Good news for Cosmos, bad look for Ethereum - dYdX on the move.

over 2 years ago (Edited)

Big news came out in the last couple of days, which has Ethereum maxi's perplexed and disappointed, and Cosmos eco-system participants over the moon. Decentralized exchange dYdX has announced that it is building V4 of its protocol, not on an Ethereum roll-up where it currently lives, but as a stand alone chain built using the Cosmos SDK.

What is dYdX?

dYdX is an orderbook Dex, specializing in Perpetual contract. Aimed at high volumes of trades, and sophisticated traders is the impression I get, having never used it, and barely heard of it until the last couple of days. It is a highly used Dex, and currently it is based on an Ethereum rollup, powered by Starkware.

Image Source: Coinmarketcap

As you can see from the above screenshot from Coinmarketcap, dYdX is a significant protocol, ranking as the number 2 Dex by volume in crypto according to CMC. Ahead of Curve, and Pancakeswap for example, and second only to Uniswap. So the news that they dropped this week is significant, and a major structural shift in the market.

The news.

dYdX is building its V4 of its Dex on a stand alone Cosmos SDK chain. They have researched to available options, and decided that their needs are better served by spinning up their own chain, rather than remaining on Ethereum on a layer 2. By using the Cosmos SDK, they gain a fast, low fee option, and a highly performant settlement layer for their Dex. Ethereum constraints were reduced for them by living on the Starkware rollup, however they have decided that building a Cosmos chain, adapted to their specific needs represented an improvement in decentralization.

This news has prompted a twitter storm, with many salty ETH maxi's throwing out lines like "No one uses Cosmos" and such. However, others have had a more measured approach, and looked into the "App chain" vision of Cosmos, compared to the "build everything on one chain" vision of ETH. The decision by dYdX is a vindication of the Cosmos ethos, of App specific chains that can all connect, via the IBC protocol.

One of the things dYdX is planning is for their new chain to have no gas fees. This is possible for Cosmos chains, and a customization option. dYdX is planning to charge their users a percentage based fee, which will be used instead of Gas as the income for Validators and token stakers on the new chain.

A key point for dYdX is to use the chain for settlements, but to keep the order book off chain. With this move, storing the order book in memory will become the validators job. They will validate the on-chain transactions, and hold the orderbook (or part of) in short term memory so it does not need to be all on-chain. It is envisaged that this will allow dYdX to scale up significantly.

The reactions.

A number of the reactions from Eth people demonstrate ignorance of the Cosmos eco-system and how it all works. People are thinking this means they are building on the Cosmos chain itself (ATOM), and not realizing the difference between the Cosmos Hub (ATOM), Cosmos SDK (chain building architecture) and Cosmos eco-system (all the different Cosmos type chains that are linked together via IBC).

dYdX will be building its own chain, not living on any one else's.

Here is a meme posted by a founder (the founder? I'm not sure) of dYdX which sums up the reactions pretty well.

Image stolen from this tweet.

To see more of the reactions, check responses to Antonio | dYdX or the official dYdX account.

You can find the full announcement post here

So what do you think about this move?

Bullish Cosmos, bearish Ethereum, or nah?

Let me know in the comments below.

Cheers,

JK.