The decentralized perpetual futures market is becoming increasingly competitive, yet dYdX continues to dominate as the industry leader, particularly in recent trading volumes.
According to Token Terminal data, as of January 24, 2024, dYdX's trading volume significantly surpassed that of other derivatives protocols, even when considering only its Starkware-based Layer 2 version (dYdX v3). With the rollout of dYdX v4—also known as dYdX Chain—trading activity has reached levels comparable to v3. Thanks to ongoing incentive programs, the new chain holds even greater potential for growth.
Launched on October 26, 2023, dYdX Chain represents a fully decentralized version of the exchange, incorporating an on-chain order book and matching engine. It also introduced a reward mechanism that distributes trading fees to those who stake DYDX tokens.
The Fully Decentralized dYdX Chain
dYdX is a leading decentralized perpetual futures exchange. It was founded in 2017 by Antonio Juliano, who previously worked at Coinbase. That same year, the project secured a $2 million seed investment led by Andreessen Horowitz and Polychain.
The initial versions of dYdX (v1 and v2) focused on margin trading, allowing users to borrow funds for leveraged cryptocurrency trades. However, high gas fees on Ethereum and relatively low efficiency limited its appeal.
With v3, dYdX introduced an order book-based trading system. By building on Starkware’s Ethereum Layer-2 solution and launching the DYDX token, the platform saw exponential growth in trading volume. By July 14, 2023, cumulative trading volume had surpassed $1 trillion.
dYdX Chain, the latest iteration, is a standalone blockchain built with Cosmos SDK and Tendermint Proof-of-Stake consensus. It went live on October 26, 2023, and is capable of processing up to 2,000 transactions per second.
While v3 already enabled high-performance perpetual trading, v4 achieves full decentralization. In v3, the order book was operated by dYdX Trading Inc., which also collected trading fees and made centralized decisions about which tokens to list. With v4, the front-end is maintained by dYdX Operations SubDAO, the order book and matching engine are managed by validators around the world, and new token listings are determined via on-chain governance.
Fee Distribution to Stakers and Validators
A major point of interest for users is how rewards are distributed. On dYdX Chain, all network fees are currently distributed to validators and stakers. These fees consist mainly of trading fees denominated in USDC, along with minimal gas fees paid in DYDX or USDC.
Rewards accumulate with each new block—produced approximately every 1.08 seconds—and must be claimed manually by users. Since most rewards are in USDC, unclaimed earnings are not subject to market volatility.
Based on Mintscan data, over the past 30 days, rewards included 2.51 million USDC and 126 DYDX. Validators charge commission fees between 5% and 100%, and users can earn rewards by staking DYDX with any active validator via Keplr or other supported wallets. There are currently 60 active validators.
As of January 24, the average staking yield over the previous 30 days was 14.97%, with daily yields ranging between 6.2% and 29.06%. The total value of staked DYDX is around $212 million and has remained stable over the past month.
Hardware wallet users can also participate: Ledger has integrated with Keplr, allowing Ledger owners to connect to Cosmos-based applications like dYdX Chain for staking and other operations. Ledger provides a detailed guide on how to set this up.
Due to DYDX’s substantial market presence, Stride—a major liquid staking provider within the Cosmos ecosystem—now offers liquid staking services for DYDX. Users who stake DYDX through Stride receive stDYDX in return. Rewards are automatically compounded, meaning users receive more DYDX when they unstake. Early adopters of stDYDX may also qualify for STRD token airdrops.
Incentives Driving Growth on dYdX Chain
According to dYdX's official data, v4 has already surpassed v3 in several metrics. Over a recent 24-hour period, v4 recorded a trading volume of $688 million, compared to $546 million on v3. The number of trades was also higher on v4: 635,791 compared to 161,337 on v3. However, open interest remains higher on v3—$251 million versus $38.88 million on v4.
The rapid adoption of dYdX v4 can be attributed to its incentive programs. Even before the chain launched, dYdX had designed a migration plan to gradually shift trading volume from v3 to v4, including phasing out incentives on the older version.
The dYdX DAO authorized Chaos Labs to execute a six-month incentive initiative, allocating $20 million worth of DYDX tokens to early adopters of dYdX Chain. This program aims to accelerate migration to v4.
The incentive campaign is divided into four phases (Trading Seasons). Season 2 is currently underway and is scheduled to run until between February 14 and 24. Users earn points based on their trading activity, and DYDX rewards are distributed at the end of each season according to points accumulated. Chaos Labs offers a public dashboard where users can track their rankings and points per season. Each new season incorporates feedback from the previous one. For example, Season 2 introduced performance-based rewards—allocating 20% of trading rewards (worth $800,000) to top-performing traders—in addition to the existing trading and market-making incentives from Season 1.
To further attract volume and liquidity, dYdX Chain offers competitive trading fees, which are generally lower than those on centralized exchanges like Binance. For makers, fees are set as low as 1 basis point (0.01%) after the first 120 days. For takers, the maximum fee is 5 basis points.
Users can continue trading on dYdX using a range of wallets, including MetaMask, and can deposit funds from networks like Arbitrum, Optimism, and Avalanche. The recent introduction of native USDC on Noble by Circle is expected to simplify deposits. Additionally, market orders execute more smoothly in the dYdX Chain environment.
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Conclusion
dYdX remains the dominant player in the decentralized perpetual futures market. Since its launch, dYdX Chain has demonstrated stronger competitiveness than its predecessor, v3, and has recently exceeded v3 in trading volume.
dYdX Chain achieves full decentralization—including its front-end and matching engine—and distributes all trading fees to stakers and validators. A range of incentives, including maker rebates, trading rewards, and performance bonuses, are helping drive volume and open interest on the new chain.
Frequently Asked Questions
What is dYdX Chain?
dYdX Chain is a standalone decentralized exchange built on Cosmos, featuring a fully on-chain order book and matching engine. It allows users to trade perpetual futures with no central intermediary controlling operations or fees.
How are rewards distributed to stakers?
All trading and gas fees generated on dYdX Chain are distributed to validators and stakers. Rewards are accumulated per block and can be claimed manually. Most rewards are in USDC, reducing exposure to token volatility.
Can I use a hardware wallet with dYdX?
Yes. Ledger devices are integrated with Keplr, allowing users to securely stake DYDX and interact with dYdX Chain and other Cosmos-based applications directly from their hardware wallet.
What incentives are available for new users?
dYdX is running a multi-phase incentive program that distributes DYDX tokens to active traders and market makers. Seasons are structured to reward both trading volume and profitability.
How does dYdX Chain improve on v3?
Version 4 enhances decentralization by moving the order book and matching engine on-chain. It also introduces community governance for token listings and enables full fee distribution to stakers and validators.
Is dYdX suitable for beginners?
While dYdX offers advanced trading features, its intuitive interface and educational resources make it accessible. New users can start with small positions and take advantage of low transaction fees.