Why dYdX is Leaving Ethereum And StarkWare For a Native Chain on Cosmos

Why dYdX is Leaving Ethereum And StarkWare For a Native Chain on Cosmos

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DYDX, a decentralized order book exchange has recently left the Ethereum blockchain and moved on to Cosmos to establish a native chain in the ecosystem. DYDX is built on the Ethereum blockchain and allows users to lend and borrow through smart contracts. This, sudden switch has come in as a surprise to the people, as the project defined itself as, “advanced crypto financial products, powered by the Ethereum blockchain.”

DYDX plans to establish a new native chain on the Cosmos ecosystem instead of the Ethereum blockchain. As a result of the move, the platform will be able to offer a fully decentralized, off-chain, order book, and matching engine. Furthermore, trading fees will be based on trade completions rather than gas fees.

What Is DYDX?

dYdX (DYDX) is a decentralized exchange platform for cryptocurrency margin trading for assets like BTC, ETH, SOL, DOT, and more. DYDX was announced in August 2021 by dydx Trading Inc with a vision to create an entirely decentralized trading platform. Till now, dYdX has launched somewhere around 26 markets on Layer 2 products, generating over $100 billion in trading volume (with ~75% of that volume coming from October alone).

DYDX launched its Layer 1 product, Solo, in July 2017. This product was primarily used for lending, borrowing, and margin trading on Ethereum. And by April 2021, DYDX also launched its Layer 2 product. DYdX utilizes StarkWare’s Layer 2 in order to eliminate the need to rely on a centralized exchange and combines decentralized exchange security and transparency with centralized exchange functionality and speed.

The DYDX platform has a lot of things to offer its users and that’s what makes it interesting. Along with lending and borrowing, the platform also offers features like spot trading, margin, and perpetual futures. DYDX uses a smart contract, using which, the users can directly connect to their wallets and exchange and deposit funds. The project is a perfect blend of the centralized and decentralized exchange. As these funds can only be accessed through the users’ wallets.

The Need For Leaving Ethereum and Starkware

The dydx project till now has entirely relied on Ethereum and Strakware to function. Even, the majority of its products can only function when used Strakware Layer 2 on Ethereum. But with this new move, the company should be prepared that it might not be able to use its products like perpetual contract markets.

The risks certainly seem high for switching up the technology. But the company defends its move by stating that this shift will heavily reduce the gas fee costs and will thus, escalate the exchange. The company also mentions that Ethereum now isn’t enough to support the quickly escalating growth of Defi, as it can only process 15 transactions per second.

Although the project has seem to have taken a huge shift from what it had started earlier, this change still isn’t forced upon its users. The ERC-20 holders of dydx users will first have to agree to change their tokens into “dydx”. This makes the protocol to be entirely governed by its users and the company cannot force them to agree to this new change.

Why Cosmos?

The dydx trading inc has given an ample amount of reason for leaving Ethereum. But its most prominent reason is the need for building an entirely decentralized system. This migration to Cosmos will provide dydx with a fully decentralized platform to offer to its users. Furthermore, Cosmos also has its own blockchain and governance system. This will allow the project to offer its users a truly token-based system. This will be an applaudable shift from a currently existing feature in which the users were using an ERC-20 token based on the Layer 2 functionality of StarkWare.

The project will also offer its users an in-memeory live order book. This order book will work on a real-time basis and will store orders consistently.  The trading platform is growing faster than ever and was registering more than 1,000 transactions per second. But with Ethereum it was difficult to manage these transactions, considering its speed. But the company believes that it won’t be the case with Cosmos and it will offer them a faster transactional speed along with a live order book making it a win-win for both the users and the company.

Takeaway

The dYdX foundation is developing and growing the dYdX protocol ecosystem, and trading, to focus on developing decentralized components of their project. The aim of the project is to turn it into an entirely decentralized sphere while maintaining complete transparency with its users. This new shift will allow the traders to have a clearer understanding of their financial orders with a live order book and will give them a sense of empowerment to be able to have a hold of all their transactions. The company has stated that this new move to the cosmos will give them the liberty to turn the project into an entirely decentralized space. Hopefully, the project turns out to be exactly what it stated as this will be huge turning point for how the trading industry works.

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