Proposal to set Skip Protocol as the first Oracle Market Mapper on dYdX

dYdX Chain
1

[UPDATE]

Given the time-sensitive nature of launching dYdX Unlimited, Skip will be launching an expedited proposal on Oct 3rd (shortly after the passing of the software upgrade for v6) with the proposal specified below. If the proposal does not pass, there will be no new, rapid market listing functionality available on dYdX until a Market Mapper is selected.

Simple Summary

On August 8, 2024, dYdX Trading released a blog post about the upcoming dYdX Chain upgrade that will integrate Skip Protocol’s Market Map, enabling dynamic market management and expansion towards permissionless markets. Recently, the dYdX Operations subDAO released the dYdX Request for Comments (“DRC”) with respect to the v6.0.0 software upgrade.

In order for the Market Map to work, it needs a Market Mapper, which is a governance-elected entity that preloads and constantly configures markets that the dYdX user base can then permissionlessly list.

This forum post is a request for comment (RFC) on our up coming proposal that we, Skip Protocol, become the first Market Mapper within the recently adopted Market Map system of the Connect oracle deployment on dYdX Chain, enabling permissionless, user-driven listing on the dYdX platform. In return, Skip requests a 10% trading fee-revenue share (limited to 240 days after active trading for each market) on all newly listed markets that it adds to the Market Mapper. These parameters would be updated via a separate parameter-change proposal that Skip will post after the dYdX v6.0.0 software upgrade.

Abstract

To enable dYdX to scale to thousands or tens of thousands of tradable markets, we worked to integrate the Skip:Connect oracle, which was integrated in v5.0.0 of the dYdX Chain software, and introduces an entirely new, scalable way to aggregate prices on-chain. The crucial element of this system was the Market Map, which we designed and was deployed to dYdX Chain mainnet in its v6.0.0 release. Please read more about the Market Map on the GitHub release notes.

In order for the Market Map to work, it needs a Market Mapper, which is a governance-elected entity that preloads and constantly configures markets that the dYdX user base can then permissionlessly list. This proposal represents Skip Protocol’s offer to become the first Market Mapper, using our already-developed, extensive Market Map system that we achieved excellent results with on the dYdX Chain testnet.

What you would be voting on:

  1. Skip Protocol operating as the initial Market Mapper, changeable at any point by a parameter change governance proposal.
  2. Skip Protocol receiving a 10% trading fee revenue share on new markets configured within the Market Map, for a duration of 240 days after their initial listing of each market on dYdX (wrt to all markets that have been added in the last 240 days and were initially listed AFTER Skip:Connect went live on dYdX mainnet on June 6th, 2024)
  3. To set the “admin” account on the market map module to be an address associated with a trusted dYdX-adjacent entity (more on this later)

Why does the Market Mapper need an incentive?

Given the oracle’s critical dependency for the entire protocol and every trade on dYdX, the Market Mapper must be incentivized to build excellent, high-uptime systems to manage the many parameters that govern markets safely and proactively. Additionally, they should also be incentivized to proactively list and maintain new markets for the benefit of the dYdX community, pushing the boundaries on what is available for traders at any time and staying ahead of competing DEXs.

The goal of Market Mapper incentivization is to directly align the Market Mapper with the long-term success of the dYdX protocol, and tie their payments to net-new revenue they can generate for the protocol.

To do this, the incentive structure we propose is: The Market Mapper receives 10% of trading revenues on new markets, for a fixed time.

A “new market” is defined as any market (either cross-collateral or isolated) that has been added for active trading within the last 240 days.

  1. The day count starts when the asset is first actively traded, i.e. is added to the x/prices module and has had at least one trade.
  2. This will be backdated and prorated to apply to all markets that have been added in the last 240 days for the remaining eligible time, provided that the market was added to dYdX AFTER Skip:Connect went live on mainnet (June 6th, 2024). (This ensures that the Market Mapper is incentivized to support and improve the data feeds for these markets too)
  3. After a market has existed in x/prices for 240 days, the revenue share would be removed entirely.

