Ethereum has been the leading smart contract blockchain for decentralized applications (dApps) since 2015. However, despite continued progress thanks to an ever-larger Layer 2 ecosystem, Ethereum continues to struggle with scaling issues and high transaction fees. This is a problem that should not be underestimated, especially for dApps that rely on extremely high transaction throughput, such as projects in the areas of blockchain gaming or derivatives trading. Some projects are therefore looking for alternatives and migrating to other blockchain ecosystems. One of these projects is dYdX, the largest decentralized exchange in the entire crypto market.
What is dYdX?
dYdX is a decentralized exchange (DEX) and is one of the leading derivatives trading platforms in the crypto sector. On the platform, derivatives such as margin trades, futures and options can be traded with cryptocurrencies without the need for a central intermediary as is the case with traditional exchanges. dYdX was founded in 2017 by Antonio Juliano. Since its founding, dYdX has continuously grown in importance and is currently the largest DEX in the crypto space in terms of trading volume.
Why is dYdX turning its back on Ethereum?
dYdX was looking for a solution for better scalability. Ethereum could not process transactions quickly enough, which is crucial for a derivatives platform. For high-frequency traders, a few seconds can often mean the difference between profit and loss. Although other options such as Solana and Layer 2 solutions were considered, the dYdX development team ultimately chose Cosmos.
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Why Cosmos?
From the perspective of the dYdX development team, Cosmos offers the following advantages:
- Modularity through Cosmos SDK: The Cosmos Software Development Kit (SDK). allows developers to create customized blockchains tailored to their exact needs. Instead of adapting to the limitations of an existing blockchain like Ethereum, dYdX can simply build its own blockchain in the Cosmos ecosystem.
- Inter-blockchain communication: Cosmos is not just a single blockchain, but a network of blockchains that can interact with each other. This means that while dYdX creates its own specialized blockchain, it can still interact with other blockchains on the Cosmos network. This expands the opportunities for trading, liquidity and partnerships within Cosmos.
- Decentralization and value creation: Rolling out its own blockchain in the Cosmos ecosystem allows dYdX to give the DYDX token a more central role, thereby enabling the protocol even better decentralized and the project’s revenue more effective can be linked to the value of the DYDX token.
- Flexibility for future upgrades: Cosmos allows changes and upgrades to be made to dYdX’s individual blockchain without disrupting the entire network. This offers dYdX more autonomy and agility in terms of future developments and innovations.
Overall, Cosmos dYdX offers a combination of scalability, flexibility and security that seems perfectly suited to dYdX’s specific requirements.
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Impact on Ethereum and Cosmos
The switch from dYdX to Cosmos could be symptomatic of an industry trend. Ethereum faces the challenge that despite its dominance in the DeFi sector and scaling advancements through L2 networks, scaling issues are still evident. For projects like dYdX, which rely on extremely fast transaction processing, the current transaction speed and associated costs in the Ethereum ecosystem remain insufficient. The pressure to scale even faster is increasing.
On the other hand, the transition from dYdX to Cosmos confirms the strengths and opportunities that Cosmos offers. This move could lead to an increase in trading volume and activity in the Cosmos ecosystem, thereby strengthening Cosmos. In addition, dYdX serves as a showcase project and could encourage other developers and projects to also choose Cosmos. It is not yet clear when exactly dYdX will migrate to Cosmos. According to the status of the recent governanceHowever, based on voting by dYdX token holders, it looks like the change will take place before the end of this year.
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