An Introduction to dYdX’s New Fully Sovereign Blockchain
The most powerful open exchange’s standalone app-chain, dYdX, has launched v4, its own fully sovereign open-source blockchain. And it’s been built using the Cosmos SDK.
But first thing’s first… What is a Cosmos SDK-based chain, and how does it work?
In a nutshell, the Cosmos SDK (or Software Development Kit) is a type of platform that provides developers with a set of tools, libraries, and protocols to create their own customized blockchain networks or decentralized applications.
It means that instead of building a blockchain from scratch, developers can use pre-built modules and frameworks provided by an SDK to accelerate the development process.
Some of the tools include pre-written code for essential functions like consensus (in this case CometBFT/Tendermint), smart contracts, and tokens.
dYdX has taken this infrastructure and made it their own by customizing it to meet the needs of its users, and to facilitate its unique perpetuals trading service.
dYdX chain validators… What are they?
Validators in Cosmos SDK-based chains propose and create blocks in the chain and secure and protect the network. They do this by participating in the consensus mechanism, which reviews incoming transactions, and validates new blocks.
Validators also check sender balances, transaction signatures, and adherence to network rules. The validators stand to gain from this by receiving rewards. (Explained later)
But they also take on a risk, as failure to validate correctly, can result in a slashing of staked assets or tokens.
So what does this all mean for dYdX v4?
The tl;dr of it is that the launch of dYdX’s v4 mainnet (as a Cosmos SDK-based chain) and its own DYDX coins, introduces new features including: delegation, rewards, voting, and undelegation.
Let’s break these down.
Delegation (Staking)
Delegation is the process by which a participant in a (Proof of Stake) blockchain network assigns (delegates) someone else (a validator) to perform tasks like network validation or block creation on their behalf. In this case they do this by lending their DYDX coins to delegators that run validator operations. Doing so helps to increase block validation participation and promotes resource sharing in the network.
Some delegators may opt to do this, as they may not be able to or want to run validator operations.
How to delegate/stake:
Step 1: Go to https://dydx-migration.mintscan.io/ and connect to your MetaMask.
Step 2: Click on the “Stake dYdX” option and then select “validator”.
Step 3: Choose which validator to delegate to and click next.
Staking Rewards
Delegators of DYDX coins can share the revenue of their validators, but delegators also share the risks. In terms of revenue, validators can apply a commission rate on the revenue that goes to their delegator before it is distributed. There normally is a minimum commission rate, but validators are free to set their own parameters.
Risks may include the slashing of staked coins in case a validator fails to validate a block that’s been assigned to them.
Revenue rewards generated from Cosmos chains typically come from transaction fees and inflation (minting new coins).
But dYdX v4 differs, as it offers a limited supply of DYDX coins and instead pays out rewards in USDC. These rewards are generated from transactions and trades only.
Also, worth noting is that staking in v4 differs from v3.
In v4 the PoS network requires that some coins be staked in order to ensure the security and integrity of the chain. But it comes with rewards for doing so. However, in v3 the staking of dYdX was not directly related to the security of the dYdX protocol. Staking in v3 is also no longer profitable since its community voted in favor of winding down the rewards associated with staking DYDX to 0 from its Safety Pool.
Claiming Rewards
Delegators on dYdX v4 can claim rewards within the Cøsmostation wallet or the staking interface (using MetaMask).
To do this, take the following steps:
Step 1: Click on your dYdX stake.
Step 2: Select the “Claim Rewards” transaction and confirm.
Undelegation (Unstake)
Conversely, undelegation refers to the process of revoking the delegation of assets or voting power that you have assigned to a validator. When you undelegate your assets, they are no longer staked or used for voting on the network.
dYdX holders can do this by sending a transaction to unstake and remove their tokens from being staked to a validator. Following this transaction, the dYdX tokens enter an unbonding period. Note, however, that a staker’s slashing risk with the original validator remains until the unbonding period is complete. Currently the unbonding period is set at 30 days.
Alternatively, stakers can choose to redelegate their coins to another validator, and avoid the unbonding period.
How to undelegate/unstake:
Step 1: Click on your dYdX stake.
Step 2: Select amount to unstake, and confirm.
Redelegation (Switch Validator)
Different from undelegation… Redelegation allows a network participant to move their delegation to a different validator. There is no unbonding period.
How to redelegate/switch validator:
Step 1: Click on your dYdX stake.
Step 2: Choose which validator to redelegate to.
Voting
Aside from being able to stake and claim rewards, holders of DYDX coins can also vote on dYdX chain governance proposals to adjust the chain’s parameters.
These may include (but are not limited to):
- Adding/removing markets
- Adjusting a live market’s parameters
- Fee schedules
- Trading rewards mechanics
The voting period on proposals is currently set at four days, and the percentage needed to veto a proposal is 33.4%.
What is Cøsmostation?
Cøsmostation is a dYdX Chain genesis validator and a key player in the Cøsmos ecosystem, providing invaluable infrastructure legos essential for scaling and onboarding users onto blockchain networks. Cøsmostation also bootstraps networks and onboards end-users.
Stake DYDX with Cøsmostation to help secure the dYdX Chain and get staking rewards.
You can move your tokens from v3 to v4 following this simple guide:
Mintscan
Moreover, Cøsmostation offers its own blockchain explorer, Mintscan. It provides insightful interactions with chain data across various networks and also features a user-centric design, with transparency placed at the core of its ethos.
