Introducing DYDX - The Core Token of the dYdX Chain

The dYdX Foundation announced that at 17:00 UTC on October 26, the inaugural mainnet block of the dYdX Chain was created. created ( "Genesis\" ) was created by the Validators of the dYdX Chain. This momentous event not only established the first block of the dYdX Chain but also recognized DYDX as the essential Layer 1 token, fostering fresh use cases for the DYDX token within the ecosystem. Below are key insights and important information regarding DYDX's function within the dYdX Chain, its evolution, and the distribution of protocol fees to Validators and Stakers.

The dYdX Chain operates as a proof-of-stake blockchain network, developed on the Cosmos SDK while utilizing CometBFT to achieve consensus. It requires a Layer 1 protocol token to be staked with Validators to ensure network security and facilitate governance.

For all transactions on the dYdX Chain, which include trading fees in USDC and gas fees for both DYDX and USDC-based transactions, collected protocol fees are allocated to Validators and Stakers.

The current DYDX token, referred to as \" ethDYDX ,\" has served as the governance token for the dYdX Layer 2 protocol on Ethereum ( "dYdX v3\" ) since its initial launch on August 3, 2021. Recently, the dYdX community made a significant decision to designate DYDX as the L1 token for the dYdX Chain, establish a one-way bridge from Ethereum to the dYdX Chain, and grant wrapped Ethereum DYDX ( "wethDYDX\" ) governance capabilities similar to ethDYDX in dYdX v3.

Enhanced Functionality of DYDX on the dYdX Chain

According to decisions made by the dYdX community through governance processes, the capabilities of the DYDX token have broadened. It is now viable for staking, network security, and governance on the dYdX Chain.

Staking 

Within any proof-of-stake ( PoS ) blockchain ecosystem, the contributions of Stakers are crucial for maintaining the integrity and robustness of the network, and this holds true for the dYdX Chain as well. On this Chain, DYDX holders can either choose to act as Validators or delegate their stakes to existing Validators. Staking not only fortifies the network but also allows Stakers to earn protocol fees corresponding to their stake amounts.

The entirety of fees (including trading fees in USDC and gas fees for DYDX-related transactions) collected by the dYdX Chain ecosystem gets allocated to Validators and Stakers . The distribution of these fees is managed through the Cosmos x/distribution module.

Security

Proof-of-Stake blockchains ensure their security by entrusting transaction validation and confirmation to a fundamental group of stakeholders: the Validators. Given that a significant economic amount is at stake, Validators are motivated to uphold the ledger’s integrity, as failure to do so can lead to considerable financial losses. By staking DYDX tokens, users directly enhance the security of the dYdX Chain; as more holders choose to stake their tokens across a variety of Validators, and as total staking amounts rise, it becomes increasingly challenging for any coordinated attack to disrupt consensus.

In simple terms, the greater the number of native DYDX tokens that get staked or 'bonded' to dYdX Chain Validators, while also being more evenly spread out across these Validators, the more fortified and resilient the network will be.

Governance 

The dYdX Chain utilizes a standard governance module from the Cosmos SDK, and we expect that governance within the dYdX Chain will be more streamlined compared to dYdX v3 governance.

For example: 

1. Numerous modules within the dYdX Chain's open-source software have parameters managed by the governance framework.
2. Unlike the dYdX v3 system's concept of 'Proposing Power', the governance module here allows any token holder to submit a governance proposal with a designated deposit. Nonetheless, this module incorporates the MinDeposit requirement and the NoWithVeto vote option to prevent spam proposals.

Please note:

• Only staked DYDX tokens are eligible for participation in the governance of the dYdX Chain.
• The voting power of dYdX Chain Validators incorporates the influence of their Stakers, unless the Staker opts to cast their vote on a proposition directly.

For more comprehensive insights into the transformation of DYDX from a governance token in dYdX v3 to its current status as the L1 token within dYdX Chain, you can find additional information in this blog post .