dYdX announces important updates for the release of version V4, stating that it will be fully decentralized.
The immediate priority is to release the next version, V4 of the protocol, before the end of 2022.
✅ dYdX V4 will be completely decentralized, with no central components.
❎ No central party, including dYdX Trading Inc., will be able to charge transaction fees on dYdX V4.
🪦 The current dYdX perpetuals protocol will be deprecated after the migration to dYdX V4 is completed.
dYdX's mission is to build a leading global cryptocurrency trading platform.
In 2021, dYdX grew to become the largest decentralized exchange by trading volume and started challenging the market share of major centralized exchanges. Decentralization is at the core of dYdX's mission.
We believe that decentralization will drive fundamental improvements in transparency, security, fairness, and equal opportunities. To advance this mission, we are developing the next version of the protocol, V4.
dYdX V4 will be open-source, fully decentralized, and completely community-controlled. The primary task for dYdX is to release dYdX V4 before the end of 2022.
dYdX Today
Today, dYdX is a hybrid decentralized exchange. This means that most components of dYdX are decentralized, but some components run on servers operated by dYdX Trading Inc. and other partners.
The core exchange protocol is built on Ethereum smart contracts and STARK (zero-knowledge) rollups supported by Starkware. This structure ensures complete transparency and self-custody of all funds and positions on dYdX.
In addition, all dYdX governance and staking are built on smart contracts. dYdX contracts are open-source and audited by third parties, with no central management functionality. The main components operated centrally by dYdX are the order book and matching engine.
dYdX's order book trading model has made it the most liquid exchange among all cryptocurrencies.
Running a centralized matching engine allows dYdX to scale to millions of orders per day with sub-second latency, and has grown dYdX's daily trading volume to over $1 billion.
dYdX V4
With V4, dYdX will become fully decentralized. There will no longer be any central control points or failures in the protocol; all aspects of the protocol that can be controlled will be fully community-controlled. The key aspects of fully decentralized dYdX are the decentralized order book and matching engine. The main challenges are:
Throughput: dYdX's off-chain system currently processes around 500 orders per second. This is about 100 times the number of transactions per second. We aim for dYdX to become the largest cryptocurrency exchange, so ideally, higher order capacity needs to be allowed.
Determinism: Part of the off-chain matching engine's work is to sort trades and allow traders to immediately determine the outcome of their trades.
Fairness: Network operators and frontrunners should not be able to extract value from legitimate trading activity.
In addition to full decentralization, we are also exploring additions to the V4 protocol:
Other trading products, such as spot, margin, and other synthetic products
Improved margin and collateral options
Improved market structure and trading
Seamlessly adding new trading markets
dYdX has been collaborating with Paradigm and other leading industry experts in developing this architecture. We are excited to bring our excellent engineering history in the DeFi space to address these new challenges.
Why Decentralization?
Our goal is to build the world's leading cryptocurrency trading platform.
We believe that DeFi represents a fundamental improvement over centralized financial platforms, and in the long run, most crypto trading will happen on DeFi.
DeFi greatly enhances transparency. For the first time, the financial system itself is no longer a black box for users. With DeFi, users can trust the code instead of the company. dYdX V4 will be fully open-source and audited by industry experts.
DeFi empowers participants to truly control the financial platform. This greatly enhances fairness, community consensus, and equal opportunities. The dYdX Foundation launched dYdX governance, putting dYdX on this path. We have seen significant activity from the dYdX community to drive meaningful changes to the protocol. With dYdX V4, dYdX will be fully community-controlled, and the future of dYdX will be in the hands of the community.
Starting from dYdX V4, dYdX Trading Inc. will no longer operate any part of the protocol. Therefore, it will no longer generate revenue from transaction fees on the protocol. The same applies to all other centralized parties unless the community decides otherwise.
dYdX Trading Inc. will continue to develop open-source software based on the opinions of the dYdX Foundation and the dYdX community.