dYdX stated that it is looking to full decentralization in order to offer its users the DeFi benefits that centralized services cannot. Ethereum Layer 2-based crypto derivatives trading platform, dYdX, has pledged to be “100% decentralized via EOY” through the protocol’s update V4.
dYdX offers primarily perpetual contracts. These are derivatives products that borrow elements both from spot margin trading and futures trade, but don’t have an expiry.
Only certain parts of dYdX, such as its Ethereum smart contracts and governance, are currently decentralized. However, the “orderbook” and matching engine are managed by dYdX trading Inc. — the company that created the platform.
Yesterday, dYdX posted the V4 update via Twitter with a new roadmap that stated: “You’re not ready.”
dYdX stated in a blog that the main aspect of decentralizing the platform is the orderbook, and its matching engine. The main challenges are scaling throughput (transaction processing speed), finality (off chain trade matching), and fairness (operators being unable to extract value from legitimate trading activities) in a decentralized way.
“With V4, the control of dYdX will be completely decentralized. The roadmap states that there will no longer exist central points of control for success or failure of the protocol. All aspects of the protocol can be controlled by the community.”
dYdX outlined the reasons the platform will be fully decentralized and highlighted the “fundamental improvements” that Decentralized Finance (DeFi), provides over centralized financial service providers.
“DeFi provides a huge improvement in transparency. The financial system is now transparent for the first time. DeFi allows users to trust code rather than corporations.
With the V4 update, dYdX trading Inc. will no longer be charged any trading fees. The platform will also offer more services and products, including synthetics, spot and margin trading.
Many DeFi projects claim that they are “decentralized” because of smart contracts and automated setups. However, they are controlled by a core team that has access to a multisig admin keys that grants them ‘god mode’ powers over the protocol. While this is a good strategy for recovering from mistakes while building the platform it can also lead to centralized risks.
In an August interview, Gary Gensler, chairman of the U.S Securities and Exchange Commission, stated that DeFi was primarily centralized.
“These so-called “decentralized finance” platforms have a lot more centralization. These platforms are run by a small group of entrepreneurs.
Another DeFi project that announced the transition to full centralization or being “fully independent” was DAI stablecoin generator and pioneering protocol MakerDAO, which were launched in mid-2021.
Rune Christensen, CEO Maker Foundation, noted in a blog post that the “Protocol and the DAO” will be decided by thousands (or perhaps millions) of passionate community members.
Critics point out however that MakerDAO holds 5.1 billion USDC stablecoins backed by its DAI reserves, so it is difficult to know the extent of its decentralization.