Nebular Summit: Why dYdX v4 Is The Future of Onchain Derivatives w/ CEO of dYdX Charles d'Haussy

Transcript

foreign what's going on high rollers roll up Nation final video of the ECC week here today at nebular Summit day one uh here with my friend Charles from dydx Foundation uh which has a ton of interesting updates if you guys haven't seen my technical thread recap I wrote a good Thread about the talk yesterday mostly aimed at devs but some good information there for users for testnet without further Ado uh let Charles introduce himself and we'll get right into what's going on with V4 and dydx thank you for having me great to be here with you and welcome again to Paris yeah Paris native you are are you a Paris

native no I'm from France but I'm originally from North France next to Belgium in a city called Lil okay fantastic fantastic well I'll tell you Paris is treating me well last year I had a little bit of run-ins with some parisians but this year they've been a little bit more kind to me perhaps it's the uh it's the middle of the bear Market Vibe a little less uh twang but anyways um we've done a lot of content in the past and a lot of focus about scaling in in general we're very bullish on just scaling the ecosystem it's clearly a huge need after kind of defy summer and kind of we've we saw that when a lot of transactions come on chain right um you know there's clogs there's some issues you guys kind of front ran that and moved your version three onto basically an app specific roll up with

uh Stark X and now going to be four um so I guess talk us through that initial transition as to why you decided to do an absolute specific roll-up with dark X and furthermore the transitioning into V4 with uh with the cosmos SDK absolutely so maybe to get back to the history of dydx the ydx was born in 2017 it was uh created by Antonio Giuliano a former Khan based engineer and dydx was born on ethereum layer one so the product evolve over the ethereum involved as well very quickly the app gets some good traction and eventually there was some kind of friction with the cost of gas and all the things we can imagine and as well as an application I

think the engineers were also thinking like they were high dependency on the underlying chain on my progress so dydx was one of the only adopter of of layer twos as you mentioned Stark X so we've been on stockx and doing great over there for for some years now but I think there was still this kind of feeling from Engineers that there was too much dependency on multi-purpose chain or what map progress and we are very focused at dydx as a protocol to really focus on decentralized finance for the use case of perpetuals So eventually a decision was made by the engineer involved to look at other Solutions beyond the layer 2 where we could we could increase the kind of

throughput of the chain itself but also progressing into decentralization of the protocol on the version 3 of the ydx which is sitting on Stark X the other book is still of chain that's something which is public information there is no there is no chain capable of supporting essentially the velocity of the other book so by picking a stack which was enabling a better control of the full stack from the application Level down to the to the chain level it was essentially opening much more potential solutions for for the engineering team to look at how we can decentralize further the protocol and essentially leveraging the best technology available to to keep upgrading the experience for users and and keep progressing into our own map of decentralizing the protocol

itself so moving to Cosmos is it comes for many reasons but one of the one of the main reason is essentially as I mentioned controlling the full Stacks so making sure you don't sit on someone else hold map and you don't have a dependency on their progress making sure also the chain you kind of host your application on is dedicated to your use case so you can essentially fine tune everything for your single use case and get a full stack which is much more efficient so improving the experience for for Traders as well as decentralizing the order book so as I mentioned earlier the other book is off chain on the on the version three on version four there is this new kind of architecture design where the order book will not technically be on chain because another book on chain still have

a dependency in terms of block time and and this block time will Define essentially a latency into the into the trail execution and that will be a friction point for for the experience of users so on the version 4 of the ydx the other book will will actually be hosted within the memory of the validators so the validators of the dyd exchange we will have two jobs the first job is a very classic work you need to verify blogs and meet new blocks and the second job is hosting within the memory of your validator and updating this is this order book file so you can match others as well so it's really the the technical decisions which was made to decentralize the other book without adding it on

chain so we we kind of deliver in this uh long term roadmap for dydx to really deliver the most efficient and and performance user experience in terms of decentralized Finance as well as decentralizing the protocol itself yeah I think the the key takeaways here with regards to the protocol itself is that kind of desire to have the control over your own your own destiny effectively right uh relying on starkware or any of any other General roll up you know puts you at at that kind of at their Mercy right and so you know in the earlier panel with with regards to our our l1s the center our app specific l1's the same as Roll-Ups the general uh consensus were those two

