Why dYdX's Departure from Ethereum Was Inevitable
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Why dYdX's Departure from Ethereum Was Inevitable
dYdX's path to success is not something many current applications on L1 and L2 can easily replicate.
Navigating Web3 tides with focused insightsAuthor: Haotian
Recently, I noticed @dYdXChinese announced that its total trading volume has exceeded $120 billion, with 14.9% of the token supply staked and over $20 million in USDC distributed to stakers. Overall, dYdX's performance metrics since launching its independent chain have been quite solid. So, how should we evaluate dYdX’s evolution from Ethereum L1 to L2 and now to a standalone chain—the so-called "escape from Ethereum"? Can the narrative of Ethereum Layer3 application-specific chains pull dYdX back? Here are my thoughts:
1) dYdX is a quintessential example of an application built specifically for trading systems. From day one, its goal has been to become a decentralized derivatives exchange focused on order-book-based perpetual contracts. Because of this, throughout its development history, dYdX has faced three core challenges:
1. It needs extremely high technical scalability and performance—because compared to AMM-style liquidity pools, order books demand real-time batch matching and execution, placing very high requirements on system throughput and latency;
2. It must strive for greater decentralization. During its time on L1 and L2, dYdX had no choice but to use off-chain centralized servers for order matching in pursuit of maximum efficiency. However, as a DeFi project focused on trading and aiming to compete with centralized exchanges (CEX), it must eventually achieve transparency through smart contracts and DAO governance, distribute node operations, and enable broader community participation in governance decisions. (This is also why it allocates a large portion of trading fees to validators and stakers);
3. It must effectively manage user retention and growth. Compared to CEXs, on-chain decentralized derivative exchanges have higher barriers to entry, so product design, UI/UX, trading tools, and risk management functions need to deliver strong user experience. In contrast to open ecosystems like Uniswap—which gain significant liquidity and fee revenue by integrating with numerous projects—dYdX operates a relatively closed trading system and relies heavily on long-term user retention, particularly from professional traders and market makers, to sustain its operations.
2) So why did dYdX build its own independent application chain? The answer is simple: neither current L1s nor L2s can meet its extreme performance demands.
Initially operating on Ethereum L1, dYdX was constrained by low throughput and volatile gas fees. Facing competition from Uniswap, it migrated to L2. On StarkEx’s L2 solution, while benefiting from lower fees and higher throughput, it still fell short of dYdX’s ideal performance standards. As a compromise, dYdX adopted off-chain order matching, leveraging StarkWare’s zero-knowledge proofs and finality verification between on-chain and off-chain layers to create a high-speed trading engine on L2. However, reliance on off-chain infrastructure led to persistent criticism about centralization.
Then came dYdX V4—an independent high-performance chain built using the Cosmos SDK, featuring 60 active validators maintaining consensus, including major players like Ledger and Coinbase Cloud, along with continuous staking reward distributions. Empowered by its dedicated application chain, dYdX has consistently broken new records across key operational metrics:
1. Currently, 149 million DYDX tokens (14.9% of total supply) are staked;
2. The protocol has already distributed over $20 million in USDC rewards to 18,991 stakers;
3. Community members have submitted 55 governance proposals to date.
From these figures, it’s clear that dYdX’s independent chain is gradually realizing its original vision: becoming a super-decentralized perpetual exchange. At the very least, dYdX has now settled on its final architectural form—no longer needing to pitch stories about scaling or performance at the technical layer—and can instead focus purely on growing users and trading volume.
3) Now that dYdX has established its own sovereign kingdom, from a business perspective, today’s dYdX may represent what many L1 and L2 applications aspire to become tomorrow.
But then comes the question: given that L1s and L2s are currently over-saturated at the infrastructure level, and with growing narratives around Layer3 super-app-chains, theoretically speaking, wouldn’t it be feasible to run dYdX as an application chain on top of Ethereum Layer3?
The answer might disappoint most people: probably not.
1. dYdX focuses exclusively on decentralized derivative trading, and from the outset, it aimed to cultivate its own independent user base and data growth model—a fully customized application chain. While Layer3 allows customization of gas tokens, consensus mechanisms, and validation rules, the core interoperability capabilities of Layer3 app chains still depend on Ethereum mainnet for critical asset settlements, which would impose certain limitations on dYdX.
2. Even Uniswap isn't yet mature enough to operate as a Layer3 app chain on Ethereum. The depth of liquidity in the Layer2 ecosystem and performance bottlenecks at Layer1 settlement (high gas fees) continue to restrict the feasibility of building such chains. Particularly concerning is the severe lack of users and market liquidity on Layer2, making it difficult for any app chain built atop Layer2 to maintain stable user engagement and trading depth. And dYdX’s demands for decentralization, order-book matching performance, and trading experience are far higher than average.
Therefore, dYdX’s departure from the Ethereum ecosystem to build its own chain was both a proactive move and a reluctant necessity due to Ethereum’s underlying performance constraints. (On the flip side, despite the intense infrastructure competition within the Ethereum ecosystem, there remains a strong need for continued innovation.)
This situation highlights a key flaw in the multi-chain Layer3 app narrative: mature applications like dYdX may not find their specific needs fully met, while new projects attempting to launch app chains at Layer3 won’t receive the spillover benefits of strong liquidity from L1 and L2 ecosystems in the short term.
In summary,
Overall, dYdX occupies a unique position and follows a distinctive trajectory within the broader crypto ecosystem. Although it has achieved a certain level of “success,” comparable to protocols like Uniswap and Aave—demonstrating steady business expansion and resilience even amid market volatility—its path cannot be easily replicated by most applications currently on L1 or L2.
Uniswap itself provides the clearest evidence: applications deeply tied to the Ethereum ecosystem will struggle to break free. They must instead continuously optimize within the layered stack of L1, L2, and potentially L3. After all, for most applications, without the composable liquidity provided by base-layer blockchains, survival itself becomes nearly impossible.
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Haotian | CryptoInsight