Example 1:

  • The market for “BananaCoin” is added via Connect & governance proposal on dYdX Chain v5.0.0 software, and has started trading
  • This proposal passes
  • 20 days later after “BananaCoin” was added, dYdX Chain is upgraded to v6.0.0 software with the Market Mapping system
  • The Market Mapper, in exchange for managing the price of “BananaCoin”, parameterizing the market, and finding new providers, receives 10% of the trading fees on the “BananaCoin” market for the next 220 days

Example 2:

If we assume the Market Mapper was included at Genesis of the dYdX Chain, the Market Mapper would have earned around $30k under the proposed fee share arrangement. The 10% fee incentives would only apply to markets added through dYdX Chain governance (excluding TIA, which recently surpassed 240 days).

Even if Skip is not elected as the initial (or eventual) Market Mapper, we feel that this is the right level of incentivization for any other party that takes the role. After the 240 days end for a specific market, the Market Mapper still has the responsibility to maintain market parameters actively although they aren’t compensated to do so. If they shirk this duty, they can be removed quickly and replaced with a team who will.

These parameters can be changed; if there is not enough demand or dYdX lacks a well-incentivized and excellent Market Mapper, they can be modified via governance.

Rationale

The mapping of asset-pairs to provider sets, and the fetching of metadata and parameters like liquidity, decimals, reference prices etc., require sophisticated automated and human-in-the-loop systems to perform well.

The Market Mapper has control over:

  1. Adding new providers, and new asset pairs, to the Market Map on a frequent cadence, and the on-chain marketmap, at any time, represents the superset of what dYdX traders can list.
  2. Updating the mapping between the asset-pair and provider set for each asset in x/marketmap.
  3. Updating the liquidity and reference price for each asset-pair in x/marketmap.

What if there’s an evil/bad Market Mapper?

The Market Map system is already designed to handle a compromised or malicious Market Mapper, and verifiably remove / prevent any damage they could cause. To start, updates sent on-chain by the Market Mapper are processed through the x/delay module, where they are queued for 5 days before being executed by the chain. This grants ample time for traders, validators, the Skip team, and other community auditors to review pending updates and alert if any incorrect or harmful updates were submitted.

In case the Market Mapper is acting maliciously, they can be instantly removed by an “admin” address set on the x/marketmap module. The admin, and the Market Mapper, are both set by governance. Removing a Market Mapper immediately cancels all pending updates submitted by the Market Mapper, thereby removing any malicious activity they attempted to submit on-chain. The admin address will be decided in a separate parameter proposal.

Furthermore, highly stable & highly liquid markets are excluded from the market mapper’s purview. These markets do not require active data feed maintenance, so giving the market mapper authority to update their data sources only risks compromising their quality. This governance proposal explicitly prevents the market mapper from updating the data sources for all current cross-margin markets.

What can the admin address do?

The market map admin account is a safeguard entity that can remove any currently active market mapper instantly, via a transaction, for any reason. Governance can also remove a market mapper, as well as the admin. Removal is done via a “MsgRemoveMarketAuthorities“ transaction.

It it cannot add a new market mapper (that’s up to governance), and it cannot change the market map.

The admin address should be assigned to a multisig controlled by trusted actors and participants of the dYdX network, as proposed here. It cannot custody funds, add or remove new markets, or make any meaningful changes to the dYdX protocol outside removing a market mapper.

It can be updated anytime via governance proposal to be a different address. If the admin account is compromised and removes the market mapper, governance would vote in a new admin account, reaffirm the market mapper, and continue. The impact of this would be a short period of time where new markets can’t be added - no funds are at immediate risk.

Note, the identity of the admin is currently unknown, but it will be specified in the upcoming governance proposal.

