The order book decentralized exchange, dYdX, is leaving the Ethereum blockchain to set up a native chain on the Cosmos ecosystem. The move is a surprise as the project defines itself as offering “advanced cryptofinancial products, powered by the Ethereum blockchain.”
The exchange is a unique platform offering lending, borrowing, perpetual futures, and margin and spot trading. Users connect their wallets similarly to a standard decentralized exchange and then deposit funds into the custody of dYdX via smart contract. The funds are, however, still only accessible via the users’ wallets, unlike centralized exchanges. The hybrid offering makes dYdX unique within the Ethereum ecosystem.
Why Cosmos?
dYdX described the move as “rebuilding dYdX as a standalone Cosmos based blockchain featuring a fully decentralized, off-chain, orderbook and matching engine.” The rebuild will be the fourth version of the DEX using the Tendermint consensus mechanism.
Through the utilization of the Cosmos SDK, the migration will allow the new version to offer, among other features, “full decentralization.” Further, Cosmos offers an almost unrivaled cross-chain interoperability through the IBC protocol. The current dYdX token is an Ethereum-based ERC-20 token using StarWare’s StarkEX to facilitate layer-2 functionality. However, the move to Cosmos will allow the dYdX platform to offer a truly taken token on its own blockchain and governance system.
An independent blockchain using the Cosmos SDK dYdX will have its layer-1 token, validators, and staking mechanisms. Therefore, it will not be accountable for updates to Ethereum or have any exposure to issues that may arise ahead of the proof-of-stake merge scheduled for September 2022. On Cosmos,
“each validator will run an in-memory orderbook that is never committed to consensus… the orderbook that each validator stores is eventually consistent with one…
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