The order book decentralization exchange, dYdX, is leaving the Ethereum blockchain to set up a native chain on the Cosmos ecosystem. The project defines itself as offering advanced criptofinancial products powered by theEthereumBlockchain. The exchange offers lending, borrowing, perpetual futures, margin and spot trading. Users connect their wallets to a standard decentralized exchange and deposit funds into the custody of dYdX via smart contract. The funds are only accessible via the users wallets, unlike centralized exchanges. The hybrid offering makes dYdX unique within the Ethereum ecosystem.
dYdX described the move as a rebuilding of dYdX as a standalone Cosmos based blockchain with a fully decentralized, off-chain, orderbook and matching engine. The fourth version of the DEX will be the one that uses the Tendermint consensus mechanism.
The migration is expected to allow the new version to offer full decentralization, among other features, through the use of the Cosmos SDKCosmos SDK. The IBC protocol allows for cross-chain interoperability, which is an almost unrivaled feature of Cosmos. The current dYdX token is an Ethereum-based ERC 20 token, using StarWare's StarkEX to facilitate layer 2 functionality. The move to Cosmos will allow the dYdX platform to offer a truly taken token on its own blockchain and governance system.
An independent blockchain using the Cosmos SDKCosmos SDK dYdX will have its Layer 1 token, validators, and staking mechanisms. It will not be accountable for updates to Ethereum or any exposure to issues that may arise ahead of the proof-of-stake merger scheduled for September 2022, because of the fact that Cosmos is an ecosystem that will allow it to continue to improve under its vision.
There is a high throughput requirement for a dYdX leaving because of the high throughput requirements of running a decentralized system with a live orderbook. The trading mechanism is essential to the trading experience pro traders and institutions demand and requires it to process over 1,000 transactions per second. dYdX sees problems with scaling this offering by staying onEthereum.
After the move, traders will no longer have to pay gas fees for transactions, but instead will pay fees based on completed trades, which will be paid to stakers and validators.
On ether, dYdX has to use StarkWare Layer 2 to offer some of its products, such as perpetual contract markets. Previously, the platform had been looking to move towards layer 2 to reduce gas fees and allow the exchange to scale.
The holders of the ERC-20 token must agree to the change as DYDX, the protocol token of the dYdX protocol, is governed by its holders dYdX Trading Inc. and does not have any control over how it is used. The new protocol is looking to bring on new developers to help with the move, and will be fully open-source.