Implementation

If the upcoming proposal passes:

  1. Skip will become the Market Mapper within the x/marketmap module on dYdX Chain mainnet.
  2. Skip will begin submitting Market Map updates immediately.
  3. Skip will begin receiving 10% of exchange fee revenue on newly listed markets, defined as markets that were added since Skip:Connect went live on mainnet (which was on June 6th, 2024), for 240 days after their launch.

If the upcoming proposal fails:

A large part of the dYdX roadmap of “trade anything,” in the short term, will need to be remade, and new markets would only be able to be added via governance. Skip:Connect, and the x/marketmap module would remain in dYdX Chain v6.0.0 software and update prices for all markets, but the Market Map would not be used.

Who we are

Skip Protocol are long-time builders of critical infrastructure within the interchain ecosystem. We have rewritten and upstreamed code to core pillars of the dYdX Chain stack (including the Cosmos SDK and CometBFT), and have been working closely with the dYdX ecosystem for the past year.

Skip is the creator of the dYdX Skip:Connect Oracle and dYdX MEV dashboard, both of which have played crucial roles in dYdX’s successful migration to its current implementation (dYdX Chain). Our goal is to help dYdX scale and grow by leveraging our technology and expertise with its current stack.

Disclaimers / Notices

Skip Protocol was funded by the dYdX Ecosystem Development Program (“DEP”, fka dYdX Grants Program) to build, integrate, and maintain the Skip:Connect software that is now integrated into dYdX Chain v5. The payment for this service amounts to 700,000 $DYDX tokens per year plus a $USDC 500k payment upon mainnet integration, with each payment linearly vested over one year. Skip has not sold any of these tokens, and they are staked among validators in the network.

The Market Map system proposed here is the final stage of our involvement in powering dYdX’s “trade anything” vision, and involves a new set of resources, risk, integration, and active engagement, and therefore is designed to have a different incentive system that directly scales with dYdX’s success and our role within it.

Copyright

Copyright and related rights waived via CC0.

1 Like
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Some questions (I dont have much knowledge about how market mapper module design and why we chose this design with marker mapper working like middle-man)

  1. what is the future with many Market Mappers, and each request 10% of revenue of new market?
  2. can we automate market mapper 100% ? Seems what they do is mapping between market-pair and price feed provider?
  3. imo, manual task should be automatic, any plan to remove market mapper role in near future?
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All great questions

The reason the Market Mapper works as a system is that it solves a lot of the challenges with listing and updating pairs for new markets. In all existing oracles, the process of associating high-quality feeds with currency-pairs is a manual process. It’s generally something that you want a team focused on full-time to respond quickly to any crises, respond when data feeds are down, remove feeds when they are compromised or low-quality, and add new ones as new exchanges list markets. Very little of this is purely automatable.

  1. We’re not sure what the future would be with many Market Mappers - the challenge here is, given multiple updates, which one to choose - or how to combine them that results in one deterministic overall update. This is an active area of research for both us and dYdX.
  2. As specified above, I honestly think it will be very challenging to automate this role while maintaining stable, high-quality perps markets. It was essentially is manual today on dYdX, and we view it as an upgrade to have a team focused on it full-time. The job of the market mapper is to provide a mapping as you said, but also to proactively seek out new markets, list them for traders to use, and update them as new feeds are added or removed.
  3. This is not our decision, but my take is that it would be massively difficult to remove the market mapper (we looked at a bunch of alternative designs first). Creating an automated system to handle such a sensitive task would likely just result in worse prices, incorrect feeds, and still require manual intervention for new listings.
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Thanks for your answers, for 1 its not quite clear to me.

