Overview
Chaos Labs is pleased to provide a comprehensive review of the seventh trading season on the dYdX Chain. This analysis encompasses all facets of exchange performance, emphasizing the impact of the Launch Incentive Program.
We are diligently fine-tuning the incentives, ensuring they effectively meet their intended goals. By monitoring a broad spectrum of indicators, we aim to understand the rewards program’s dynamics and outcomes.
Key Stats:
- dYdX Chain has seen over 20bn in trading volume across 180 live markets.
- Over 7300 traders were active through season 7 of the launch incentive program.
- Funding rates in major markets continue to be muted on the dYdX Chain this season. This can be attributed to low volatility and a maturation of the ecosystem.
- The dYdX Chain has grown to approximately $390m USDC in TVL deposited on the exchange at the end of season 7, up 37% from the beginning of the season.
dYdX Chain Trading
The dYdX Chain has seen over $20bn in trading volume across 180 live markets. This is an increase of 33% compared to the preceding 30-day period.
Open interest has increased significantly over the season from $386m to $449m, an increase of 16%.
Open interest fluctuates significantly with market conditions, but the overall trend is consistently higher peaks and higher troughs.
Traders have paid almost $45m in fees to stakers securing the dYdX Chain since inception. $4.3m of this came in season 7 of the launch incentive program.
dYdX Chain Liquidity
A focus of the program in its current iteration is growing liquidity across all markets to improve the trading experience for users.
Liquidity in the majors, as measured by median liquidity within 100bps, has continued improving, particularly in the more developed markets. Large markets’ now have over $1 000 000 in liquidity within 100bps most of the time.
See the table below for liquidity trends in some major markets.
| Market | Current | Preceding 30 day | Change |
|---|---|---|---|
| BTC-USD | $16,979,517 | $8,118,849 | 109% |
| ETH-USD | $14,309,282 | $6,620,551 | 116% |
| SOL-USD | $6,800,252 | $2,977,961 | 128% |
| DOGE-USD | $2,150,501 | $435,445 | 394% |
| AVAX-USD | $1,726,393 | $318,065 | 443% |
| ADA-USD | $1,663,514 | $287,249 | 479% |
| XRP-USD | $1,541,932 | $285,515 | 440% |
| DOT-USD | $1,478,128 | $286,181 | 417% |
| LINK-USD | $1,377,194 | $346,899 | 297% |
| LTC-USD | $581,142 | $217,017 | 168% |
The impact has been broad across markets, with the number of markets with over each level of average liquidity within 1% tracked increasing dramatically over season 7.
| Orderbook Liquidity | Above $1000k | Above $500k | Above $250k | Above $100k | Above $50k | Above $10k | Total Liquidity ($m) |
|---|---|---|---|---|---|---|---|
| 30 days ago | 4 | 4 | 17 | 47 | 50 | 71 | 33 |
| Now | 14 | 36 | 50 | 67 | 68 | 92 | 77 |
Funding
Average funding rates in most major markets have increased with the rapid growth in open interest over season 7. This has been relatively in line with funding rate behavior elsewhere, and we continue to take comfort in the convergence to the broader market as a sign of maturation.
| Market | Average | Median | Max | Min |
|---|---|---|---|---|
| BTC | 34.70% | 31.65% | 200.17% | -30.77% |
| ETH | 46.34% | 44.73% | 140.38% | -80.37% |
| SOL | 44.39% | 41.01% | 170.05% | -48.07% |
| XRP | 44.70% | 43.53% | 216.37% | -89.13% |
| DOGE | 53.93% | 50.75% | 205.97% | -74.90% |
| ADA | 35.79% | 32.08% | 138.74% | -9.86% |
| LINK | 37.30% | 32.36% | 130.41% | -15.77% |
| DOT | 29.21% | 20.75% | 127.79% | -19.05% |
| AVAX | 41.47% | 39.86% | 112.13% | -0.44% |
| LTC | 26.10% | 17.19% | 246.92% | -32.19% |
Liquidations
The BTC market experienced the highest volume of liquidations during Season 7. There were $82m in BTC liquidations, followed by $59m ETH liquidations over the season out of a total value liquidated of $185m.
The insurance fund now sits at over $10.8m, bootstrapped predominantly by protocol liquidation fees. Over $923k of this came over season 7.
TVL and Deposit Metrics
USDC deposits continue to grow, providing a potential leading indicator to further growth in trading volumes.
At the end of Season 7, approximately $390m USDC was deposited in the app on the dYdX Chain, up 37% from $285 USDC at the start of the season.
Program Efficiency Metrics
Much of the above analysis focuses on aggregate metrics, which can be influenced by a small number of traders. Our analysis of the program also encompasses a bottom-up assessment of the impact it has in growing the number of active traders.
This section provides a deep dive into trader-level metrics to highlight the program’s impact across a range of dimensions. This, in turn, forms the basis for the long-term projections around the program’s impact and efficiency.
Daily and Weekly Active Traders
The number of weekly active traders in season 7 has been fairly consistent, and marginally higher than season 6. The reduced new deposit bonus numbers and removal of streaks bonuses have been the biggest drivers in the reduction vs earlier seasons.
