Erik Weijers, 9 months ago

As dYdX builds on Cosmos, ATOM rebounds

Over the last ten days, Cosmos (ATOM) has done a bit better than the other Layer 1s (Avalanche also did well). The rebound of Cosmos probably has to do with the fact that dYdX announced to choose this blockchain instead of Ethereum.

Incidentally, the price of all "Ethereum killers" has also slumped again in recent days: the market is still far from good.

What is dYdX?

dYdX is the second largest decentralized crypto exchange after Uniswap. Unlike Uniswap, it does not work with swaps but with traditional order books. But unlike a classic centralized exchange, the exchange is centralized to a lesser degree. Instead of traders sending their euros or crypto to it, they connect their own wallet to the exchange.

On dYdX, users can trade so-called perpetuals: these are derivatives of the underlying crypto currencies. Perpetuals are similar to futures in that respect, except that they do not have an expiration date. So traders can keep a leveraged position open for a long time, for example a 5x leveraged long on Bitcoin if they believe Bitcoin's price will continue to rise.

So now dYdX is going to build its own blockchain: dYdXv4. Currently, dYdX runs partly on smart contracts on the Ethereum blockchain (parts also run centralized databases).

Ethereum versus Cosmos

Where Ethereum made it easy to build applications, Cosmos makes it easy to build blockchains that are still interoperable with other chains. In doing so, it solves some of the problems that everyone in Ethereum's ecosystem faces. Namely, everything on Ethereum has to be done on one blockchain, which leads to congestion. Cosmos aims to become the internet of blockchains. There could be thousands or millions in the future, according to the founders.

Built on Cosmos

The reason dYdX chooses Cosmos for its yet-to-be-built new chain is that with Ethereum or other Layer 1s, they don’t provide enough capacity to handle the average ten trades per second of dYdX. Let alone the order book, which requires another 100 x more capacity. Incidentally, the order book remains off-chain in the yet-to-be-built chain of dYdX: the various validators do not need to reach consensus on the exact order book.

The chain that dYdX will build, incidentally, will probably get its own token in addition to the already existing dydx.


The fact that dYdX will be using Cosmos is an interesting signal. It shows that Ethereum is less and less the be-all end-all for building decentralized marketplaces. It also shows that Cosmos is likely to be one of the chains that will survive the current bear market with flying colors.

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