Recent events have shown us that the centralization of funds was not synonymous with security.
After finding out, many traders have turned to decentralized platforms such as dYdX. Indeed, this platform is entirely in the hands of the community via its $DYDX governance token.
The platform goes even further with the release of its 4th version (V4) planned soon which will once again improve the decentralization of the protocol and bring a real change to its structure.
We will discuss in this article all the specificities that this long-awaited V4 brings and the impact it could have on the future of the platform.
This article is brought to you in collaboration with dYdX
A brief presentation of dYdX
Simply put, dYdX is a decentralized trading platform based, for the moment, and we will come back to it with the V4 of the project, on the blockchain Ethereum and using the ZK Rollup Solution StarkEx of StarkWare for publishing evidence on Layer 1 (Ethereum).
The platform has been able to stand out very quickly from its competitors since 2017, the year of its launch, by offering a solution in most decentralized for trading high frequency and displaying very low fees see free in some cases.
Also, today dYdX is one of the largest decentralized trading platforms, posting volumes, for now, a billion dollars daily.
The protocol also has its own token, the $DYDXwhich notably allows the community to decide on the future of the project via a system of governance.
If you want to know more about the platform itself, we recommend our items about him dealing fundamentals behind it as well as tutorials explaining its features and specificities.
A V4 that changes everything thanks to Cosmos
As you will have understood, the ultimate goal of dYdX is to become the biggest trading platform totally decentralized able to compete with centralized exchanges like Binance Or Coinbase.
Currently, namely V3 of dYdXthe platform is largely decentralized, but some of its aspects are still centralizedwhich actually makes it a hybrid platform.
The few centralized elements are currently THE order book And the matching engine (allowing users to buy and sell at the best price) both run on centralized servers.
These centralized aspects of the protocol go against the long-term vision of the project and their philosophy. It is from this philosophy that the V4 took shape in order to offer their users a improved version, more complete and especially totally decentralized of the platform.
The goal is to make all aspects of the protocol controllable and modifiable only by the community through the system of governance.
What solutions are provided by V4 of dYdX ?
It is clear that the decentralization is at the heart of this new V4 which will not be long in coming.
The project team believes that this decentralization willdrastically improve transparency, Security, equity And the equality of chances within the protocol.
To do this, the project has teamed up with Paradigm and other experts in the field in order to best meet this mission.
Originally, the exchange protocol is built on smart contracts Ethereum and rollups StarkEx powered by StarkWare. This structure guarantees total transparency and treasury holdings of all funds and positions on dYdXbut does not make it possible to decentralize all its elements.
To meet all its challenges related to decentralization and throughput, the teams of dYdX then turned toCosmos ecosystem and the Cosmos SDK.
Cosmos, a carefully considered choice for the future of dYdX
The V4 of dYdX will be fully decentralized and to do so, the project plans to launch its own channel on the ecosystem Cosmos through the Cosmos SDK to the detriment of Ethereum on which it is currently implemented.
Based on Cosmos, the blockchain dYdX will exploit Tendermint with a consensus mechanism Proof of Stake with transaction finality in the order of seconds and transaction fees much lower than what Ethereum allows today.
In theory, the dYdX blockchain could demonstrate an ability to scale and a transactional throughput superior to the blockchains currently present on the market.
These performances are made possible thanks to Cosmos and its environment which offer high performance while allowing the sovereign blockchains of its ecosystem to own their own validators and native tokens, in this case here the $DYDX.
In order to achieve the desired high throughput, in particular regarding the order bookthis must be managed in a way fully decentralized and off-chain (offchain).
This is where Cosmos has its biggest role, because the Cosmos environment allows a great customization blockchains and how they work within it.
Indeed, in dYdX V4, each validator will execute A order book in memory of off-chain way. All the orders passed and canceled will be propagated through the network in a way identical to traditional transactions.
Of course, the order book stored by each validator will be in line with that held by the other validators in order to maintain absolute consistency within the network.
Also, thanks to Cosmos, dYdX will not need to apply any fees for trading, but would instead apply costs gas for each transaction made, returning directly to the pocket of the validators of blocks on its network. This process will therefore make it possible to offer extremely low fees to its users.
Beyond decentralization, V4 will also add several new features within the protocol:
- Other trading products, such as the spotmarging, and additional synthetics
- Improvement of options margins and guarantees
- Improved market structure and trading
- The seamless addition of new markets to trader
This V4, which represents a major step forward for dYdX, should see the light of day, according to the team, during the second half of 2023.
The construction stages of dYdX V4
In order to be able to carry out a maximum of tests as soon as possible, the development of the blockchain dYdX was divided into 5 steps (milestones) quite distinct.
Each of these steps refers to significant changes made to the network or creation of a new network.
Step 1: creating the testnet
The first step was to create the network testnet for developers thus allowing the first tests.
The main implementation characteristics of this step were:
- The order book and the matching engine
- The margin system
- Telemetry & Monitoring
Step 2: internal testnet
During step 2, named Testnet Internalthe addition of basic functionalities has been completed.
In fact, we are talking here about essential features to the proper functioning of the exchange as expenses, THE liquidations, Oracle Pricing Update or token transfer.
It was also during this stage that the developers’ test network was transformed into a testnet plus network steady comprising more knots and further facilitating large-scale testing by said developers.
The following steps have recently been updated by the team. If you want to check out the previous version of the channel building roadmap, we recommend the official documentation.
The following steps are under construction unlike the first two already effective. If you want more technical details on these steps, we encourage you to join project networks to chat directly with the project’s very active community of developers.
For the time being, the project therefore has 2 internal testnets to the chain serving respectively as playground for developers and more general testnet.
Step 3: External testnet
Step 3 will consist of launching a external testnet with a small initial group of validators.
This step will serve to complete the advanced features of the protocol on the chain. The main features implemented will be:
- Advanced order types such as Post Only, Stop-Limit or Reduce-Only
- Dynamic Funding Rates
- The use of the latest Cosmos-SDK functionalities which are used for the development of the channel, to propose and validate blocks
- Key access management and authorization
- Web-based trading interface
As part of the launch of the external testnet during this step, a limited number of validators can claim to participate. If you want to bring your stone to the building, an official form is available.
Stage 4 and 5: governance, IBC implementation and launch
Steps 4 and 5 will focus on adding non-essential products such as the governance, the process of adding or removing new trading pairs or IBC connections (Inter Blockchain Protocol) with other chains.
In addition, step 4 will be seen as the launch phase of a completely public testnetthis time, where stage 5 will inaugurate the mainet launch.
What to remember from this V4
In the idea, dYdX V4 will bring an undeniable evolution to the platform allowing it, without a doubt, to grow in the market.
As the platform is already number one in its field, the months and years to come could show us a dYdX walking on the flowerbeds of centralized platforms as the team behind the project hopes.
V4 being soon, we recommend that you keep the project under the radar in order to be informed as soon as possible of the big step that dYdX is about to cross.
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