Growing the number of average daily and weekly active traders on dYdX is a guiding principle of the Launch Incentive Program, and significant care is taken to ensure that the incentives appeal to a diverse segment of traders.
| Week | Average Daily Active | Weekly Active | Average Weekly Volatility |
|---|---|---|---|
| 2024-07-29 | 1019 | 1711 | 45.70% |
| 2024-08-05 | 1069 | 2800 | 78.31% |
| 2024-08-12 | 894 | 1856 | 45.98% |
| 2024-08-19 | 1035 | 1899 | 38.63% |
| 2024-08-26 | 1095 | 2233 | 36.66% |
| 2024-09-02 | 1107 | 2022 | 39.44% |
| 2024-09-09 | 1131 | 1976 | 36.57% |
| 2024-09-16 | 1190 | 2040 | 36.73% |
| 2024-09-23 | 1272 | 2175 | 29.54% |
| 2024-09-30 | 1348 | 2441 | 35.47% |
| 2024-10-07 | 1306 | 2242 | 32.18% |
| 2024-10-14 | 1449 | 2481 | 33.61% |
| 2024-10-21 | 1543 | 2716 | 28.74% |
| 2024-10-28 | 1644 | 2899 | 32.75% |
| 2024-11-04 | 1958 | 3475 | 42.58% |
| 2024-11-11 | 2277 | 4225 | 57.39% |
| 2024-11-18 | 2365 | 4176 | 40.48% |
| 2024-11-25 | 2287 | 4435 | 35.36% |
| 2024-12-02 | 2555 | 4527 | 42.76% |
| 2024-12-09 | 2310 | 4657 | 39.27% |
| 2024-12-16 | 2376 | 4049 | 43.78% |
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Weekly active traders are defined as traders who make at least one trade during a week.
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Volatility is measured as the variance of minute-by-minute log returns of BTC. This short time frame accurately measures the volatility experienced by dYdX Chain traders in its largest market better than the traditional daily volatility.
Trader Engagement
Trader engagement is defined as how frequently the active user interacts with the dYdX Chain. This is analyzed across a few dimensions. The ratio of average daily active users to weekly active users broadly signals what portion of weekly active traders make a trade on a given day in the week. When this ratio is high, more traders find value in the product and return for this utility.
From a Launch Incentive Program perspective, the incentives should appeal to traders who are likely to become more regular traders and, therefore, likely to be stickier over the long term.
Another measure analyzed is the number of days traders have been active during season 7.
Weekly Trader Breakdown and Retention
Season 7 has seen a further increase in the number of returning traders, and a stabilization in the rate new traders are using the exchange. The stabilization in new traders can be attributed to base effects after the reduction in new trader bonuses.
- Note the apparent drop off in the most recent week is due to it being a partial week.
The weekly trader retention rate has remained volatile and remained constant over season 7. The increase in returning traders seen above combined with the changing weekly retention rate and low volatility indicate that traders remain active on dYdX, but choose to trade only when markets are interesting.
The marginal weekly trader retention rate shows how likely it is for a trader who has traded for a certain number of weeks to trade for one more. This is a slightly different methodology from the retention rate above, as returning traders are treated the same as retained traders here, hence the higher retention numbers.
What is apparent is how much better traders retain the more weeks they have been active. The goal is to get a trader active for at least six weeks, as the data suggests traders are incredibly sticky.
Marginal Weekly Trader Retention Rate
| Week | Retention Rate |
|---|---|
| 1 | 56.77% |
| 2 | 74.70% |
| 3 | 86.55% |
| 4 | 83.25% |
| 5 | 89.13% |
| 6 | 86.82% |
| 7 | 82.35% |
| 8 | 89.77% |
| 9 | 94.84% |
| 10 | 90.31% |
Summary
There are many aspects contributing to the growth in the dYdX Chain since the Launch Incentive Program began. Attributing growth to specific factors is not an exact science, and we acknowledge the impact market conditions have on trading activity. Given that, here are some highlights from our analysis:
- Traders spent $4.3m in fees during season 7, and the program will pay out $1.5m in rewards.
- Over 7300 traders used dYdX Chain during season 7.
Disclaimer
This report is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Chaos Labs. No reference to any specific security constitutes a recommendation to buy, sell, or hold that security or any additional security. Nothing in this report shall be considered a solicitation or offer to buy or sell any security, future, option, or other financial instrument or offer or provide investment advice or service to any person in any jurisdiction. Nothing contained in this report constitutes investment advice or offers any opinion with respect to the suitability of any security, and the views expressed in this report should not be taken as advice to buy, sell, or hold any security. The information in this report should not be relied upon for investing. In preparing the information in this report, we have not considered any particular investor’s investment needs, objectives, and financial circumstances. This information has no regard for the specific investment objectives, financial situation, and particular needs of any specific recipient of this information, and the investments discussed may not be suitable for all investors. Any views expressed in this report were prepared based on the data available when such views were written. Changed or additional information could cause such views to change. All information is subject to possible correction. Information may quickly become unreliable, including market or economic changes.
Throughout the program, Chaos Labs’ role is confined to providing recommendations regarding the allocation of rewards. The actual implementation and distribution of said rewards are subject to the formal approval process of the dYdX Chain governance votes. Any actions pertaining to reward distribution shall only be executed following affirmative governance votes within the dYdX Chain framework.