dYdX

Overview

• The dYdX safety staking module is as a pool of DYDX tokens that is meant to backstop the protocol in the case of a shortfall event, such as an exploit or a failure to liquidate a large quantity of positions on the exchange.
• The protocol gives 383,561 DYDX per 28-day epoch to fund this pool. However, we argue that the actual insurance power, i.e. the USDC value that the pool would realistically be able to raise in the case of a shortfall event, is severely less than the nominal value of the safety staking module. This renders the safety staking module nearly useless as it stands today.
• We considered a number of solutions that would bolster the insurance power, whereby we would change the staking asset to a better insurance asset, however changing the asset now is not possible due to limitations on dYdX engineering time.
• Since there is already a $17M+ USDC insurance fund operated by dYdX Trading Inc., we believe it is relatively low risk to discontinue DYDX safety staking module emissions until we are able to implement a more effective insurance fund after the release of dYdX V4.
• We propose halting DYDX emissions to the safety staking module, and instead routing them to the community treasury. This will serve to effectively lower token emissions and increase the holdings of the community treasury.

Implementation

Although these changes will be require an on-chain DIP to implement, they will not require any significant engineering lift. The details of the implementation will be quite similar to that of the liquidity staking module wind-down.

Voting Options

• Yes: Execute the proposed changes by:
  • Turning off rewards generated by staking DYDX to the Safety Staking Module
  • removing the deposit functionality for the Safety Staking Module from https://dydx.community/dashboard, and
  • sending the remaining rewards (383, 562 DYDX per epoch) allocated to users who stake DYDX to the Community Treasury.
• No: Do nothing.

Links

• Research paper
• Forum discussion
• Safety staking AMA
• Xenophon Labs