dYdX switches to a native channel on the Cosmos ecosystem. But why is the DEX abandoning Ethereum, the world’s most popular full Turing blockchain?
The stock Exchange decentralized order book, dYdX, leaves the Ethereum blockchain to set up a native chain on the Cosmos ecosystem. The move comes as a surprise as the project defines itself as offering “advanced cryptofinanciers, powered by the Ethereum blockchain. »
The exchange is a single platform that offers lending, borrowing, perpetual futures, as well as margin and spot trading. Users connect their wallets in the same way as a standard decentralized exchange, then deposit funds into dYdX custody via a smart contract. However, funds are still only accessible through user wallets, unlike centralized exchanges. This hybrid offering makes dYdX unique in the Ethereum ecosystem.
dYdX described the operation as “the reconstruction of dYdX as a standalone Cosmos-based blockchain, with a fully decentralized, off-chain order book and matching engine.” The reconstruction will be the fourth version of the DEX using the Tendermint consensus mechanism. See the article: What does the future hold for BTC trading in this period of consolidation? – feat. Crypto Academy.
Through the use of the Cosmos SDK, the migration will allow the new version to offer, among other things, “full decentralization”. Additionally, Cosmos offers nearly unparalleled cross-chain interoperability thanks to the IBC protocol. The current dYdX token is an Ethereum-based ERC-20 token that uses StarWare’s StarkEX to facilitate Layer 2 functionality. However, the move to Cosmos will allow the dYdX platform to offer a token taken from its own blockchain and its own system of governance.
An independent blockchain using the Cosmos SDK dYdX will have its layer 1 token, validators and staking mechanisms. Therefore, it will not be responsible for Ethereum updates and will not be exposed to any issues that may arise before the proof-of-stake merger scheduled for September 2022. On Cosmos,
“Each validator has performed an in-memory order book that is never committed to consensus…the order book that the validator stores is definitely consistent with each of the others. In real time, orders will be matched through the network. The resulting transactions are then committed on-chain with each block. ”
dYdX says it “embraces radical changes in technology” and that Cosmos is an ecosystem that will allow it to continue to improve its vision.
The main reason for leaving dYdX is the high throughput required to run a decentralized system with a live order book. This trading mechanism is “essential to the trading experience that professional traders and institutions demand” and requires it to process over 1,000 trades per second. Staying on Ethereum, dYdX sees the scaling issues of this offering as;
“The fundamental problem with any L1 or L2 we can develop on is that none of them can handle a throughput close to that needed to run an order book and first-party matching engine. class “.
After this measure, operators will no longer have to pay gas fees for transactions, but fees based on the transactions made, which will then be paid to stakers and validators.
Drop Layer 2
On Ethereum, dYdX needs to use StarkWare Layer 2 to offer some of its products, like perpetual contract marketplaces. Read also: Quirky: How these “Silicon Valley” producers are using Ethereum NFTs for user-streamed comedy.. Previously, the platform sought to price towards a layer 2 to reduce gas fees and allow the exchange to grow.
“Ethereum can process around 15 transactions per second (TPS), which is not enough to support the hypergrowth of DeFi…Layer 2 scaling solutions – in the forms of Rollups – free up the layer base of Ethereum by offloading execution, resulting in reduced gas costs and increased throughput without increasing network load. »
For dYdX itself to make the transition will require ERC-20 token holders to agree to the change, as “DYDX, the dYdX protocol token, is governed by its holders… dYdX Trade Inc. has no control over how it is used. The new protocol will be entirely open-source and is currently looking to bring in new developers to help with the process.