What You're Missing About dYdX v4: A 30-Page Deep Dive
Tokenomics, Unlock, and Comparisons to other Perp DEXs
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One of the biggest activities in cryptocurrency is trading and speculation, and although centralized exchanges (CEXs) are where most of the trading takes place, decentralized exchanges (DEXs) continue to grow in popularity as they do not require a central intermediary to facilitate trades.
DEXs to CEX spot trading volume has continued to grow over time and now makes up about 10-20% of CEX volume. As DEXs continues to improve in capital efficiency, UIUX, and security, the spot volume on DEX should continue to grow against CEX.
In traditional finance, financial markets tend to evolve from spot-driven to derivative-driven. A derivative is a financial contract which price or value is derived from an underlying asset. The most common types of derivatives in crypto are perpetuals (which are a type of futures) and options. According to most estimates, derivatives trading volumes tend to be higher than cash trading volumes. This is due to derivatives providing additional utility, such as leverage and hedging.
Evolution of Assets: Spot → Derivatives
Thus as crypto grows and becomes more financialized, it is expected to follow the same trajectory as traditional finance, where derivatives volume outgrows spot volume. Crypto derivatives now dominate the market with 74.8% share of crypto's total trading volume.
Source: CoinGecko
However, this derivative volume is made up of over 98% from CEXs and less than 2% from DEXs. Why is this figure so low and stagnant for so long?
In order for perp DEXs to outperform CEXs, they must outperform in three key areas: user experience, security, and governance. One of the largest perp DEX, dYdX, which makes over a billion in volume a day, has recently improved these key aspects with their v4 migration.
However this migration also coincided with a recent token unlock which has increased their circulating supply by about 80% overnight and increased inflation henceforth, causing investors to be cautious. Will the improvements in dYdX v4 be sufficient in boosting investor confidence versus the new supply inflation?
In this week’s report, we aim to provide an in-depth analysis of dYdX, its new tokenomics, and how it compares with others. Join us as we unfold the layers of these significant developments in the world of perp DEXs.