Decentralized Exchange dYdX Proposes $20M Incentive Program for v4 Launch

dYdX is moving forward with a proposal for a $20M Launch Incentives Program by Chaos Labs to facilitate a smooth migration to its version 4 (v4) platform. The fund, sourced from the dYdX Chain Community Treasury upon its deployment on the mainnet, is earmarked for a six-month duration to motivate the seamless transfer of users and trading volumes to the dYdX Chain. This proposition aims to gather community endorsement and is subject to a governance proposal on the dYdX Chain.

The dYdX Grants team hired Chaos Labs as a service provider for a number of tasks, such as creating portals for market maker risk, LP reward reporting and analysis, and new asset listing. In order to provide permissionless market listings on dYdX v4, they also participated in research with an emphasis on risk reduction, improving user experience, and liquidity provisioning incentivization.

The primary challenge as dYdX nears the v4 launch is migrating and expanding its existing user base. The necessity to secure liquidity and incentivize user migration to the new dYdX Chain is considered pivotal for the success of dYdX v4. Historical data underscores the effectiveness of Liquidity Mining or token reward programs in boosting protocol growth and trading volumes across the DeFi space. The Launch Incentives Program aims to replicate this success by encouraging a swift transition to v4.

The program is structured in two main phases, pre-launch and post-launch, detailed as follows:

Pre-Launch

Trading Reward Genesis Research: A preliminary phase focused on crafting reward distribution methodologies to promote desired user behaviors within the dYdX Chain ecosystem, including deposits, trading, staking, and governance participation.

v4 Analytics and Risk Portal: Designed to offer transparency and enable verification of reward recipients' activity by the dYdX community. This portal will serve as a data hub, providing insights into user and market-specific activity.

v4 Reward Leaderboard Portal: This will display user engagements and accumulated rewards transparently, fostering healthy competition and community engagement.

Post-Launch

Trading Seasons: The incentive program will be divided into several trading seasons. The initial season is shorter to allow fine-tuning of the reward strategy and improve wash trading detection. Subsequent seasons will be determined randomly to introduce unpredictability, thereby reducing potential manipulation.

Trading Season Analysis: Post each trading season, analysis reports will be generated to highlight market dynamics, user behavior patterns, and overall protocol efficacy. These insights are crucial for shaping future reward allocation decisions.

The distribution of DYDX rewards will be governed by dYdX Chain community proposals at the end of each trading season. Chaos Labs will abstain from voting in any dYdX governance votes concerning reward distributions under the Launch Incentives Program to maintain an unbiased and transparent decision-making process.

This proposal, slated between September 28, 2023, and October 2, 2023, is a community temperature check before the final governance proposals, which will be created on the dYdX Chain post each trading season. With a near-unanimous community backing of 99.08% votes in favor, and a total of 15M DYDX votes supporting the proposal, it reflects a strong community endorsement for the Launch Incentives Program.