dYdX Unveils dYdX v4 Architecture: A Leap Towards Full Decentralization

dYdX is gearing up for the launch of its latest version, v4 (or dYdX Chain). This next iteration is a significant advancement from the current v3, as it transitions from a combination of smart contracts and centralized services to a fully decentralized, standalone L1 blockchain.

The architecture of dYdX v4 revolves around three main components: the protocol, the Indexer, and the front-ends. Each of these components will be open-sourced, emphasizing the project’s commitment to decentralization. The protocol itself is built on CometBFT and utilizes the Cosmos SDK. It employs a proof-of-stake consensus mechanism, ensuring efficient and secure transaction processing.

The network of nodes will support the dYdX v4 protocol. Two types of nodes are involved: Validators and Full Nodes. Validators handle tasks such as storing orders in an off-chain orderbook, propagating transactions to other validators, and producing new blocks through consensus. Validators take turns as proposers of new blocks based on their stake weight.

Full Nodes, on the other hand, do not participate in consensus but maintain a complete view of the dYdX Chain and its history. They support the Indexer, a collection of services responsible for indexing and serving blockchain data in an efficient and user-friendly manner.

To optimize data retrieval and processing, Indexers utilize Postgres databases for on-chain data storage, Redis for off-chain data, and Kafka for consuming and streaming data. This approach avoids overburdening validators and full nodes, which are primarily focused on consensus.

In order to offer an end-to-end decentralized experience, dYdX is building three open source front-ends: a web app, an iOS app, and an Android app. The web application, developed using Javascript and React, interacts with the Indexer through an API to access orderbook information and submit trades directly to the chain.

Similarly, the mobile apps, built natively for iOS and Android, will communicate with the Indexer and allow users to trade on the dYdX Chain. The front-end codebases and associated deployment scripts will be open sourced, enabling easy deployment and access by anyone.

When placing an order on dYdX v4, the order follows a defined flow. First, the user initiates the trade on a decentralized front-end or via API. The order is then routed to a validator, which broadcasts the transaction to other validators and full nodes for orderbook updates. The consensus process selects a proposer who matches the order and includes it in their proposed block. If the block receives approval from at least two-thirds of validators, it is committed to the blockchain. Once committed, the updated data is streamed from full nodes to Indexers, which make it available through APIs and websockets to front-ends and external services.

The release of dYdX v4 represents a notable milestone in the quest for democratizing access to financial opportunities. The project aligns with the growing demand for open, transparent, and permissionless financial products in today’s global economy. As the launch of v4 Mainnet approaches, dYdX plans to delve deeper into the protocol, Indexer, and infrastructure of the various front-ends.

dYdX is one of the largest derivatives exchanges in the cryptocurrency market. According to the annual report released by the dYdX Foundation, the platform’s trading volume reached $466.3 billion in 2022, generating revenue of $137.8 million. This represents a remarkable 140% increase in cumulative volume compared to the previous year.

In June 2022, dYdX made an announcement that caught the attention of the crypto community. The exchange revealed its decision to migrate from Ethereum to the Cosmos network in order to address transaction speed issues. The project is set to launch a private testnet on March 28th, followed by a 2-3 week testing period. Subsequently, a public testnet is scheduled for the end of July. By the end of September, the exchange aims to be fully operational on the Cosmos network, completing its transition.

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