Cryptocurrency exchange dYdX announced on Wednesday that it is launching a standalone blockchain based on the Cosmos SDK and Tendermint proof-of-stake consensus protocol.
The chain, which will introduce the fourth version of the dYdX platform, will be built in the Cosmos blockchain ecosystem, a community that makes it relatively easy to create a standalone blockchain with strong cross-chain capabilities.
dYdX V4 will feature a fully decentralized, off-chain orderbook and a matching engine capable of scaling to orders of magnitude more throughput than any blockchain can support.
Cosmos chains are based on the Tendermint proof-of-stake consensus system. Cosmos offers high throughput, decentralization, and customizability. Each Cosmos chain traditionally has its own validators and Layer 1 staking token.
A major benefit of Cosmos is that the chain can be developed to suit the exact needs of the dYdX network. One application of this is that traders would not pay gas fees to trade, but rather pay fees based on trades executed similar to dYdX V3 and centralized exchanges.
The fundamental problem with every L1 or L2 it could develop on is that none can handle even close to the throughput needed to run a first class orderbook and matching engine. dYdX considered pivoting to developing another trading model, such as an AMM or RFQ system, but ultimately decided that an orderbook-based protocol was critical to the trading experience pro traders and institutions demand. This is where Cosmos comes in. A massive benefit of developing a blockchain dedicated to dYdx V4 is that it offers full customizability regarding how the blockchain itself works, as well as the jobs that validators perform.
In dYdX V4, each validator will run an in-memory orderbook that is never committed to consensus. Orders placed and cancellations will be propagated through the network similar to normal blockchain transactions. The orderbook that each validator stores is eventually consistent with one another. dYdX mentioned that it is still planning to open source dYdX V4 by the end of 2022.