Prominent decentralized crypto derivatives exchange dYdX unveils open-source code for version 4

Introduction to dYdX version 4

dYdX, a well-known decentralized crypto derivatives exchange, has released the open-source code for its upcoming version 4. The new version, called dYdX Chain, is built on the Cosmos SDK and Tendermint Proof-of-Stake consensus protocol. It is expected to support up to 2,000 transactions per second.

The standalone Cosmos blockchain

dYdX’s decision to integrate Cosmos into version 4 is a strategic move after considering various blockchain technologies available in the market.

While exploring trading model options, dYdX considered Automated Market Makers (AMMs) and Request for Quote (RFQ) systems. However, they determined that an orderbook-based protocol was necessary to meet the requirements of experienced traders.

dYdX’s team was dissatisfied with existing off-chain orderbook systems due to issues such as frontrunning, trade collisions, and reliance on centralized matching. With dYdX v4, each validator will run an in-memory orderbook that remains off-chain and is not committed to consensus. Orders and cancellations will be processed through the network similar to regular blockchain transactions.

This approach ensures that orders and cancellations are always relayed through the network. The orderbook stored by each validator is eventually consistent with others in the network. Orders are matched in real-time, and resulting trades are recorded on-chain with every new block.

dYdX v4 achieves high throughput for the orderbook while remaining decentralized.

Flexibility and benefits of Cosmos

Cosmos offers greater flexibility, enabling dYdX Chain to be tailored to specific requirements such as eliminating gas fees and replacing them with fees based on executed trades. These fees are directed to validators and their stakers, ensuring a fair compensation structure.

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dYdX sees the release of the dYdX Chain software as the “full decentralization of dYdX” and a significant step towards democratizing access to financial opportunities.

Transition from ethereum to Cosmos

In a recent interview with CryptoPotato, David Gogel, VP of Strategy and Operations at the dYdX Foundation, highlighted that the Cosmos ecosystem allowed them to build a custom chain specifically designed for high-velocity trading.

dYdX aims for decentralized governance and has established a Decentralized Autonomous Organization (DAO). Currently, there have been 14 proposals with voting engagement from 458 distinct addresses, averaging around 42.6 million DYDX tokens per vote as of September.

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