The dYdX community approved staking 20 million DYDX tokens to strengthen security as the decentralized crypto exchange (DEX) experiences a surge in activity.
The proposal passed on April 6 with 91.7% of votes in favor, allowing tokens from the community treasury worth over $61 million at current prices to be staked with liquid staking protocol Stride. According to dYdX, the move is a response to the growing trading activity on the protocol:
“The rate of DYDX being staked to validators has plateaued and deposits to the exchange are growing at a tremendous pace. Over $140M USDC is held in dYdX v4, of which roughly $100M arrived in the past week.”
Staking is the process of locking cryptocurrency to support a blockchain network’s operations, like processing transactions or validating new blocks. Participants, or “stakers,” commit their tokens as stakes in the network. In return for their service and the risks—such as potential token value fluctuation — stakers receive rewards, often in the form of additional tokens.
By staking its native tokens, the DEX is seeking to shield its network from a possible control attack, similar to a 51% attack. This type of attack happens when a malicious entity gains control over a significant amount of a blockchain’s hashing power, enabling the network to be manipulated. Decentralizing voting power prevents such attacks from occurring.
dYdX noted that its network architecture enables a scenario where an attacker, with just one-third of the voting power, could pause on-chain operations. Additionally, possessing two-thirds of the voting power could allow such actors to potentially misuse the funds of users and the community within the dYdX Chain.
“Since the voting power today is $456M, a malicious actor must contribute at least $912M in staked DYDX to take control of the protocol, which would allow them to exploit user deposits and community assets. This sounds like a lot today, but it isn’t such a high barrier when we factor in that only 11.5% of the total supply of DYDX are staked.”
Staking rewards on dYdX accrue in the stablecoin USD Coin (USDC) and are generated from the fees users pay to trade on the protocol. Stride’s mechanism allows DYDX stakes to increase automatically over time as rewards are recompounded. For the staking service, the dYdX community will pay a 7.5% fee on the staked position.
Data from DefiLlama shows dYdX total value locked on-chain at $504.48 at the time of writing. The network generated over $48.59 million in fees over the past twelve months.
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