Incentivization for Front End Hosts

Hello dYdX Community,

As the ecosystem evolves with more individuals and entities hosting front ends, addressing the operational, legal, and financial overheads becomes crucial. Beyond the technical undertaking, front-end hosting entails legal compliance, company infrastructure, server costs, financial licenses, and ongoing maintenance.

I propose an incentivization model where front end hosts receive a portion of the fees generated from the trading volume facilitated through their platforms. This not only compensates for the costs incurred but also incentivizes more hosts to join the ecosystem, decentralizing the platform further.

Moreover, introducing such an incentivization model could spark healthy competition among front-end hosts. This competition could lead to enhanced user interfaces, additional features, and overall improved user experiences as hosts strive to attract more users to their platforms. Consequently, users of dYdX could benefit from better and more diverse front-end options, each host potentially specializing in different areas or providing unique value propositions.

The specifics of the fee-sharing percentage and other incentivization mechanisms warrant a thorough community discussion. Hence, I am initiating this dialogue to gather diverse insights on:

  1. The concept of sharing a portion of trading fees with front end hosts.
  2. The ideal percentage of fees that could be allocated to front end hosts.
  3. Other incentivization models that could be explored.
  4. The potential for competition to drive front-end innovation and improve the dYdX user experience.

If there’s substantial support for this idea, moving towards a community vote to formalize such an incentivization model might be a logical next step.

I am keen to hear your thoughts, opinions, and suggestions on this matter as we collaboratively work towards a solution that augments the dYdX ecosystem for all stakeholders.

Thank you for your engagement and consideration!


Hey @CipherLabs ,

Thanks for initiating this well-needed conversation!

To add further context to the above, the topic of frontend incentives and a good implementation thereof has been theorized extensively in the recent dYdX V4 report by @tncintra & Xenophon Labs (refer to section 7 here:

I’d encourage forum participants to read this section prior to participating in the discussion so as to get an optimal baseline to start discussing this concept - I look forward to participating in this discussion myself!


Thank you @Immutablelawyer for pointing out the detailed exploration of front end incentives in the dYdX V4 report by @tncintra & @XenophonLabs. For those who haven’t had the chance to delve into the document, I’ve prepared a summary of the relevant section to provide a quick TL;DR and facilitate this discussion.

Decentralizing the Front End: The Why and How

  • The push for decentralization within the dYdX ecosystem is significant, particularly concerning front end operations. The primary goal is to mitigate single points of failure, reduce censorship risks, and adapt to an uncertain regulatory environment globally.
  • The decentralized approach requires a new breed of “front end operators,” necessitating resources for software development, server costs, and various operational overheads. While the dYdX Operations Trust supports this, there’s a gap in incentives for independent operators.

Addressing User Risks in a Decentralized Ecosystem

  • The shift to decentralization brings potential risks, including fraudulent front ends. These malicious platforms could introduce hidden fees, collect excessive user data, or engage in deceptive practices.
  • The community must be vigilant and proactive in identifying and mitigating these risks, ensuring a secure trading environment.

The Proposed Front End Incentives Program

  • The incentives program aims to encourage the deployment and maintenance of multiple independent front ends, each potentially offering unique benefits or specializing in specific areas.
  • Key objectives include decentralization, user protection, and adherence to community standards, with a vision to incentivize innovation and improved user experiences.

Community-Driven Whitelisting and Standards

  • A crucial component is a whitelisting process, where operators apply to be included in a registry, signaling their adherence to community standards and commitment to user protection.
  • These community standards could cover various aspects, including fee structures, data privacy, and market-specific disclaimers, ensuring a uniform level of service quality and user experience.

Incentive Distribution and Fairness

  • The document proposes a square-root scoring rule for incentive distribution, promoting fairness and encouraging smaller entities to participate.
  • This non-linear approach necessitates a robust whitelisting process to prevent exploitation and ensure that rewards are distributed based on genuine value addition.

Fee-Sharing vs. DYDX Rewards

  • The community needs to deliberate on the funding mechanism for these incentives. While direct fee-sharing is an option, the alternative is using DYDX rewards, which might be more viable and secure in the initial stages.
  • The community’s input is vital in finalizing the specifics of the fee-sharing percentage and the overall structure of the incentives program.

In Summary

  • The section provides a comprehensive overview of the potential front end incentives program, emphasizing the need for community involvement in safeguarding the ecosystem’s integrity while encouraging growth and innovation.
  • It sets the stage for a deeper community discussion, where we can explore these concepts and collaboratively decide on the best path forward for dYdX.

I believe this summary provides a solid foundation for everyone to participate in this crucial discussion. Looking forward to hearing more insights and opinions as we work together to shape a robust, decentralized, and innovative future for dYdX!

Thank you, @ImmutableLawyer, for highlighting this resource, and thanks to everyone for your active participation in this pivotal dialogue!