There are very few truly decentralized exchanges (DEX) or crypto platforms around at the moment, but one aiming to claim that accolade is the dYdX derivatives exchange.
Not many of today’s DeFi protocols are truly decentralized in all senses of the concept. The world’s leading DEX, Uniswap, for example, has its governance controlled by a small minority of whales and companies holding most of the tokens.
Others have dished out tokens to venture capital companies and insiders that maintain control and most of them rely on centralized cloud service providers.
Derivatives exchange dYdX aims to become fully decentralized, laying out its plans in a roadmap posted on Jan 11. The exchange plans to launch version 4 of the protocol this year, which it claims will be “open-source, fully decentralized, and entirely controlled by the community.”
The road to decentralization
The team describes the current iteration of the platform as a “hybrid decentralized exchange” with partial decentralization and some centralization such as it running on servers operated by the firm dYdX Trading Inc.
The core exchange protocol runs on Ethereum smart contracts and zero-knowledge rollups powered by Starkware but the order book and matching engine are more centralized.
Version 4 will no longer have central points of control or failure and be fully community-controlled, it stated. To achieve this it will need to decentralize the order book and matching engine.
There are a number of challenges with this such as throughput which needs to be increased, finality and sequencing trades, and prevention of front running.
The protocol will also be entirely controlled and governed by the community, but naturally, the big bag holders will have more sway in votes than the minnows.
It added that dYdX Trading Inc., which currently collects revenue through trading fees, will no longer do so after the v4 launch later in 2022.
According to DeFiLlama, dYdX has $988 million in total value locked, an increase of 473% over the past six months.
DYDX token price outlook
The exchange’s native token of the same name is trading up 12.5% today according to CoinGecko. At the time of press, DYDX was changing hands for $7.20 having regained all losses over the past week.
The DeFi token has been hit hard since its Sept. 30 all-time high of $27.86, however, having lost 74% to today’s levels.
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