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Is dYdX V4 Coming? DYDX Token Migration Proposal Approved! Moving from Ethereum to "dYdX Chain"

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Is dYdX V4 Coming? DYDX Token Migration Proposal Approved! Moving from Ethereum to "dYdX Chain"

In June last year, decentralized derivatives exchange dYdX on Ethereum L2 announced that it would migrate its protocol to the Cosmos ecosystem in the upcoming V4 release, developing the "dYdX Chain" based on Cosmos SDK. Recently, in addition to the official announcement of the imminent launch of dYdX V4, the community has also passed a token migration proposal, with DYDX set to migrate to the dYdX Chain as its core token in the future.

dYdX Chooses to Leave Ethereum, Developing "dYdX Chain"

According to a previous official article, dYdX's primary motivation for wanting to transition to Cosmos is to expand transaction speed. Currently, processing around 10 transactions per second and 1,000 orders or cancellations per second falls far short of the trading scale dYdX aims to achieve.

Through the SDK provided by Cosmos, developers can build autonomous blockchains that fully control their validation nodes, significantly improving scalability. The official article also states that the network will match orders in real-time and submit generated transactions to the chain in each block, enabling dYdX V4 to provide high throughput for order books while maintaining decentralization.

However, as dYdX's plan is to establish an independent L1 blockchain, after migration, users not only lose the security guarantees of Ethereum but also need to trust a new set of validation nodes on the dYdX chain, raising questions about dYdX's security. Transaction fees will also no longer be paid in ETH.

dYdX V4 is Near, What Issues Need to be Resolved?

After more than a year, dYdX V4 is currently in the testing phase, available for use on Goerli.

In an official article in early August, the dYdX Foundation mentioned that the launch of the mainnet for the dYdX chain is getting closer. The dYdX chain will adopt a PoS consensus mechanism, requiring an L1 protocol token for validation nodes to stake for network security and governance.

In the announcement, the official recommended that the community consider using the DYDX token as the L1 token for the dYdX chain. However, since DYDX is an ERC-20 token based on Ethereum, DYDX needs to be migrated from Ethereum to the dYdX chain.

The process of migrating DYDX from Ethereum to the dYdX chain is divided into three steps:

  1. Receive and permanently lock the DYDX sent by users to the Ethereum smart contract.
  2. Send a wrapped version of DYDX, wethDYDX, at a 1:1 ratio.
  3. dYdX chain validators can read messages from the Ethereum smart contract to distribute the corresponding DYDX on the dYdX chain to users.

DYDX Migration Proposal Approved, Becoming the Core Token of the dYdX Chain

Shortly after this announcement, market maker Wintermute posted a proposal on the governance forum titled "Adoption of V4 and Migration of DYDX to the dYdX Chain," which includes:

  1. The dYdX community will adopt the dYdX v4 open-source software as the next version of the dYdX protocol deployed on the mainnet.
  2. The dYdX community will use DYDX as the L1 token of the dYdX chain.
  3. The dYdX community will use the Ethereum smart contract commissioned by the dYdX Foundation. If deployed, this contract will provide a permissionless and autonomous one-way cross-chain bridge for migrating DYDX from Ethereum to the dYdX chain.
  4. The dYdX community suggests that dYdX chain validators refer to the Ethereum smart contract commissioned by the dYdX Foundation when distributing DYDX.
  5. After the cross-chain migration, wethDYDX will have the same governance and utility functions as DYDX used in dYdX v3.

This proposal has been voted on on Snapshot on 9/2 and received strong community support with nearly 100% approval from a total of 396 voting addresses.

After the proposal was approved, dYdX's founder Antonio tweeted, "DYDX is now officially planned to become the foundational token of the dYdX chain."