  1. so we will have many maker mappers(MM) or just 1? As you said the problem with multi MMs is price feed sync and its under investigation? It means we go with 1 MM now waiting for research output before making any move?
  2. What is rationale behind the decision to cut off 10% rev for 270 days duration? What happened after 270 days, is MM still operable happily?
  3. I dont recall exact source, but to sustainable, reward should be 3% at max, imo 1-3% is good for long term, for example Visa/mastercard they cut 2.5-3% for each tx.
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To provide constructive feedback on this Request For Comment, we would like to highlight the importance of implementing an incentive mechanism. It is critical to ensure aligned incentives when managing essential software components that, if compromised, could significantly impact the protocol’s functionality. A revenue-sharing model is a valid approach to achieving such alignment. However, we find the current proposal disproportionately benefits Skip at the expense of the chain. We believe a more balanced discussion around the percentage share and the proposed duration is necessary.

At Govmos, we recommend a 5% revenue share split paired with a reduced duration of 6 months, which we believe would be more appropriate and aligned with economic standards for intermediary fees. As the chain is anticipated to grow in terms of popularity, volume, and listings, these adjustments should provide fair compensation for Skip. Should fewer listings materialize, thereby reducing the incentives, we would be open to revisiting these parameters. For now, however, we consider the current figures disproportionate relative to comparable market standards.

Thank you for your comprehension, we hope you’ll consider our feedback as we only seek to find the best compromise for both Skip and the chain, not undermining your numerous valuable contributions in the whole ecosystem.
Govmos.
pro-delegators-sign

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we can have a decreasing step function for revenue share.

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Can language be implemented that the revenue share is up for discussion if at any point dydx governance decides to implement additional mappers?

Also, does it make sense to generate an oversight function? A simple elected control entity which confers with Skip to check if enough pro-active work is being done to have permissionless markets work?

Besides that, the revenue share seems reasonable to us looking at the vast amount of work that managing both skip:connect and the mapper is and we truly appreciate all Skips contributions to the dYdX code. With some added clarification this will be a Yes from us.

Best,
Ertemann
Lavender.Five Nodes

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Again, great questions!

  1. We’ll just have 1. The urgency here is to get out the “trade anything” thesis and to launch dYdX Unlimited. Research is ongoing and we want to get the entire system into a stable place before we add new market mappers (much easier to reason about / ensure good updates if it’s just one market mapper)
  2. We already are, and will be, happy to operate the MM after the 240 days. Our incentive as a MM is to launch new markets, so when the fee share on existing markets expires, we are incentivized to launch new ones! Also, since we run dYdX’s oracle too, we generally are incentivized to do a good job.
  3. Visa/mastercard do over 5 trillion $USD in volume a year, and so a 2.5-3% cut comes out to multiple billions of dollars. We are talking about significantly less volume here, especially since the fee share is only on new markets - and hence the higher fee share to keep things sustainable.

Hope that helps

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Hey Ertemann,

  • On the language, happy to add that!
  • On the oversight function, the way it’s designed is the admin address, and governance itself, already acts as an oversight function. Either can remove the market mapper at any time, and all the market mappers activities are on-chain and thus viewable by any community member with a block explorer. I don’t think we’d get much more out of an additional oversight function.
  • Thank you for your support! Exciting times ahead for dYdX.

Mag

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We opted to keep it simple - just on for 240 days, then fully off.

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Hey, appreciate the feedback, and understand the sentiment. In truth, the money here we’re talking about is so little compared to our overhead (if we had already taken a 10% cut over the last few months, we’re talking $20-30k), that I don’t think a smaller cut and a shorter period for revenue share makes sense.

I think if things really pick up, would be happy to lower it. We’re extremely incentive-aligned with dYdX (we run the oracle!), and trying to accelerate the dYdX Unlimited roadmap while also keeping our lights on.

Also, I imagine if our job is too easy (doubt it), other market makers will come out and undercut us. I hope they do - but it’s a huge responsibility. My inclination is to keep these numbers until the dust settles and we see how much revenue it actually is.

2 Likes
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We at Polkachu HQ are extremely excited about this new development. Skip has a proven track record in product development in this space (for example, Skip MEV sidecar, Skip API, Skip Connect, etc). It is the ideal candidate for a Market Mapper role for the dydx trading platform.

