dYdX Plans To Transition To Become Standalone Blockchain With The Release Of v4 Open-Source Code

The dYdX Foundation will oversee a governance vote to decide the transition of v4 to the mainnet. Prominent crypto derivatives exchange dYdX, has released the open-source code for their upcoming version 4. The new dYdX Chain, based on Cosmos SDK and Tendermint Proof-of-stake consensus protocol, is expected to enable transactions of up to 2,000 per second.

This is the first step of the v4 upgrade, where the DEX is moving from the Ethereum layer-2 network to its own independent blockchain.

Cosmos-Blockchain

dYdX has decided to integrate Cosmos into its version 4 as a strategic move. This decision was made after assessing the current and upcoming blockchain technologies. When considering trading models, dYdX explored options like Automated Market Makers (AMMs) and Request for Quote (RFQ) systems. However, they determined that an orderbook-based protocol was necessary to meet the needs of experienced traders.

The team at dYdX was unhappy with the current off-chain orderbook systems. These systems had problems like frontrunning and trade collisions due to a lack of matching or relied on centralized matching, which goes against the decentralized nature of dYdX v4, the protocol announced in June.

In dYdX v4, each validator will have an in-memory order book. This order book will remain off-chain and will not be included in the consensus. Orders and cancellations will be sent through the network like regular blockchain transactions.

The system is designed to ensure that orders and cancellations are processed smoothly. Each validator stores an order book that is consistently updated. The network matches orders in real time and records the trades on-chain with every new block.

dYdX v4 will have a high throughput for the order book but will remain decentralized. Cosmos provides greater flexibility for the dYdX Chain to meet its specific requirements. Gas fees will be eliminated and replaced with fees based on executed trades, similar to dYdX v3 and centralized exchanges. These fees will go to validators and their stakers, creating a fair and sustainable compensation structure.

According to Antonio Juliano, the founder and CEO of dYdX Trading, the recent release of dYdX Chain software signifies the complete decentralization of dYdX. This marks a significant milestone in the protocol's goal to provide equal access to financial opportunities for all individuals.