Authors: Daria Krasnova, BeinCrypto; Vishal Chawla, The Block

Translation: Felix, PANews

dYdX Chain was launched on the mainnet on October 27th, with the genesis block created at 1 am. Charles d'Haussy, CEO of the dYdX Foundation, stated, "This marks a huge leap for the dYdX ecosystem, representing a completely decentralized new chapter." In a recent media interview, Charles provided insights into the design of dYdX Chain, the future development of dYdX, and the current state of crypto. He also revealed that dYdX has achieved a trading volume of $1 trillion since its inception, accounting for about 1% of the global derivatives trading volume, but he expects dYdX's market share to eventually rise to 7%.

dYdX Chain

dYdX's primary developer, dYdX Trading, announced the open-sourcing of the v4 code on October 24th, signaling the launch of the dYdX v4 upgrade. v4 will be an independent L1 blockchain based on the Cosmos SDK (dYdX Chain), where everything from the order book to the matching engine will be part of a decentralized, community-governed project on an independent blockchain, secured by audited smart contracts. The dYdX Chain testnet was first launched in March this year and has since undergone multiple upgrades. The dYdX Chain aims to provide transparent and secure derivative trading, operated solely through code and managed by its user community. The post-genesis phase of dYdX Chain includes Alpha and Beta.

The Alpha phase focuses on bridging, staking, and security to ensure the stability and reliability of dYdX Chain, prioritizing economic balance, where the value of staked DYDX tokens exceeds the value of liquidity on the network, along with other effective security measures. In the Alpha phase, the main purpose of the mainnet is to stress test the network. Over 60 validators are being recruited to ensure network security.

The Beta phase will support trading but without rewards. This phase will incorporate traders, LPs, and other critical system components. All activities on dYdX Chain (if deployed on the mainnet) will gradually increase, providing a comprehensive trading experience for all users of dYdX Chain's open-source software.

In addition to the blockchain transition, dYdX Trading also plans to relinquish control over various components of the protocol and stop charging trading fees. Governance and decision-making responsibilities will be fully transferred to dYdX stakeholders and ecosystem participants.

Charles mentioned in the conversation that dYdX previously used an off-chain order book hosted on AWS, which was publicly accessible. However, dYdX Chain adopts a new architecture and abandons the off-chain order book. The order book will reside in the memory of validators, eliminating the need to wait for block confirmations.

Charles said, "I think in our industry, it's important who you are and what you do. dYdX chooses DeFi. Not half DeFi or half CeFi. You want to be clear about your identity and work towards it. So, stay tuned, we will see dYdX become a public good, a public infrastructure."

"Expect dYdX's market share to eventually rise to 7%"

Charles believes that dYdX will soon become a significant resource for the crypto community, especially in the perpetual contract space:

"When analyzing the market prospects for perpetual contracts, a clear development trajectory can be seen from a historical perspective. In the spot market, Uniswap currently accounts for 5% to 7% of global trading volume, reflecting the growth and importance of decentralized infrastructure. dYdX, which holds a 1% share of the crypto derivatives market, is also prepared to follow a similar path. Although the timing is uncertain, historical trends are undeniable. We expect dYdX's market share to eventually rise to 7%. With our continued progress, the future is indeed promising."

Charles envisions dYdX becoming a significant participant in the DeFi space, offering multiple avenues for user participation. In the current version, dYdX's diversity of access points is already evident, with users accessing its services in various ways. Some users opt for convenient mobile applications, while others prefer the desktop interface. A significant portion of trading volume also comes from institutional participants utilizing API integrations.

The flexibility of accessing dYdX continues to strengthen, representing a transition from single interaction to multi-faceted engagement. Similar to how some users interact with Compound without realizing it, dYdX is also similar. Users can access dYdX through official gateways, centralized exchanges, insurance products, or various other channels. The overall narrative is the transition of applications to protocols, ultimately evolving into a public good for derivative contracts.

Furthermore, Charles also presented the secret to DeFi's success. He believes that true success lies in creating exclusive markets. These markets must offer something unique, giving DeFi a competitive edge and providing clear value propositions to its users.

CeFi Regulation Accelerating DeFi's Rise

As the conversation unfolded, a deep dive into crypto regulation was discussed. Charles predicts that centralized exchanges will soon be forced to obtain licenses, primarily applicable to spot trading.

"I am not against regulation. I think regulation is important, but teams should consider the specifics and think carefully." "dYdX is very cautious, and we usually work with many legal advisors and lawyers. For projects looking to join the dYdX ecosystem, dYdX will make specific decisions based on the project's business. If the project offers services or software, the project will also be very cautious."

Paradoxically, this shift may accelerate the rise of DeFi, with centralized exchanges becoming a bridge to the decentralized financial world. The birth of the term "DeFi mullet" signifies the integration of traditional finance (front end) and DeFi (back end), which may reshape the financial landscape in the coming years.

Nevertheless, Charles pointed out that this is a rather lengthy process, taking at least 5 to 10 years. He believes that painful events like the collapse of FTX make people more aware of the fragility of CeFi infrastructure.

"People realize that they cannot trade on CeFi forever, so they need to explore different areas. They start learning about Curve, understanding how DeFi derivatives work, and begin using different protocols. Their first stop is always dYdX. Currently, we account for about 1% of the global derivatives trading volume, and dYdX has achieved a trading volume of $1 trillion since its inception. I think the dYdX testnet also reflects how many people are interested in DeFi and know that a robust infrastructure is being built."

Charles also pointed out that the current situation is very similar to the early days of the internet. Initially, there were concerns about it, mentioning issues such as drugs, weapons, and terrorist activities. Some called for regulation, but these efforts did not yield significant results. Over time, it became apparent that internet operators could establish guidelines, rules, and enforcement measures, but the technology itself remained unregulated.

Charles believes that a similar conclusion will apply to blockchain technology. Blockchain technology cannot be directly regulated, but the focus of regulation should be on the behavior of operators within the ecosystem.

Evolution of Bear Markets

Charles recalled the earlier days of the crypto industry, when bear markets were both lengthy and highly destructive, dragging down everyone or every project in the market downturn.

"The early bear market was a problem because the industry was very small, and everyone was on a downward trajectory. Today, the crypto industry has expanded a lot. Although the current bear market is still painful for everyone, many are still continuing to build because there is enough funding. When a bull market arrives, some projects will not be too excited; they manage a treasury, and the project can survive and have the financial strength to continue building for years. This was impossible in previous bear markets."

Today, the market environment is completely different. While bear markets may still bring shocks, their duration has significantly shortened. The crypto ecosystem is broader and more resilient. This industry has learned to adapt and develop, demonstrating a maturity that was once unimaginable.

As emphasized by Charles, the most prominent feature of the current crypto environment is the connection between the crypto market and the broader macroeconomic backdrop. The crypto market is no longer an isolated industry but a financial asset category that harmoniously develops with the global economy. This shift in mindset and the recognition of cryptocurrencies as a legitimate financial asset category have attracted the participation of a more diverse range of traders. Therefore, macroeconomic factors play a crucial role in today's context.

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