DRC - V4 Adoption & DYDX Token Migration to dYdX Chain

Proposals
1

Summary

Wintermute is proposing the following:

  1. The dYdX community will adopt the dYdX v4 open-source software (if and when deployed on mainnet) as the next version of the dYdX protocol (Snapshot),
  2. The dYdX community will adopt DYDX as the L1 token of the dYdX Chain (if and when deployed on mainnet) (Snapshot),
  3. The dYdX community will adopt the Ethereum smart contract (the “Ethereum Smart Contract”) commissioned by the dYdX Foundation that, if deployed, would enable a permissionless and autonomous one-way bridge for the DYDX token to be migrated from Ethereum to the dYdX Chain (Snapshot),
  4. The dYdX community is recommending that dYdX Chain validators should reference the Ethereum Smart Contract commissioned by the dYdX Foundation when distributing DYDX on the dYdX Chain (Snapshot), and
  5. wethDYDX will have the same governance and utility functions as Ethereum-based DYDX (“ethDYDX”) on dYdX v3 (On-Chain: Long Timelock).

Proposal items 1-4 do not require any smart contract changes and as such, can be ratified by a Snapshot vote. Note, we are planning to include proposal items 1-5 in the same Snapshot vote given that there is significant overlap in the subject matter of each proposal item.

A Long Timelock proposal requires 20M DYDX of proposing power. Currently, Wintermute has 10,022,389.47 DYDX proposing power - meaning we still need ~9,977,611 proposing power. If the Snapshot vote is successful, please consider delegating the proposing power associated with your DYDX to Wintermute (at the following address: 0xB933AEe47C438f22DE0747D57fc239FE37878Dd1), so we can create the Long Timelock vote!

Note, DYDX holders have the option of delegating proposing power, while retaining the voting power associated with their DYDX tokens.

Description

The potential mainnet launch of the dYdX Chain is quickly approaching. On August 3, 2023, dYdX Foundation published “Exploring the Future of DYDX: A take on the Potential Migration of DYDX from Ethereum to the dYdX Chain” and explained that, as a Proof-of-Stake blockchain network, the dYdX Chain, if and when deployed on mainnet, will require a Layer 1 (“L1”) protocol token for staking to validators in order to secure the chain and for stakers of the L1 token to govern the network.

As a result, the dYdX Foundation announced that it has commissioned the development of an Ethereum Smart Contract that, if deployed, would enable a permissionless and autonomous one-way bridge for the DYDX token to be migrated from Ethereum to the dYdX Chain. In return for bridging, users will receive wethDYDX which will have the same governance and utility functions as Ethereum-based DYDX (“ethDYDX”) on dYdX v3 (On-Chain: Long Timelock).

We are in support of the dYdX v4 open-source software - dYdX Chain becoming the next version of the dYdX protocol and the current DYDX token, an Ethereum-based ERC-20 token, being migrated from Ethereum to the dYdX Chain to be adopted as the L1 token of the dYdX Chain. Therefore, we are putting this proposal forward for the dYdX community’s consideration.

Implementation

Proposal items 1-4 do not require any smart contract changes and as such, can be ratified by a Snapshot vote. Note, we are planning to include proposal items 1-5 in the same Snapshot vote given that there is significant overlap in the subject matter of each proposal item.

Under proposal item (5) - wethDYDX governance and utility functionality, we will create and share the on-chain implementation if the Snapshot vote is successful.

Next Steps

We’d love to request feedback from the community surrounding these changes. Pending community discussion, we are targeting the following vote creation dates (subject to change):

  • Snapshot vote creation - August 27-28, 2023
  • Onchain vote creation: Long Timelock - September 1-8, 2023

The Snapshot vote will be a binary vote, with voting options:

  • Yes - Implement the proposed changes
  • No - Do nothing.
16 Likes
2

Hey @Callen_Wintermute ,
I have a question about the wethdydx token. When I send my ethdydx token to the contract, in return the contract sends me wethdydx. However, when the validator on v4 gives me L1 tokens on the dydx chain instead of my wethdydx, my wethdydx becomes locked. What exactly does it mean when my wethdydx is locked? Is my wethdydx completely taken out of circulation or is it just locked in my wallet without the ability to move, but still retains governance rights on V3?
Hope I made my question clear.
Thanks.

3 Likes
3

Regarding @RealVovochka’s question, it might be good to clarify:

  1. Will wethDYDX be a standard ERC-20 token?
  2. Will wethDYDX implement additional interfaces? For example, will users be able to transfer wethDYDX between Ethereum addresses or will it be frozen (ala ERC20Pausable)?

Either way, it seems that successfully passing Proposal #5 is crucial to ensuring that governance on Ethereum will remain functional throughout the transition to v4. Thanks @Callen_Wintermute for putting this together!

2 Likes
4

Thanks @Callen_Wintermute for putting together this proposal. We also believe that it’s critical to ratify those changes sooner rather than later and get ready for the v4 release.

We are in favor of the proposal as long as we clarify the details of wethDYDX described in the item 5. The key question is whether wethDYDX is transferrable, thus tradable or not. According to a limited usage of the token, we can consider having it frozen to the wallet that bridged the original DYDX to the new chain.

We also encourage large token holders to delegate their proposing power to Wintermute so that we can smoothly make this proposal proceed, or have critical discussions until we can reach to the clearer proposal to be passed.

5 Likes
6

In the steps outlined under Overview of the Potential Migration of DYDX from Ethereum to the dYdX Chain in the blog post published by the dYdX Foundation, wethDYDX is not locked.

