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Evaluating DYDX, the dYdX Layer 1 token

Evaluating DYDX, the dYdX Layer 1 token

The dYdX Chain, together with its native Layer 1 token DYDX, was released on October 26, 2023.

While the original ethDYDX tokens continue to be in circulation, the migration of 75.2% of its total volume to the dYdX Chain signals a swift transition to the new ecosystem. 

Namely, the dYdX Foundation launched ethDYDX (then called DYDX) on August 3, 2021, as a governance-only token for the dYdX Layer 2 protocol on Ethereum (ETH) — dYdX v3. 

EthDYDX allowed the community to govern aspects of dYdX v3 and fostered an ecosystem around governance, rewards, and staking. 

The community voted in favor of adopting the new DYDX as the Layer 1 token of the dYdX Chain, leading to the deployment of the wethDYDX Smart Contract and the front-end. 

The security of the dYdX Chain

The dYdX Chain employs a Proof-of-Stake (PoS) security mechanism, where token holders stake their DYDX to Validators to fortify the network’s security. 

Currently, around 149 million DYDX (14.9% of the total supply) are staked to active Validators on the dYdX Chain.

On April 6, the dYdX Community decided to liquid-stake 20 million DYDX with Stride to enhance Validator decentralization, minimize the risk of malicious attacks, and bolster network security.

Staking rewards will automatically compound in USD Coin (USDC) and be converted into DYDX by the Stride protocol and then staked again for additional rewards. 

This underscores the community’s commitment to safeguarding the dYdX Chain’s security and stability while managing the community treasury.

Staking benefits on dYdX

100% of the protocol’s fees are distributed to DYDX stakers who contribute to the network’s security by staking their tokens to dYdX Chain Validators. 

This opens up various practical use cases for stakers, allowing them to reinvest their USDC rewards into crypto or other assets or use USDC as collateral for trading on the dYdX Chain.

So far, the dYdX Chain has generated over $120 billion in cumulative trading volume, with more than $20 million in USDC distributed to stakers. 

The decantralized nature of the dYdX chain

The launch of the dYdX Chain marked a significant milestone in dYdX’s decentralization journey. 

In contrast to dYdX v3, a non-custodial hybrid Layer 2 DEX on Ethereum with a centralized orderbook and matching engine, the dYdX Chain is a fully decentralized and independent Layer 1 network with 60 active Validators. 

Governance is thus more accessible, with reduced minimum deposits for proposals and streamlined market listing processes.

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