State of DYDX Finances Epoch 23

Considered.Finance presents the financial intelligence report for epoch 23.

DYDX Financial Report Epoch 23

Those interested in clearly defined measures of performance of the protocol and the DAO will find this an interesting read. It contains details over the volumes and fees going back to epoch 1, specifics over all service provider contracts with the DAO and more. As always feedback, comments or constructive criticism are strongly encouraged.

A new feature of this report from epoch 23 is a protocol income statement.

After two profitable quarters the protocol suffered a $2.5m loss in epoch 23. This was entirely due to a 48% drop in trading fees. This is explored below in terms of open interest and how quickly open interest turns over.

  • The major driver of DYDX financial performance is trading volumes and fees. This is apparent in the switch from a profit in epochs 21 and 22 to a loss in epoch 23.
  • The average protocol take rate of 2.4bps of volume has been stable.
  • The gross margin has been a little low recently dropping in epoch 23. Greater overall trading volumes would help as cost of revenue is fixed in DYDX terms currently.
  • Customer acquisition cost of trading rewards has been reduced in line with market conditions. This still makes up a high percentage of fee revenues and this ratio needs to come down over the long term. This has helped the overall profitability.
  • R&D spending is still low. R&D that contributed to long term growth has the potential to drive efficiencies and reduce the reliance on rewards to drive volume growth.

Other than volumes and fees there was not much change in the key protocol measures in epoch 23.

DAO runway remains strong. DYDX has one of the longest runways in DeFi. This will evolve as new subDAO’s form.

Two factors are becoming apparent in terms of trading activity on dYdX:

  • Demand for trading exposure as measured by open interest is relatively constant over epochs and likely mostly affected by underlying price levels.
  • Changes in trading volumes come mostly from the rate at which trading positions are turned over as measured by Open Interest Turnover. This has been very sensitive to observed price volatility.

Changes in this report are:

  • Inclusion of the DYDX income statement and associated commentary.
  • Unclaimed rewards are no longer counted as part of treasury balances.
  • Analysis of the drivers of volume in terms of open interest.
  • The full report is hosted on IPFS.

If you find this interesting please let us know what you like, what’s missing and what you don’t like. Reporting for DAO’s is still nascent, and there is definitely no standard model for reporting perpetual exchange metrics. We’d like to continue improving this, making DYDX a leader at reporting and DAO intelligence.


Thanks for the great detailed report on finances, Craig.

Just a small note from me: I agree that there is a correlation between volatility levels and trading volume on dydx. Even competitors like Binance have experienced a drop in volume (though there’s also some FUD about regulations there).

But in my opinion, this isn’t the main factor behind the 50% drop in volume. I saw it more as a minor point, while Alexios in Discord highlighted it as one of the main takeaways from the report.

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Hey @0xCLR, your financial report draws attention to an untapped opportunity - the efficient utilisation of our community treasury. A runway of 194 years is certainly a sign that our funds are underutilised. It’s apparent that essential tooling and development initiatives, which are integral to our growth and improving our traders’ decision-making, aren’t receiving the financial support they merit.

Specifically, supporting features such as trading journals and analytics dashboards could significantly enhance our platform. These tools provide invaluable insights to traders, fostering informed decision-making, and thereby driving trading volume and revenue.

Moreover, our community treasury could fund initiatives like trading competitions, which have the potential to attract a broader range of users and stimulate trading activity. Such initiatives not only promote active participation but also foster a sense of community among traders, which could lead to higher engagement and retention. These also are not getting the financial support they merit.

While Reverie currently oversees these funds, it might be advantageous to broaden our decision-making framework. We could consider a larger grants team, potentially comprising five members rather than a single individual, or even contemplate additional grants teams alongside Reverie. This could foster a diversity of ideas, encouraging innovative and effective use of our treasury funds.


Hi can help to add notes to explain what is S&M, G&A section under Operating Expenses in the report? Appreciate it.

Hey @RealVovochka

I completely agree there are many factors driving trading volume and it is super valuable to discuss them. dYdX financial reporting, modelling and overall intelligence is being built in public to incorporate a broad range of insights that will be incorporated in future editions. Comments, new ideas and criticisms are very welcome and crucial to get to a point where we can get an idea of the marginal impact future decisions have on the protocol.

