Decentralized orderbooks and liquidity risks

dYdX Cosmos Transition and Fees

dYdX operates a decentralized orderbook on its Cosmos-based L1, providing 188 markets and 25x leverage. The protocol uses maker rebates of 0.011% and a 0.03% taker fee. This structure makes dYdX significantly cheaper than GMX v2, which charges 0.04% for makers and 0.06% for takers. The dYdX team moved the protocol from Ethereum to Cosmos to achieve true decentralization on the Cosmos network. This shift follows a landscape where Noble, once the primary player in the Cosmos ecosystem, decided to move to an EVM chain to seek higher profits. While the dYdX Foundation maintains that the protocol performs well, the transition to Cosmos occurs amid a continuous disintegration of the broader Cosmos ecosystem and competition from EVM chains. In 2022, dYdX recorded $466.3 billion in cumulative transaction volume and $137.8 million in fee revenue, a 140% increase over the $322 billion seen in 2021. Despite this growth, speculators expressed concern over the inflation of dYdX native tokens. The team previously planned to release 150 million tokens to investors and employees in February 2023, which would have doubled the supply. The team eventually delayed these token unlocks until December. Total value locked on the platform fell to about $400 million in 2022 after it peaked at $1.1 billion in October 2021. On the dYdX explorer, BTC trades at $66,574.89, SOL at $164.75, and ATOM at $4.44.

GMX v2 and Liquidation Issues

GMX v2 utilizes multi-collateral isolated GM pools on Arbitrum using Chainlink to support 113 markets and 100x leverage. These pools provide deeper DeFi composability because of the Arbitrum integration. However, the oracle-pool model presents different risks than the dYdX orderbook. One trader lost $30,000 because a liquidation executed abruptly, even though the price had briefly returned to a level above the liquidation price after the user had been under the threshold for several minutes. Another user reported that they attempted to close a position multiple times before a violent price change, but the system repeatedly canceled the orders, forcing the position to hit the liquidation price instead of allowing a profit. You should monitor your position closely when volatility spikes on Arbitrum. Higher leverage of 100x increases the risk of automated liquidation failures during sudden price swings.

dYdX Market Listing and Liquidity

dYdX manages market listings through community-driven proposals where users select an asset and confirm parameters like the liquidity tier. A balance of governance tokens stays locked during the voting period. If a vote results in a "no with veto", the protocol slashes the tokens and the proposer does not receive them back.

The protocol defines specific liquidity tiers for new markets. Mid-Cap markets require at least 8 robust oracle sources and $50,000 in liquidity on both sides. These markets also necessitate a 30-day daily spot trading volume of at least $100 million. Large-cap markets include BTC and ETH, while all other assets fall into the long-tail category. To propose a market, users click the "Add New Markets" button, select an asset, and confirm details like the reference price, oracles, and liquidity tier. Users sign a transaction that creates a proposal to add the new asset to the dYdX Chain. Does the requirement for high volume and multiple oracles prevent smaller, emerging assets from gaining enough liquidity to survive on the dYdX Chain?