On Thursday, crypto derivatives platform dYdX, which is currently built on Layer 2 of Ethereum, announced that it will move to a standalone blockchain based on the Cosmos SDK and Tendermint proof-of-stake consensus for its update. v4. The company cites the decentralization and performance of the Cosmos blockchain as reasons for being the “best fit” for building dYdX for v4.
We are excited to announce that dYdX V4 will be developed as a standalone Cosmos-based blockchain! https://t.co/zQzZMIpzWO
— dYdX (@dYdX) June 22, 2022
Currently, the existing dYdX protocol processes around 10 trades per second and 1,000 order placements and cancellations per second, with the goal of moving to higher orders of magnitude. However, the company claims that neither Ethereum Layer 1 nor Layer 2 solutions can meet its throughput speed requirements while meeting its 100% decentralization requirement by the end of the year.
All dYdX code will be open-source, and the protocol itself will run on open networks without permission, with no services operated by parent entity dYdX Inc. All validators and node operators will run core node software , which will handle consensus, off-chain order book matching, deposits, transfers, withdrawals and price oracles. Additionally, traders will not have to pay gas fees to trade, only fees for executed trades similar to dYdX v3 and centralized exchanges. The fees will then be distributed as rewards to validators and stakers.
Additionally, dYdX seeks to bridge blockchains by leveraging Cosmos’ inter-blockchain communication protocol. This way, dYdX can link digital assets, such as stablecoins, directly from other secure chains on Cosmos. Key development priorities include the transfer of collateral for trade to/from blockchains such as Ethereum as well as centralized exchanges. Since its inception last February, the protocol has processed more than $626.6 billion in digital asset derivatives transaction volume.