If you didn’t hear the news, Ethereum is losing a major dapp on it’s blockchain. DyDx the
decentralized perpetual exchange, has announced they are moving to their own standalone chain
as part of the Cosmos ecosystem. Why is this happening? Is it because they are the best and
will provide the most decentralization? And could this be a kicker for other Ethereum dropouts,
like from Uniswap? Well find out in just over 10 minutes, because it’s time for Chico Crypto!
Yup, it’s happening dydx is breaking up with ETH and it’s layer 2s. As we can see this coming with
their v4 upgrade, and the teams says from the release blog “DyDx V4 will be developed as a
standalone blockchain based on the Cosmos SDK and Tendermint Proof-of-stake consensus protocol…dYdX
V4 marks the full decentralization of the dYdX protocol, and we’re excited about the unique
combination of decentralization, scalability, and customizability that Cosmos offers.
So why move away from Ethereum and it’s L2s if this just comes down to decentralization?
DyDx was originally built on Ethereum Layer 1, but eventually moved to a layer 2, based on Starkware.
And just last year, DyDX put out an AMA recap, of why they chose to build on Stark. In the AMA,
they praised starkware, and David on DyDX said in response to why they chose it
“The Main thing we were looking for was to move fast. We wanted to remove a lot of the
risk and work with someone who had been doing it on Mainnet ideally for a while. And StarkEX
had been doing that with Deversifi, and had a lot of success doing that,
and had a really good reputation in general from people we spoke to”
So what is the reason for ditching Starkware? Well back at their v4 post
DyDx said this “the fundamental problem with every l1 or l2 we could develop on is that none
can handle even close to the throughput needed to run a first class order book and matching engine.
This is where Cosmos comes in. Cosmos offer full customizability over how the blockchain
itself works, as well as the jobs validators perform. In DyDX v4 each validator will run an
in memory orderbook that is never committed to consensus ie it’s off chain.
So who is in charge of validators? Well DyDx token holders are…they are sticking with their
Layer 1 Ethereum token. They say “v4 protocol is designed with a need for a layer 1 protocol token.
This token will be used for staking to validators, as well as ongoing governance of the chain.The
DyDX token would seem to be a natur fit to be used as the layer 1 token of the v4 network.
So is this a good thing? DyDx token holders are in control of validation…Well a bartek.eth on
twitter said this about their Comos pivot “So now your funds, instead of being secured by Ethereum
will be secured by dYdX token holder majority? (brb, checking who still has 33% of the supply)
So who has the supply? Well of course the DyDX team has a large amount, but Antonio Juliano,
founder said this regarding if they would run validators “we will run no validators,
and becoming a validator will be a decentralized process (through staking)
If not DyDx, then who has the next biggest chunk? Well, it's not the community as of
now…it’s the investors, including one who may be making the decision for DyDX,
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So who could be the DyDX shot caller? Well as we can see, just back in June of last year,
DyDx closed a series C funding round, led by Paradigm…and they were going to use the
additional capital to #1 decentralize the protocol. Back to decentralization,
which Paradigm now obviously has a big say in how they are going to do it…
And if you didn’t know…Paradigm has a big ole hard-on for Cosmos. Last year,
Paradigm put out this blog post titled “A Cosmos Thesis” and they say “If Ethereum
is a mainframe computer, Cosmos is a protocol for networking independent
servers. Free markets frequently find better solutions to highly multivalent
problems than any we could manually enshrine. Cosmos is testing that hypothesis in the context
of blockchain application design. With IBC’s launch, the capital-I Interchain emerges.
Why such a raging boner for Cosmos? Well Paradigm was one of the initial backers for Cosmos creator
Tendermint, leading their Series A round back in March of 2019.
Which has allowed Paradigm to become a top validator for the Cosmos mainchain.
So this is the 1-2 punch from Paradigm, they are a top validator for Cosmos,
and they will be a top validator for DyDX…
But what about security? Ethereum is great, because of its shared security.
With Cosmos, the chain itself is required to secure itself. Which even Paradigm expressed
in their Cosmos Thesis paper. They said “: smart contracts on Ethereum can rely on the
platform for protection from safety failures like rollbacks or invalid state transitions.
On Cosmos, each chain is responsible for its own security, so applications may fail more often.”
Although they provide a counter argument to this saying “Cosmos will enable a wide variety
of shared-security options in the future. IBC can be used to couple the consensus sets of
multiple Zones. Zones like LazyLedger will enable sovereign execution environments to
share security via rollups (much like the rollup-centric Ethereum design).
The shared security in Cosmos, is called interchain security. So is it ready? Well
going to their Github for the v1 release, we can see that there is still much to do taskwise,
to get this ready to go live, and many tasks don’t even have a developer assigned to it yet.
Now Gavin Wood, co-founder of Ethereum and founder of Polkadot, actually talked about
this last year in November. Let’s hear what he had to say about shared security.
Sooo, I get why DyDx is moving from Ethereum, they need scalability, but they are sacrificing
security by moving over to Cosmos, who doesn’t have interchain security ready…why wouldn’t
they try out Polkadot who has everything needed and ready, for a truly decentralized product…
Well, it comes down to investors, and Paradigm doesn’t have Polkadot within their Portfolio.
So in my opinion, the decision came down to money, not who is the most decentralized…
So DyDX is making the move from Ethereum to Cosmos…could
another even bigger exchange follow in their steps soon?
Well if you didn’t know, Paradigm also has Uniswap in their portfolio. April of 2019,
Hayden Adams announced this on twitter, that Paradigm was leading their initial seed round.
Does this mean Cosmos could vampire attack the biggest decentralized exchange
on Ethereum….well in my opinion, this is highly possible and probable…
Why? Well if you don’t remember, it seemed very likely Uniswap was going to be directly
integrating flashbots, and even mistx..to prevent MEV attacks on swaps. There was a Uniswap v3 demo
built, which stated this was happening and even within the Uniswap Github, they had work being
done on this, with mist developer Dire0x and Uniswap’s Moody Salem working together.
But this was never integrated…it fell apart. There is still no way to provide
MEV and frontrunning protection directly through Uniswap.
Well if we go back to the Cosmos Thesis from Paradigm, one of the advantages from
Cosmos’s pitch? It’s MEV resistance..and if we go to this other research paper from Paradigm,
they discuss Cosmos in the MEV sense. They say “It is imagined that Cosmos blockchains
will be largely application-specific, and not share security with one another by default,
which may allow them to avoid externalities that would be harmful on a shared platform.”
So MEV is stopped because of no shared security by default…yet, shared security is coming to Cosmos…
Well you heard it here first, Uniswap could be doing a similar thing to DyDX,
moving over to Cosmos…which I think isn’t the greatest idea as interchain security isn’t ready,
and interchain security will bring the same problems Uniswap faces on Ethereum. Maybe try
Polkadot? Cheers viewers, I'll see you next time!