dYdX V4 on Cosmos Hub
Just recently, dYdX, a crypto financial derivative platform currently set up on Ethereum layer 2, declared that for its v4 upgrade, it would shift to a separate blockchain relying on the Cosmos SDK and Tendermint evidence consensus. The decentralization and achievement of the Cosmos blockchain, according to the firm, make it an “ideal match” for constructing dYdX for v4.
The chain will be constructed in the Cosmos blockchain ecosystem, which is a group of interrelated blockchain systems that can communicate freely and trade property back and forth. dYdX stated in a blog article unveiling the update that obtaining a standalone sequence on Cosmos would offer the system more versatility with fees and characteristics.
Brief overview on the project
dYdX created a cryptocurrency exchange where customers can possess their transactions and, finally, the exchange on its own. The protocol was established in July 2017 with the update of the Layer 1 product (Solo), which endorsed Ethereum loaning, borrowing, and margin trading. dYdX debuted a shut alpha for its innovative Layer 2 cross-margined Perpetuals product, built on StarkWare’s StarkEx extensibility engine, in February 2021. The Layer 2 item was publicly released in April 2021. Since then, dYdX has launched 26 markets on Layer 2, producing over $100 billion in trading activity (with October accounting for 75% of that volume).
dYdX as a layer 2 protocol
StarkWare zkSTARKS software is a form of ZK-Rollup innovation that significantly increases dYdX’s trade settlement capacity while still relying on the Ethereum blockchain for safety. To ensure a completely non-custodial procedure, StarkWare’s dYdX integration combines STARK confirmation for data security with on-chain data availability. Transactions are sorted on a Layer 2 system, which discloses Zero-Knowledge Proofs to an Ethereum smart contract on a regular basis to illustrate the authenticity of state transitions within Layer 2.
dYdX switches to a Cosmos-based blockchain for v4
The project’s team stated that they planned to release dYdX V4 by the end of 2022, but added that because this version would include “critical” improvements, it would “require months of heads-down development.” Cosmos and its Proof-of-Stake (PoS) Tendermint agreement were picked by the crew behind the Ethereum-based trading system for their safety, decentralization, customizability, cross-chain capabilities, and scalability. As a result, the framework will be able to handle more transactions and possibly gain market share, number of users, and trading volume as it continues to advance to the next phase of development: full decentralization.
According to the project’s team, the V4 protocol’s main criteria is entire decentralization. A system’s decentralization is equivalent to the devolution of its least decentralized element. This means that all facets of V4 must be decentralized while trying to remain performant. According to the declaration, the main goal is to make dYdX “one of the largest exchanges in all of crypto.” This needs an infrastructure capable of managing a large number of transactions while also supporting the exchange’s engine without jeopardizing its amount of decentralization.
In contrast to most distributed ledger technologies, which are using automated market makers (AMMs) and cash flow pools to fill orders, dYdX’s new platform will keep using a conventional order book model. DYdX has consistently maintained that order books, which match buyers and sellers directly, are best suited to handle institutional-sized transactions.