points that you made right you can control your upgrade ability and customizability much more than a general rule of infrastructure very important for what I consider is to be like an island right dydx is basically an island people go there for one reason like I'm going to Mykonos next week and I'm going to party people go to dydx they go to make money trade and to basically hedge positions take Longs or shorts and have a you know an execution environment which can support size speed and low latency and so you know it's similar to that of you know a binance a bitmex which are obviously like centralized um Perpetual swaps but those are also Islands people go there and that's what you know they do now with regards to composability for dydx um do you feel that being a part of the

cosmos ecosystem allows you to have more uh users and liquidity bridges come from other Cosmos uh chains more so than you know on V3 with Stark x uh or kind of what's your view there on the composability aspect with V4 now that's a great question so as a derivative protocol we don't have so much dependency on compatibility essentially users come on dydx application they come with usdc and from the usdc the usdc deposit they start to essentially Express their opinion on the market via BTC long if short or whatever they want they want to decide so we we're not like a landing protocol where you need to have assets coming in to essentially kind of get the flywheel rolling we are

we are more kind of isolated and more independent so migrating to to Cosmos does not really represent a challenge from this from this side of things since we have a core asset and this core assets is usdc that will be more probably later on with the community votes and and other upgrades but we don't have so much dependency moving to Cosmos really brings better experience overall so we're able to control much more how the gas fees are being used within the platform as there is also higher throughput there is also a really a totally new design new architecture of the I would say that it's a bit is a base it's a chain how's the audiobook are being managed so it just bring much more space for getability and and it's

also kind of new Innovations to come into the ecosystem of dydx so there is already people at work thinking of permissionless markets so beyond the original trading pairs you will find there is also in in kind of in the box with people who are working on this already thinking on how you can essentially create a platform which is upgraded fast enough and and ready to host some permissionless market and by permissions Market means a little bit like the like uni swap created this kind of new optionality for for users of of blockchain in general to come and create a new their own trading markets you will have the same optionality with with dydx later when the time comes but this is on

the roadmap and this is thanks to essentially an upgrade of the full stack which allows us to do much more yeah I think that's the uh that's the right idea right same to that kind of mental model that I said of the island people go there for one reason it's it's the trade they're not really worried about uh whether they can um do other Financial Primitives there or kind of and you're also not reliant on kind of a liquidity flow and I also think that being part of that of the cosmos stack well it's easier for people who are using osmo or G or Juno or et cetera to kind of just easily Port over um and make dydx their trading platform of choice for that kind of more aggressive trading and so uh to that extent uh I'm kind of curious shifting

gears towards the the user base um I I know on the volume side um I don't know the exact numbers but you guys are definitely top two with GMX and perhaps one more thing about a billion um is it must be a billion per month I think per day sorry um and so where do you think or where from the data that you're seeing is that user based primarily is it institutions is it is it whales is it smaller Traders you know how many typical active wallets per day you know per size kind of what do you think or what is your best judgment as far as the user base of dydx and thus similarly the user base for derivative dexes in the space absolutely before diving into the numbers I think I I would like also to highlight one thing is we're not

expanding to a new chain into Cosmos we are migrating so it comes with very strong convictions uh we build these convictions of amounts of engineering and testing but uh so the history is going to wind down exactly so unlike some other D5 protocol which will be expanding from layer one to different layer of tools and kind of trying many different places and see what works best we build a much more a sticky ecosystem a loyal ecosystem around the ydx remember we we are we're in a we're in the in the in this space since 2017 so it's really a migration so as you mentioned earlier there will be a transition period where eventually the version 3 on ethereum of dydx will

essentially close and version 4 will be will be at full full speed today if you look at numbers around dydx protocol so last year in 2022 dydx reported a 466 billion US dollar of trading that's more or less between one to two billion dollar per day of trading uh the base of Traders about 50 to 50 55 000 and this is also evolving and going fast and yes the biggest threading pairs will be BTC if Solana and the usual suspect will will follow up closely and within the space of of D5 and perpetuals uh it's more or less represent more or less one percent of the global market so perpetuals are still mainly used uh and

