially at current prices. A 2.5M USDC allocation would provide an estimated extended runway through January 2028, allowing the Foundation to preserve the status quo and continue executing on its mandate without needing to fully liquidate its remaining DYDX holdings.
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The dYdX Treasury subDAO was established to handle key financial responsibilities within the dYdX DAO, including diversifying assets received from the Community Treasury and generating returns to ensure adequate runway, and providing financial planning, funding, and operational support for the DAO. A 5M USDC allocation would strengthen the Treasury subDAO’s balance sheet with a solid stablecoin reserve, supporting its asset diversification and yield generation strategies without requiring DYDX sales and further increasing the subDAO’s potential resources for the DYDX Buyback Program.
Specification
This proposal seeks the dYdX community’s approval for the transfer of 10M USDC from the dYdX Chain’s Insurance Fund (dydx1c7ptc87hkd54e3r7zjy92q29xkq7t79w64slrq) to three independent recipients, as follows:
| Recipient | Address | Amount | Purpose |
|---|---|---|---|
| dYdX Operations SubDAO | dydx1p0wrtn732ecpgzrf4lzqvf9sswy9pya9p85m8x |
2.5M USDC | USDC-denominated operational funding to extend stablecoin runway and support critical protocol infrastructure and engineering services. |
| dYdX Foundation | dydx1he0e9veu60gmcry2d9yqhafm0t0cpmnq5hdytu |
2.5M USDC | Ecosystem grants, governance support, developer relations, brand protection, regulatory engagement, and operational readiness in support of protocol milestones. |
| dYdX Treasury SubDAO | dydx1vx93pwuxf7j5c90tukj084ka26fclcjuqdmw2a |
5.0M USDC | Strategic discretionary reserve for yield-generation strategies, additional DYDX buybacks, or other activities within the Treasury subDAO’s community mandate. |
Risk Analysis
The Insurance Fund’s purpose is to backstop liquidation shortfalls, i.e. to offset any negative equity remaining after a position has been fully liquidated at market price. In practice, even during severe market stress events, net shortfalls from liquidations are a small fraction of the total liquidation volume. The most recent dYdX Chain incident (October 2025) resulted in a ~$462K net compensation draw on the fund; a modest sum relative to the fund’s current balance.
The Insurance Fund address referenced in this proposal (dydx1c7ptc87hkd54e3r7zjy92q29xkq7t79w64slrq) holds the cross-margin insurance fund exclusively. It backstops the 109 cross-margin markets currently listed on dYdX Chain. The fund is also not the protocol’s sole line of defence against insolvency; two additional safeguards apply before any systemic risk can materialize.
Should the Insurance Fund prove insufficient to cover a shortfall, the protocol activates a deleveraging mechanism (ProcessDeleveraging) that socializes remaining losses to profitable counterparties; the fund reaching zero does not halt the protocol. Additionally, the protocol also enforces a maximum insurance fund payout per subaccount per block (currently ~1M USDC), throttling drainage speed in a stress event and providing time for deleveraging to activate before the buffer is exhausted.
The table below models Insurance Fund coverage adequacy across three open interest levels: current ($60M), 30-day high ($80M), and 90-day high ($120M), showing estimated shortfall ranges per scenario and the buffer’s break-even point at each OI level.
Note: The OI figures used represent total OI. As the Insurance Fund backstops cross-margin positions only, the effective coverage ratio for cross-margin positions is higher than presented. Isolated-market OI is included in the denominator without drawing on this Insurance Fund.
| Scenario | $60M OI (current) | $80M OI (30d high) | $120M OI (90d high) | Notes |
|---|---|---|---|---|
| IF / OI ratio (proposed IF minimum) | 11.7% | 8.75% | 5.8% | Buffer as % of open interest |
| Oct 2025-type incident (~$462K net loss) |  ~15× coverage |
~15× coverage |
~15× coverage |
This was an operational chain incident, not a market-driven liquidation cascade; shortfall reflects a one-time compensation event and is not expected to scale with OI. However, for reference, the total OI at the time of the incident was ~$168M. |
| High volatility liquidation day | $150K–$600K |
$200K–$800K |
$300K–$1.2M |
This figure represents the expected insurance fund shortfall on a high-volatility day, not total liquidation losses. Assuming 25–50% of OI is liquidated in such a scenario, the shortfall produces the ranges in this row. |
| Moderate targeted attack | $1M–$3M |
$1.5M–$4M |
 $2M–$5.5M |
Probability materially reduced on cross-margin markets due to tighter per-market risk parameters and faster liquidation engine vs. v3. |
| v3 YFI-scale attack replicated on v4 | $4M–$9M |
$4M–$9M |
 $5M–$9M+ |
Attack ceiling constrained by target market’s liquidity depth and position limits, not total protocol OI; range is largely OI-independent for this reason. Probability materially reduced on cross-margin markets due to tighter per-market risk parameters and faster liquidation engine vs. v3. |
| Black swan: net loss of 5% of OI as liquidation shortfall | $3.0M |
$4.0M |
$6.0M |
Simultaneous failure across BTC, ETH, and all majors |
| Breaking point (buffer fully exhausted) | 11.7% of OI | 8.75% of OI | 5.8% of OI | $7M ÷ OI — shortfall % needed to exhaust the buffer |
Key Observations
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The proposed $7M Insurance Fund buffer would provide sufficient coverage across all three OI levels for every realistic scenario analysed, including a repeat of the October 2025 incident (~$462K losses covered) and high-volatility liquidation days.
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The only analyzed scenario where the buffer could prove insufficient would be a v3 YFI-scale manipulation attack; this is materially less probable on the dYdX Chain due to tighter per-market risk parameters, position limits, and a faster liquidation engine relative to v3.
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At $120M OI, the 5% black swan scenario would result in an estimated $6M shortfall, which would also fall within the buffer, leaving approximately $1M of remaining funding in the Insurance Fund.
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The community should consider revisiting the Insurance Fund minimum balance if OI grows substantially beyond the $120M mark. Additionally, as an ongoing monitoring measure, an IF/OI ratio falling below 5% should serve as a standing signal to evaluate replenishment options via governance. In the event that a stress incident drives the buffer below the $7M floor, the Treasury SubDAO will prioritize using its discretionary reserve to replenish the Insurance Fund.
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The break-even shortfall ratio (the percentage of total OI that must simultaneously become negative equity to exhaust the buffer) is well above any historically observed shortfall rate on dYdX or comparable perpetuals protocols.
Additional Notes
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The dYdX Operations subDAO, the dYdX Foundation and the dYdX Treasury subDAO are all fully autonomous organisations, completely independent from each other. It is only due to governance efficiency reasons that the fundraising proposals for each of the three independent entities have been combined into a single community proposal.
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Each of the dYdX Operations subDAO, the dYdX Foundation and the dYdX Treasury subDAO shall use and allocate any funding received from the dYdX community as a consequence of this governance proposal in accordance with, and subject to, their respective corporate and community mandates, as applicable.
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Should this proposal pass, the dYdX Operations subDAO and the dYdX Foundation each commit to using the funds received from the community in a diligent and professional manner, in line with their respective corporate and community mandates (as applicable), and undertake to return any unused, outstanding funds, upon the conclusion of their mandate or their dissolution (as applicable), to the community (which may include transferring the outstanding funds to a dYdX subDAO), to the extent and in the manner permitted by law.
Next Steps
We invite the community to provide feedback on this proposal. If there is no objection, we will proceed with testing the proposal on the testnet. Once done, we will submit the community spending proposal on-chain by March 30, 2026 at the latest.