My personal opinion at this stage is that the two biggest drivers of trading volume on dYdX in the short term are volatility and the dollar value of rewards, neither of which we can control. Over the medium to long term other initiatives that improve dYdX can improve this trajectory, such as those alluded to by @foxlabs.

Again a personal opinion but I think care must be taken to invest in initiatives that pay off over the long term rather than quick wins (like increasing trading rewards for instance). Investments should also take the effect on unit economics as measured in the income statement into account, it is pointless to pay $2 to earn $1 in fees for example. Not saying anyone is thinking this way, just making a point.

I’ll include this data in future reports, for now see the relationship between trading volume and volatility over the recent past. It is not perfect, but directionally relevant.

Underlying data for those interested:

Thank you to those, @RealVovochka and @foxlabs, who have shared their feedback so far. This report is intended to stimulate debate.

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The next slide explains these.

Absolutely, @0xCLR. Volatility is a market condition that’s consistent for all exchanges. While it’s true that high volatility often drives trading volume, it’s crucial for dYdX to establish mechanisms that maintain robust performance, irrespective of market fluctuations. Certain exchanges do maintain performance during periods of low volatility, which underscores the need for strategic adaptation. By focusing on initiatives such as optimizing the use of our community treasury, enhancing platform tools and features, and creating active engagement programs, we can foster an environment conducive to sustained activity. This approach will not only strengthen our performance during low volatility periods, but will also set dYdX as a resilient leader in the DeFi space. Furthermore, a diversified decision-making process for fund allocation could serve as a catalyst for innovative and effective strategies, creating a platform that thrives regardless of market sentiment.

Thank you for your detailed work. Here are my thoughts about this epoch’s financial report, also comparing it with the previous epoch, 22

  • There’s a significant drop in trading volume, which is not good and keeps going down. As a result, we see trading fees dropping too. In fact, as I wrote in advance, the market is not too volatile, and fuds are spreading, so I see this volume drop as temporary.
  • However, It is obvious that market volatility is not the only reason for the decrease in dydx volumes.As stated in the report, DAO expenses must be minimized as decentralization progresses.
  • In my opinion, reducing user rewards is not a good decision; trading rewards are the most noticeable and user-friendly feature of dYdX’s decentralized trading platforms.Already on decentralized platforms, the fees are prohibitively expensive for traders.The high fee rate and lack of incentives drive them more toward centralized trading platforms. Even if incentives are to be reduced, a period when the market is more active and traders wish to trade in any way should be chosen.With the market already idle and volumes low everywhere, I believe it is wrong to reduce incentives and rewards.
  • The one thing that stands out to me about operating expenses is that the majority of the fund is spent on marketing and sales. Marketing costs about six times as much as all other expenses combined. I can’t comment on this because I’m not familiar with marketing. Even so, I believe it would be great if dYdX could inform the forum about the marketing budget and what has been achieved, if possible.

Again, thank you for your work and report and thank you for making it easier to understand the financial reports for dYdX community

Hello. @0xCLR
After calculating the correlation coefficient for this dataset, which is equal to 0.4, one can conclude that there is a positive correlation, but it is rather moderate.
Therefore, in my opinion, it can be confidently stated that during a period of low volatility, trading volumes decrease.
However, I would not consider the 50% drop as the definite cause for this phenomenon.


Hey @RealVovochka thank you for taking the time to critique this report. Your feedback is welcome and necessary to continue improving the collective intelligence of the community.

I completely agree with you that trading volumes on dYdX are driven by more than just volatility. That is not the point the report was trying to make. As you’ve pointed out the wording needs to make this clearer in subsequent reports.

The reason volatility is being included is because it does have some impact. We need a model for forecasting trading volumes so there is a benchmark to judge the outcome of future proposals.

The intention going forward is to include more explanatory variables for the community to move towards the point where we can forecast intelligently, and diagnose differences between the reality and the forecast.

I’d love to hear some other suggestions of measurable factors to study and include that could affect trading volumes.

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@0xCLR, we appreciate your work. Many thanks.

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