and in kind of uh yeah used within centralized Finance exchange Capital Exchange uh but device just certainly progressing the way we see the market is events like the FTX collapse I think have kind of wake up the appetite for large institutions for professional traders to say okay there is new space there is also risk on the centralized uh infrastructure sometimes they don't exactly know what what happened behind those trading engine and who is exactly on the uh on the marketplace you've got much more transparency and visibility on how the market Works in D5 it's also non-custodial so the exchange itself does not take the custody of your asset which is I think some people will

definitely remember the lessons if they were impacted by by FTX for example so there is really from this large kind of institutional Traders and large market makers part of the the ecosystem of dydx an acknowledgment that the infrastructure is definitely evolving that there is the the kind of direction of travel is clear the base of position it's quite hard to put a number on it it's probably going to take two three five years I will more bet on three to five years I think the this kind of big move on centralized type of infrastructure to the centralized will take more time but dydx is definitely showing by the numbers as the infrastructure is working is capturing

attention and we see more and more people essentially starting their Learning Journey um uh in expanding into D5 infrastructure and expanding into into dydx usually the API are very similar but in terms of info infrastructure you just need to reorganize a little bit your back your back office your kind of flaws your risk management and we see a lot of these people kind of engaging with the UI do adx ecosystem and and rethinking okay how do I start to diversify my trading values and how also how do I participate into the futures of the of the markets and how do I get uh my my learning experience my team starting to be familiar should it be from the trading side or the

infrastructure side familiar with this new type of infrastructure and how do I support them because this is really where we are all kind of heading to yeah and like any kind of massive industry impacting business right there is always a disruption of an intermediary like uber took out taxis for the most broad example right and kind of I think I think uh for lack of better word dydx's strategies to vampire attack some of these centralized exchanges with a better experience with better marketing with explaining the benefits of being decentralized for you as a user right because frankly a lot of people don't really care but then FTX happens but then you know uh CZ is under a whole load of scrutiny right now so that happens so I think similarly for

your building strategy of kind of build it the best decentralized um derivatives that's possible you're also going to have some help from the uh from you know the regulatory side on the centralized exchanges as they kind of clamp down there and you guys also move towards this kind of Dow Foundation route so talk to us a little bit about the reasoning behind this this decentralization uh it's kind of emote um and kind of why you're building it this way and how that process is going to build out these sub-dials of this larger dial absolutely so if you look at the ecosystem of the uidx today you've got more or less four entities and this is a number which is going you've got dydx trading the original company behind the protocol the dydx foundation which

is a reach of 20 people fantastic talents helping with Community Works decentralized governance essentially supporting the ecosystem overall but there is also two dollars which have been built by the the community the grants now so obviously it does all kind of runs all kind of Grants program over the past two years the grand style has been deploying uh 3.3 million USD to 100 plus projects which have been building modules dashboards trading engines made some research adjusted many many different things or made some proposals to the community on how to adjust the governance and and the use components of the protocol the latest daos built by the community the dydx operation though

which was funded earlier this year uh they also raised some money from the the community so there is 6.6 million US dollar which allows them to get a kind of a clear path a clear kind of runaway for the coming 18 months as well as hiring full-time engineers and full-time employees to really be uh be part of the of the ecosystem and being being one of the pillar providing some some key services for for the chain and the dydx operations though is also interesting they decided to really kind of Step Up the game of those and to the best of my knowledge this will be the first Dao which will be using external Auditors to kind of audit their audit their their accounts or did their kind of operations

flows to make sure that they are doing they're properly running the Dao they're procuring services for example the right way as a pricing is right so it's something we haven't seen yet but we we have very strong signal around the dydx ecosystem that this is one place where the visualization of our space is popping up so the Dao the the operations now choosing to get the soft party auditor we see also much more professional players coming in the dydx validators ecosystem so there is about 50 validators today on the public test net and this number uh increase regularly but we see more and more new type of validator so you've got the usual suspect of of crypto native

validators but we see people like Google we see people like Galaxy digital we see some validators which are really focused and very large teams on on deploying very high performance type of validations with very strong slas that's probably something we are not seeing like a year ago that was more kind of passionate people or very young structures so we see these personalization of the space as a very good signal that people are supportive of dydx in general but for our industry also seeing that we are growing and it's more competitive and everyone is kind of stepping up their game and that's a net positive for everyone yeah yeah most definitely and especially with with V4

