dYdX, the Ethereum Layer 2-based crypto derivatives trading platform, has vowed to become “100% decentralized by EOY” via the protocol's V4 update.
It has been reported that dYdX primarily offers perpetual contracts, which are derivatives products that borrow elements from both spot margin trading and futures trading but do not have an expiry date. At present, only certain components of dYdX are decentralized, including its Ethereum smart contracts, governance, and staking.
However, its “orderbook and matching engine” are managed by dYdX Trading Inc. — the team that developed the platform. In a blog, dYdX explained that the “primary aspect” of fully decentralizing the platform is focused on the orderbook and its matching engine.
The report said that the team noted that the main challenges will be scaling throughput (transaction processing power), finality (off-chain trade matching), and fairness (operators not being able to extract value from legitimate trading activity) in a decentralized manner.
The roadmap reads:
“With V4, dYdX will become fully decentralized. There will no longer be central points of control or failure of the protocol; all aspects of the protocol that can be controlled will be fully controlled by the community.”
Likewise, outlining why the platform is going fully decentralized, dYdX emphasized the “fundamental improvement” that decentralized finance (DeFi) provides over centralized financial services:
“DeFi offers a massive improvement in transparency. For the first time, the financial system itself is no longer a black box to users. With DeFi, users can trust code instead of corporations.”
The V4 update will see dYdX Trading Inc. receive zero trading fees moving forward. Additionally, the platform will also roll out more products and services, such as synthetics and spot and margin trading. While many DeFi projects often tout that they are “decentralized” due to smart contracts and their automated setups, they are often controlled by a small core team with access to a multisig admin key that gives them 'god mode' powers over the protocol.
This is often a useful strategy to recover from errors while building the platform but introduces centralized risks.
Thus, Gary Gensler, the chairman of US Securities and Exchange Commission, said:
“These so-called 'decentralized finance' platforms actually have a lot of centralization. There’s a group of entrepreneurs that are running these platforms.”