Thread by @imperator_co

Recently, @AntonioMJuliano did an interview with @BanklessHQ to explain @dYdX's decision to move to a Cosmos app chain. ⚛️

In this thread, we will cover all major points that pushed the team to take this decision 🧵

Here's our summary from this insightful interview 👇

@AntonioMJuliano @BanklessHQ @dYdX 📌 Introduction

@dYdX is a very popular and successful derivative exchange which was first built on Ethereum Mainnet, then moved to Starkware, an Ethereum L2.

Last week, the team announced they will create their own #Cosmos app chain for the V4.

https://twitter.com/dYdX/status/1539607062291877889?s=20&t=DZxPdXSHk2jVL13zthgDEw

@AntonioMJuliano @BanklessHQ @dYdX This decision has been a great source of promotion for the Cosmos ecosystem & the app chain world, making it a solid challenger to the L2 vision.

Seeing that, we can definitely wonder:
Is the future going to be an app chain world or a L2 world?

@AntonioMJuliano @BanklessHQ @dYdX 📌 The reason behind dYdX move

It's essential to understand that dYdX is not a chain maximalist.

👉 dYdX is a PRODUCT maximalist: they only care about offering the best product experience for users.

https://twitter.com/AntonioMJuliano/status/1539725009857515522?s=20&t=hDRHfyLEJr54jus_HUu9mw

@AntonioMJuliano @BanklessHQ @dYdX The success of any tech company is a combination of the best possible product with the best distribution.

The product is what teams should focus on the most, and this is what led to the decision of moving to Cosmos.

@AntonioMJuliano @BanklessHQ @dYdX dydx's mindset has always been to try things that are fundamentally different from what we can see with other Dapps.

👉 It was the first popular Dapp to move to an L2
👉 It's the biggest protocol on a L2 today
👉 And it wants to achieve the same success with the App chain

@AntonioMJuliano @BanklessHQ @dYdX 📌 What's dYdX plan to create the best product?

The best product in DeFi is a mix of UX, features, decentralization & security.

This is what DeFi users only care about.

https://twitter.com/AntonioMJuliano/status/1539725017176580098?s=20&t=hDRHfyLEJr54jus_HUu9mw

@AntonioMJuliano @BanklessHQ @dYdX 📌 How are these points better on Cosmos?

On the V3, the orderbook and the order matching engine are centralized, they run on dYdX servers which depend on AWS.

This is a big issue.

@AntonioMJuliano @BanklessHQ @dYdX The dYdX V3 is great for:

👉 The UX
👉 The Features (but still less features than a CEX)
👉 The Security (because dYdX cares about its users)
❌ But decentralization is not great: it’s non-custodial, but it’s not decentralized & not censorship resistant.

@AntonioMJuliano @BanklessHQ @dYdX For the V4, dYdX wants to create a fully decentralized product.

If you want to understand what decentralization is,
@AntonioMJuliano defined it well:

👉 "Decentralization of a system is the minimum decentralization of all its component"

Now you can understand dydx's choice

@AntonioMJuliano @BanklessHQ @dYdX Not only the order matching engine is centralized, but the current V3 is built on Starknet which relies on a centralized sequencer as well. This adds another issue for the dYdX team and their ambition to create the best DeFi app.

@AntonioMJuliano @BanklessHQ @dYdX 📌 What will V4 look like?

👉 UX: Similar to V3, a slightly higher latency but it won't change the user experience
👉 Features: As many as the V3 + add spot, margin & other derivatives later
👉 Decentralization: Far better than now
👉 Security: Still great level of security

@AntonioMJuliano @BanklessHQ @dYdX 📌 Can a appchain handle a great number of transactions?

Right now, the V3 has ~ 1,000 order places and cancellations per second.

The idea was to find a blockchain that can handle that many transactions with minimal to no fees.

@AntonioMJuliano @BanklessHQ @dYdX Unfortunately, no blockchain can handle this. Therefore, the idea is to create a second off-chain network to run the orderbook and the order matching engine.

And what's the best technology to develop this?
👉 A Cosmos SDK blockchain.

@AntonioMJuliano @BanklessHQ @dYdX On the V4, orderbook & matching engine will be held by validators which will store their own version of the orderbook off-chain.

https://twitter.com/dYdX/status/1539607068277178368?s=20&t=DZxPdXSHk2jVL13zthgDEw

@AntonioMJuliano @BanklessHQ @dYdX Non-custodial trading, censorship resistance & quality of access is what you get with a decentralized system.

This is not possible by keeping a centralized sequencer, and decentralizing the sequencers is not a lot more decentralized that what they could achieve on the dYdX chain

@AntonioMJuliano @BanklessHQ @dYdX 📌 What are the risks related to the dYdX chain?

👉 The 1st risk is the product is really hard to build

The team will have to create the base level of the blockchain,
the different modules, the off-chain orderbook network, the oracle network, the wallet... That's a lot of work

@AntonioMJuliano @BanklessHQ @dYdX 👉 Bridges: dYdX is a derivative exchange and only needs one collateral token.

Right now on the V3, the collateral is USDC and there is not a
native version of USDC on Cosmos currently. The team is in talk with Circle in this regard.

@AntonioMJuliano @BanklessHQ @dYdX 📌 Having a sovereign chain

One great aspect of having an app chain is sovereignty, this is a powerful feature: you can fork, you have full control on the chain, the community can decide and vote on decisions regarding the future of the chain.

@AntonioMJuliano @BanklessHQ @dYdX Even if there is a huge hack on the dYdX chain or the chain gets taken over by ⅔ of the validators that steals everyone’s money, the community can still ask to fork the dYdX chain with a version where that attack never happened.

@AntonioMJuliano @BanklessHQ @dYdX This is something you can’t do on a smart contract system based on a non-sovereign chain.

@AntonioMJuliano @BanklessHQ @dYdX 📌 What's the current roadmap for the V4?

The dYdX team aims to open source the code of the V4 by the end of this year.

@AntonioMJuliano @BanklessHQ @dYdX If you want to listen the full interview of @AntonioMJuliano with @BanklessHQ, here is the link of the video:



Thanks to Antonio for coming in and explain dYdX's choice.

@AntonioMJuliano @BanklessHQ @dYdX As a Validator on the Cosmos ecosystem, we believe in a app chain world and are very excited about the upcoming launch of the dYdX chain.

@AntonioMJuliano @BanklessHQ @dYdX If you're looking for a great thread about the impact of dYdX decisions on Cosmos & Ethereum roll-ups, check this 👇

https://twitter.com/Thyborg_/status/1539926258498142209?s=20&t=DZxPdXSHk2jVL13zthgDEw

@AntonioMJuliano @BanklessHQ @dYdX Hope you enjoyed the thread! If you like this kind of content, you can keep supporting our work by delegating to Imperator 🤝

We will try to provide as much information as possible on Cosmos ⚛️

Thanks!