DEFI PEOPLE

Trading mining, airdrops, liquidity mining, will dYdX's governance token become a dumping ground or dominate as a DEX derivative?

2021/9/10

The decentralized exchange dYdX recently launched its governance token "dYdX" and initiated activities such as retroactive airdrops, trading mining, and liquidity mining. Many traders and analysts have pointed out that these large-scale token distributions will create selling pressure for dYdX. However, some DeFi players have released a series of analysis tweets, suggesting that instead of causing selling pressure, it is worth paying attention to.

Table of Contents

What is dYdX?

dYdX is a decentralized derivatives exchange that launched in May 2019 and migrated to Layer 2 L1 on 4/20 this year through integration with StarkWare, enabling perpetual contract trading with zero gas fees. The trading volume reached $9.8 billion in August.

Twitter user and DeFi player ElderberryLind pointed out that the dYdX token did not have an ICO, has undergone multiple rounds of funding, with investors including:

dYdX Governance Token

dYdX has a total supply of 1 billion tokens, serving as a governance token that, like most platform tokens, offers fee discounts. After five years, the circulation will be complete. The future inflation rate may be 2%, depending on governance. Token distribution is as follows:

ElderberryLind noted that since dYdX did not have an ICO, the initial 5,500 tokens in circulation will be held by specific users, including:

Airdrop recipients
Trading mining reward holders
Liquidity provider mining reward holders

Contrary to common market sentiment, he believes these holders do not have a need to sell their dYdX tokens.

Unique Holders

ElderberryLind stated that these individuals, unlike typical airdrop recipients, were early users of the platform before the token issuance announcement, specifically seeking out layer-two decentralized exchanges for perpetual contract trading. He emphasized:

I can assure you that these holders are more sophisticated than your typical cryptocurrency traders. Intuitively, more sophisticated users mean they can hold tokens without needing to sell for quick profits.

Regarding the selling pressure from trading mining and liquidity mining, he believes these tokens may be sold. However, on the other hand, due to the fee reduction benefits, large traders may choose to hold tokens to lower transaction costs.

How Will the Market Value dYdX?

ElderberryLind pointed out:

With the initial 5,500 dYdX tokens, a coin price of $50 would place it at 60th in market cap rankings. Are the 59 projects ahead really more promising? What about being in the top 20 on CoinGecko? This would give a market cap of around $10 billion with a coin price of $181.

He used AVAX and Fantom as examples, both of which recently launched extensive incentive programs to attract users. Similarly, dYdX releases 500 tokens per month as a similar incentive measure. He boldly assumed:

If the coin price is $50, equivalent to distributing $250 million per month to reward traders, makers, I guess dYdX's trading volume will soar; high rewards will attract a large number of new users who come for the rewards but will become loyal users due to zero gas costs and low spreads.

He believes that the rising coin price will increase the value of monthly rewards, attracting more users and forming an infinite positive cycle like a snowball effect.

Potential Concerns for dYdX

From the dYdX token distribution chart above, potential issues include:

Venture capital institutions dumping
Large future supply

ElderberryLind stated that institutions will have to wait at least 18 months until early 2023 to sell tokens. Although the total supply is significantly higher than the current circulating supply, the market does not seem bearish on unlocking, and the token issuance amount is relatively small and evenly distributed over five years or more.

He emphasized that with characteristics of blue-chip stocks, the participation of many experienced traders, and an interesting token reward mechanism, he will closely monitor dYdX.

This is not financial advice.