10% rev-share for a duration of 240 days after their initial listing of each market is reasonable. In fact, if we think that this proposal will help us grow the pie, a higher percentage can be argued for because it is the dydx community that will capture the long-term rewards.

Anyway, we support this proposal as is. Of course, we are open to any additional improvements suggested in this discussion.

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We would be open to accepting these terms if they are clearly outlined in the proposal from the start. We recommend setting this 10% fee for an initial duration of 6-12 months, followed by a commitment to produce a public report detailing the breakdown of these revenues. According to these numbers the fee would be reassessed and adjusted for a longer duration. Should you agree to these terms, we would reconsider our stance and cast a positive vote.

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It will be super easy to see how much it is by just looking at the receiving account on mintscan. Will post that address here once the prop is live. Definitely take a look. Everything will be public and on-chain, i.e. a continuous public report :slight_smile:

The community, at any time, can vote to remove or replace us as a market mapper, or engage a conversation to modify the % share. If this is done, my ask would be to assess if the payment is worth the task, and keep in mind that a suitable replacement would need to be found.

Excited to be working together, and I do think this will be a watershed moment for dYdX - this unlocks unlimited numbers of new markets & new revenue on the exchange, and we’re so pumped to be helping enable that!

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Here’s the address: dydx1ydjfh8klf7z3x7q7cu5j8j6jq66fajyy970tvx

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Thank you for providing the address, which demonstrates a strong commitment to transparency—a quality we highly appreciate. In light of this, we will set a reminder and commit to conducting a review after 12 months. We would also appreciate your cooperation should any adjustments be required at that time. Meanwhile, we welcome your continued support for the chain, and we will cast a positive vote on this proposal. Thank you for the quality of your contribution and for valuing our feedback.

pro-delegators-sign

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Carl here from Reverie and the dYdX Ecosystem Development Program.

It’s great to see Skip moving forward with this proposal after months of hard work. I thought it could be helpful to share some additional background on the Market Map and Mapper role given our involvement through grants.

Current State

Listing new markets today requires a governance proposal, which is both slow (4 day voting period) and costly (2k DYDX deposit). A community member, incentivized to stake their DYDX, must forgo yield to list new markets. The voting period also delays potentially time-sensitive listings that could capitalize on market hype around a new asset.

Additionally, proposers aren’t required to commit liquidity, meaning markets can launch with empty orderbooks. There is no guarantee that users will be able to trade on a new market. While grants have helped, community funding alone is not enough to support new markets at scale.

Finally, proposals include important risk parameters like liquidity tiers (which specify the margin requirements) and oracle setups. Updating these would require another proposal, which again is subject to governance strain given proposal requirements and voting delays.

Taking all these steps into account, listing new markets today is a lengthy, slow, and high-overhead process. Which means that dYdX is slower to list new markets compared to its centralized competitors.

Enter Market Map

Skip’s Market Map addresses all of the issues described above and promises an exciting future for permissionless listings. New market listings are no longer subject to the barriers and delays associated with governance, allowing users to request markets at-will instead. On top of this market requests would come with USDC vault commitments, guaranteeing a minimum level of liquidity at market launch. Live markets can also be adjusted real-time, allowing for safer, ongoing maintenance of risk parameters. As oracle integrations expand, we can expect to fulfill dYdX’s vision to ‘trade anything’ permissionlessly.

In summary, dYdX can expect a market listing process that mirrors the speed and maintenance operations of centralized competitors today, while offering permissionless capabilities not found anywhere else.

The Market Mapper role guarantees all of these improvements by acting on behalf of the community, while still being subject to governance oversight. Given Skip’s involvement in designing, building, and integrating this upgrade, I think they’re the right candidate for the role. They know how this works and are equipped to guarantee a successful deployment. I’m thrilled to see their continued engagement and support of the protocol!

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