arriving quite soon it's it's an exciting time and also a timely opportunity for the operations now to kind of get up and running it seems like that they'll have quite a bit on their hands in the coming months um so with V4 I would love to give our community kind of what the roadmap is the timeline what they can expect when they can try it and then you know how to basically to take most advantage of this upcoming launch of many different test Nets so definitely big test that that's where 50 validators and and this set is going are kind of doing the final testing and putting the chain in all kind of scenarios later this year I don't want to make any promises the engineers are delivering when it's ready

later this year before we eventually start to uh will be launched and then we will observe some kind of progressive transition between the version 3 sitting on ethereum to version 4. um and then people will be able to start to start using the ydx on the on the new type of infrastructure no big change on API so from the user perspective this should not be very disruptive you will be able to come with your metamask wallet you will be able to come with your convey as wallet so the engineers at dydx are really kind of reverse engineering everything from the trader experience from the user experience and thinking okay how we can twist everything we can twist so that it's as smooth as possible

and people possibly barely realize we actually upgraded the full underlying stack with a an ethereum sorry with a cosmos chain and all these good these good additions right so transition should be fairly fairly quick and then a lot of talks already in the community forums about permissionless markets so why I'm excited about the mission left Market permission at Market Market will will enable essentially users to come and create new markets so you should probably expect more altcoins being being launched but I'm very excited about what some people started to converse about is bringing real world assets bringing assets possibly you are trading on the community exchanges such

as Chicago and and why not bring this really exclusive markets such as price of chrome betting on the price of the electricity in whatever market and really democrite democratizing this easy access to this kind of of assets and the magic is and why I'm excited is we don't really know what will come yeah and if you set up a right product with the right risk management around it good formulas for for liquidity it essentially brings like the best ingredients for for their use they use users to come and say I've got this use case and what is exciting is when you are unclear of the the type of your scales which will come to you and and this is where you get very often some some great and inspiring surprises

yeah no doubt I mean that's the coolest part about derivatives markets is there's literally a market for everything like you can go from mangoes to onions to sugar to electricity oil and then all the way to crypto and it just is kind of endless and then I mean as long as you have the right technology in place like you said people will just come and I think also some Alpha for our community as well is here that I'm sure there's going to be some sort of little extra extra cherry on top to come over to V4 from V3 because I know those users are earning some good yield and getting some nice rewards there so looking forward to that but won't I won't make a comment too much on that front anyways though it's been an absolute pleasure um I guess closing thought is once

you're done scaling the derivative space and you've taken down uh sorry about that once you're done scaling the derivative of space and you've taken down coinbase and financing you're the king of derivatives and dydx is is in the new is in the newspapers every single day what passion project would you like to work on using blockchain technology what interests you um you know I've heard liquid governance I've heard liquid democracy I've heard um ZK for different types of games things like this but just curious about something that you that interests you personally as there is many things interesting in this space and sometimes you need to focus right sticking to the ydx I'm just very excited by the different type of

assets and bringing maybe more more different type of user profiles to the ecosystem with permissionless Market you can imagine people coming and expecting their opinion on on video games assets building indexes building all kind of of financial primitive there is a big staking ecosystem going up in the world of Cosmos which will bring a lot of opportunities there so yeah just expanding expanding the people around the table and and sharing the pie I think we are we're still quite a small space so one of our responsibility is also to make better products to stay engaged with regulators and making sure that we we keep building and we keep demonstrating that D5 is here to stay I

think we've got very strong signals you see governments starting to use cbdc's starting to load the radio technology for different use case people might have their views on CBD season I respect that but overall I take it as a signal that's what we're building is Meaningful and people are starting to reuse some components of our works in many different contexts so it's just bring more people to the space in general and I see D5 as an upgrade of the internet in general so if I see people using less their whatever money systems and they get a more fair and faster and better money experience I think that's just a really strong and impactful contribution we do to the the digital societies we're living in

spoken very well I appreciate your time and best of luck going forward I'm looking forward to uh V4 thanks for having us cheers this video is brought to you by connect connects is a cross chain protocol that lets you build crushing applications and experiences in a secure way Rob and I really enjoyed their Tech because they don't add any new security assumptions on top of the connected change as they don't rely on an external validator set or an oracle security is definitely Paramount in D5 so we're excited to work with connects