"When interacted with, the one-way bridge Ethereum Smart Contract would carry out the following functions in a fully permissionless and automated manner:

Step 1: Receive and permanently lock the Ethereum-based DYDX tokens sent by the user to the Ethereum Smart Contract;

Step 2: Send a wrapped version of the Ethereum-based DYDX token (“wethDYDX”) to the user on a 1-1 proportional basis on Ethereum; and

Step 3: dYdX Chain validators can also read and ingest the information in the Ethereum Smart Contract such that corresponding DYDX can be distributed to users by validators on the dYdX Chain (if and when deployed) once there is confirmation that Step 1 above is complete and the Ethereum-based DYDX is permanently locked in the Ethereum Smart Contract."

Thanks!

4 Likes
7

There will be more information available about the Ethereum Smart Contract in the near future.

Thanks!

@tane

4 Likes
8

So if I understand correctly I will get 2 tokens instead of my ERC20 dydx one. One native in dydx chain and second one (wethdydx) that can govern v3?

1 Like
9

Hello @Callen_Wintermute and community,

I fully support this proposal for dYdX v4 adoption and DYDX token migration.

I also agree with @tane that large token holders should delegate proposing power to Wintermute to meet the 20M DYDX target and move this forward smoothly.

3 Likes
10

I believe this is correct yes!

and thanks for your support @CipherLabs

1 Like
11

Hey everyone, am strongly in support of the proposal regarding DYDX token migration to an independent blockchain and the version 4 migration process.

Together we can achieve that, thanks in anticipation.

1 Like
12

I just want to know when DYDX will be able to control the inflation of tokens? Are there any plans to adopt deflation? Have you considered empowering DYDX tokens? Why hasn’t a definitive answer been given to the question that the community has been concerned about for so long?

13

DYDX token holders already have full control over protocol token spending (inflation) through governance (e.g., LP rewards and trading rewards) so not too sure where you are getting this from?

There have been multiple changes to:

  • reduce LP rewards
  • reduce trading rewards
  • wind down the safety module
  • wind down the USDC staking pool
2 Likes
14

@Callen_Wintermute

Yeah, the rewards got reduced, but some parts of the new rewards system design are still a bit unclear. Maybe it’s just me not understanding it fully from this Topic.

From what I gather, for the first little while, up to 99% of fees will be given back as rewards in dydx tokens. That percentage will be lowered through voting once the liquidity migrates from V3.

My question is, what token will validators receive their rewards in? USDC or the native dydx token?

I’m also not sure if there will be any limit on dydx token rewards per block.

Overall, this trading rewards + stake rewards system (especially with the 99% fee return in the beginning) seems like an open invitation for wash trading. Someone with a big stack can get both rewards and a portion of fees from the validator. So their Rakeback (using a term from poker) would end up being >100%.

I totally support this proposal, but I think we need to clarify important points.

15

The circulation of 1 billion is too large. Now, the impact of transaction mining on the growth of DYDX’s transaction volume has been very small. We hope to start deflation of DYDX tokens. The total amount of DYDX tokens should be controlled at 500 million, or the DYDX tokens Coins are used as the gas fee of the DYDX chain.

16

I don’t believe that funding the rewards module is relevant to this proposal; I think it’s good practice to stay focused on individual discussions, especially since this one is critical for migrating to v4. We may separately open a new thread to discuss trading rewards on v4, or refer to this topic.

In response to @RealVovochka's question

There are two limits to DYDX token rewards per-block, which are controlled by the “Emissions” parameter (how much the module gets funded every block) and the"Discount" parameter (max discount on fees each trader can receive). Both parameters are controlled by governance. In short, there are certainly limits to how much governance will pay in rewards. Hope this answers your question!

3 Likes
17

That’s right but here we discuss the possibility to have dydx as native token so the discussion of it’s utility is important in my opinion. We will discuss the trading rewards in separate topic.

18

Hello!
I represent the Singapore investment crypto fund - YTWO

YTWOFUND is a validator with a team of experienced crypto enthusiasts led by the YTWO Foundation.
We are here to enrich the crypto ecosystem through education and serve as gateway of Blockchain services.

YTWO - We are a licensed company registered in Singapore.
We have created a monitoring and alerting system that allows us to keep our servers online 24/7.
We have online education platform and courses for crypto investors, private club for investors and crypto community in CIS.

Contacts
Website: Validator | YTWO Fund
Twitter: https://twitter.com/YTWOFUND
GitHub: YTWOFUND (YTWOFUND) · GitHub
Email: ytwofund@gmail.com

Validator: Persistence | Keplr Dashboard

Who can we contact to discuss possible validation?

19

Hey, great to see this discussion! I would like to seek some additional clarity on a couple of items, knowing this is already on snapshot.

Trying to better understand the implications on governance and the value tokens derive from it.

Iiuc, wethDYDX would govern v3, while v4 will be governed by DYDX on dYdX chain. Is that accurate?

Once on V4, I am assuming there will be new DYDX tokens distributed on dYdX chain. If so, does it mean wethDYDX and DYDX on V4 will go out of sync and become two different tokens as far as circulating supply means?

  • new DYDX tokens distributed on V4 as part of block-to-block emissions and protocol incentives
  • new wethDYDX tokens distributed on mainnet only when circulating ethDYDX is bridged over to V4

It is hard for me to picture a lot of value on wethDYDX if v3 goes thru a sunset phase after migration to v4.

Appreciate the time going thru these questions, especially if those are dumb ones :pray:

1 Like
20

All you need is to read through the various topics where all your questions are discussed as topics. I assure you, all your questions are already answered…

1 Like
21

On behalf of @Callen_Wintermute, the Snapshot was live and now closed with 100% voted as Yes. Apparently, DeFiance Capital sponsored their proposing power to make a proposal.

2 Likes