The dYdX Chain launched as an independent Cosmos Layer 1 on October 27, with validators creating its genesis block at 1:00 AM. The dYdX Foundation announced that all fees generated by the chain would be distributed to validators and stakers with each new block. These fees include transaction fees denominated in USDC and gas fees paid in DYDX tokens.
By November 12, over 349 million ethDYDX tokens had been bridged to the new chain since its launch. The total amount of DYDX staked reached 6.85 million tokens. In early December, a significant token unlock is scheduled, with the majority allocated to early investors and the project team.
Previously, the community had criticized DYDX for lacking utility. Despite strong platform performance, the token’s price action remained muted. However, the migration to an application-specific blockchain has introduced new use cases. DYDX is now used for gas fees and staking, driving increased demand. Earlier today, the token price briefly surpassed $4, marking a 24-hour increase of 34.64%.
As the price climbed, so did community skepticism. Critics have raised concerns about the foundation’s decision to distribute fees to stakers just two weeks before a major insider token unlock. Additionally, the foundation allows locked tokens to be staked, which has further fueled debate.
Understanding the Fee Distribution Model
Community members have questioned the timing and motivation behind the new reward system. One user noted that dYdX had generated hundreds of millions in fees over three years without sharing them with token holders. The decision to distribute all fees to stakers just before a large insider unlock has been called into question.
Another user pointed out that early investors would be able to stake locked tokens. They urged the community to oppose this proposal, comparing it to past controversies involving other projects. Critics argue that the foundation has accumulated nearly $5 billion in trading fees since the token launch without distributing rewards until now.
Some have labeled the move an Initial Holder Offering (IHO), a fundraising model similar to an ICO but focused on long-term holding. In an IHO, investors buy tokens for governance rights and profit-sharing. In response, others have argued that any staking rewards should remain locked until the staked tokens are fully vested.
Strategic Token Unlock Timeline
The dYdX Foundation had already prepared for these concerns. On January 26, the team postponed a planned unlock of 150 million DYDX tokens from February 3 to December 1. This unlock represents 15% of the total token supply.
The revised schedule includes an initial unlock of 30% on December 1, 2023. From January to June 2024, 40% will be unlocked in equal monthly installments. Another 20% will be unlocked between July 2024 and June 2025, and the final 10% will be released from July 2025 to June 2026.
This delay was intended to align with the launch of dYdX v4, ensuring that token supply meets demand after value accumulation. As analysts have noted, most unlocked tokens are likely to be staked, reducing immediate selling pressure. With 70% of tokens unlocking by June 2024 and 90% by June 2025, the timeline allows token holder interests to align gradually.
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Frequently Asked Questions
What is the dYdX Chain?
The dYdX Chain is a standalone blockchain built on the Cosmos network. It operates as a Layer 1 solution specifically for decentralized trading, using DYDX for gas fees and staking rewards.
Why are community members concerned about token unlocks?
Critics worry that large unlocks for insiders could lead to selling pressure. The decision to distribute fees to stakers just before these unlocks has raised questions about the foundation’s intentions.
What is an Initial Holder Offering (IHO)?
An IHO is a fundraising model where investors buy tokens to become long-term holders. These tokens often come with governance rights and profit-sharing benefits, similar to equity in a company.
How does staking work on the dYdX Chain?
Validators and stakers receive all network fees, including transaction and gas fees. Users can stake tokens to secure the network and earn rewards, even if their tokens are still locked.
What is the significance of the token unlock schedule?
The gradual unlock plan is designed to align with platform growth, reducing market volatility. By spacing out distributions, the foundation aims to balance supply with demand.
Can locked tokens be staked?
Yes, the dYdX Foundation allows tokens that are still locked to be staked. This enables holders to earn rewards before their tokens are fully vested.