On November 29, Chaos Labs announced a partnership with dYdX to launch a $20 million liquidity incentive program to promote early adoption and smooth transition of dYdX Chain.
It is reported that the program will last for about six months and aims to encourage diverse participants to migrate and interact with dYdX Chain: "Traders are at the core of the program, and rewards are based on the level of trading activity and measured by the transaction fees paid."
Incentivize traders as the main factor and market makers as the auxiliary factor
According to detailed official documents, the main body of this incentive plan includes incentives for traders and market makers. For traders, Chaos Labs has also introduced a performance-based component to promote healthy competition and encourage participation from different levels of trading experience.
Furthermore, the program focuses on two main goals of traders: the ability to increase profitability and the ability to increase trading volume.
As for market makers, the program provides specific incentives to those “exceeding the 0.25% market maker volume threshold”. These incentives are designed to encourage a competitive environment among market makers, thereby narrowing market spreads and enhancing liquidity.
Regarding the choice of incentivized market makers, it pointed out that an important short-term goal is to encourage market makers to prioritize the dYdX chain to enhance the trading experience through "narrower spreads and larger transaction sizes": "Our goal is to quickly integrate their services with our exchange through a six-month incentivized market maker program. This will reduce risks by stabilizing the market, maintaining low financing rates, and facilitating efficient liquidations."
The reward formula specifically for LP in the official document
Notably, a large portion of the incentive program’s trading rewards (70-85% in total) are dedicated to trading activities: “This allocation approach is designed backwards to ensure that certain rewards remain attractive to traders of all levels.”
Activity-based rewards are complemented by performance-based rewards (starting in the second trading season of the incentive plan) that account for 15-30% of the total trading reward allocation.
Previously, the dYdX liquidation mechanism was questioned by the community
In fact, just 10 days ago, dYdX was widely questioned by the community on November 18.
At that time, the data analysis platform Arkham published a statement saying that due to the sharp drop in YFI, about $50 million of open positions on dYdX were closed. It is reported that before this, nearly half of YFI's open positions were opened on dYdX.
Arkham added that YFI’s trading volume on dYdX is usually very low, but the surge in the token’s price over the past few days has caused its open interest to peak at around $60 million.
Subsequently, dYdX officials posted on social platforms on November 19 that they had used approximately $9 million in funds from the dYdX V3 insurance fund to fill the gap in YFI market liquidation: "The V3 insurance fund is still fully funded, with $13.5 million remaining. No user funds were affected, and the team is working hard to investigate the incident."
Many people in the community pointed out that "dYdX has never been truly decentralized", so some people believe that dYdX needs to further improve its own mechanisms.
