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💎 Perpetual means forever

Word has it that a pack of market makers are looking to buy software powering an older version of derivatives DEX dYdX.

Wintermute and Selini Capital are leading the supposed deal, according to Bloomberg, for an undisclosed sum. And why wouldn’t they? 

Onchain derivatives volumes — perpetual futures trades — have exploded over the past 10 months, leading to major proliferation of various protocols across multiple blockchains.

Practically all onchain perps volume was on Ethereum and layer-2 Arbitrum in January 2023. 

That month saw $44.79 billion in onchain perps volume — last month there was over $196.4 billion, or four and a half times as much.

And in March, when bitcoin was at all-time highs, there was $316.4 billion in the same metric, per DeFiLlama data.

This month, dYdX (both v3, which runs on a custom Ethereum layer-2, and v4, launched on its own layer-1) contributes $22.3 billion to global onchain perps volumes, the equivalent of around 11% of the overall market. 

The software up for sale is the code for dYdX v3 — not the actual smart contract, which is governed by token holders. dYdX v3 makes up about 20% of total combined dYdX volumes right now.

Going by blockchain volumes alone, Ethereum mainnet is handling 7.2%, with most of its activity shifted onto layer-2s, other appchains like dYdX and rival layer-1s. 

Blast contributes the most with 23%, followed by Arbitrum (16%), Hyperliquid (14%), Solana (9.5%) and dYdX (9%).

Blast’s steep incentive structure seems to be largely responsible for attracting outsized perps volumes, but it’s difficult to say exactly how much would disappear without the promise of future rewards. 

In dYdX’s case, it also regularly runs incentives programs and boasts its own rewards structures for users. If those incentives work, it’s safe to say that some percentage of its users may be trading for the sole sake of collecting those rewards. 

Still, dYdX volume growth has tracked activity across the broader crypto market, implying organicness. 

The big question for DYDX holders would be whether selling the underlying software would dilute their investment further down the line.

Interested parties are almost surely mulling the launch of their own protocol based on the v3 codebase, perhaps even on its own blockchain or across multiple different networks.

The green columns on the chart above show monthly dYdX fees generated from users, while the purple line tracks the price of DYDX. 

As you can see, the two are tightly correlated (there could be many reasons for this, one being that traders and investors treat fee spend as a fundamental metric for valuations).

dYdX monthly fees have dropped from $86.3 million before trading went live on the dYdX layer-1, to less than $15 million last month, even though volumes haven’t dropped that much.

All that’s by design. Lowering fees was a key feature of dYdX v4 rolling out on its own network. 

But if the link between fees and DYDX prices is indeed real, then any reduction in volume from here — say if users were poached to a newer DEX through an airdrop points program, a rival incentive system, or some combination of both — the impact could be meaningful, if indirect.

— David Canellis

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• There’s now more onchain derivatives volume than standard DEX trades: $196.37 billion in derivatives so far this month compared to $136.8 billion in trades.

• RabbitX, Hyperliquid and SynFutures are leading weekly derivatives volumes with between $8.8 billion and $7.8 billion. dYdX is fourth with $6.34 billion.

• GMX, which runs on Arbitrum and Avalanche, has raked in $6.3 million in fees so far this month, nearly six times what dYdX users have paid.

• ETH is down 1.5% since just before spot ETFs launched yesterday, sitting at $3,460. BTC has slipped 0.4% to $66,400.

• Today’s biggest bounce goes to “internet bond” governance token ENA with 16%. It’s up only 8% over the past week, though.

🧭 DeFi deals ahead?

Buckle up, there may be some M&A activity ahead of us this cycle.

David mentioned that Bloomberg broke the news about dYdX’s potential deal, citing Wintermute as a potential buyer. The firm, unfortunately, didn’t respond to a request for comment asking about the report.

And, for that matter, neither did dYdX — though they did put out a helpful blog post explaining its interest in shopping out the matching engine. 

“Considering strategic alternatives for the v3 technology is a way to clarify our focus to allow us to make dYdX Chain software as successful as possible,” the team said. 

If they proceed with a sale, it won’t include either the Ethereum smart contract or any tech controlled by its utility token. 

“DYDX token holders would, of course, have to vote to approve any changes to the smart contracts that underlie v3,” the post continued.

So basically, the team is focused on Chain rather than v3 because Chain “better represents the vision of dYdX Trading Inc. and the ethos of DeFi, and we will be dedicating ourselves to the development of this software.”

Outside of all of this, there aren’t many more details to share right now. It’s not clear how much firms would be willing to pay or even who’s interested outside of Selini Capital and the aforementioned Wintermute. Bloomberg notably used the word “consortium,” which has — if we’re being honest here — left my endless curiosity flustered as I try to get more details. 

So let’s go back to what we know: Per data from CoinMarketCap, dYdX v4 is the fourth top DEX, while v3 has slipped to the 12th largest. At the beginning of the year, per a post in January from its business development lead Paul Erlanger, dYdX held the first and third spots, respectively, on the list. 

A deal wouldn’t necessarily pertain to the platforms specifically, but it would make it clear that the underlying software has made the offerings pretty attractive to potential buyers.

There is a caveat here. In some very unfortunate timing, dYdX announced on Tuesday that its website dYdX.exchange was compromised just minutes after Bloomberg’s report on v3 went live. (Ouch.)

“This breach comes shortly after the wave of DNS hijacks of SquareSpace users, that targeted mainly crypto applications. It should act as a reminder of the importance of end-to-end infrastructure security and holistic mapping of dApps’ dependencies,” Shahar Madar, vice president of security and trust products at Fireblocks, told me.

“While dYdX’s onchain infrastructure remains intact, the industry shouldn’t be in a position where a major dapp has to announce on twitter/X that users should refrain from engaging with their site.”

If this is the first you’re hearing of it, then I do have some good news: They’ve managed to recover the site. 

— Katherine Ross

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• Bitcoin financial services company Fold announced it’ll be going public on Nasdaq via a special purpose acquisition company. 

• Ferrari will extend its crypto payment system to Europe, Reuters reported.

• Per Arkham data, billions worth of bitcoin from Mt. Gox is on the move, and it sent $130 million to Bitstamp. 

• Bitcoin miner Riot Platforms said it acquired Block Mining for $92.5 million.

• Ether ETFs saw over $100 million of inflows after topping $1 billion of trading volume in the group’s first day of trading.

Q: Are cataclysmic bugs still a threat?

I think they’re always going to be a threat. That’s not to say we always have to be extremely worried about them, but it’s definitely something to keep in mind. 

There’s no way to prevent bugs when working with technology. And that’s not even just relating this to crypto. Look at what happened to CrowdStrike as an example. 

The cataclysmic update from the firm last week, per an incident report from the company itself earlier this morning, was caused by a bug in the “Content Validator.”

So if one of the world’s largest and, supposedly, most secure cybersecurity companies can suffer from a bug that literally grounded planes and shut down emergency systems, then it’s only rational to expect bugs throughout your technological endeavors. Unfortunately, it’s just a part of our online blueprint at this point. 

Be cautious, but keep on keeping on.

— Katherine Ross

“An experimental financial sandbox” is still one of the safest ways to describe the crypto space.

You may have heard about opening multiple brokerage accounts, for example. The idea is to spread risk of losses — say by bankruptcy or other sorts of malfeasance. 

It’s not necessarily that recovering any shares tied up in a brokerage bankruptcy is impossible. It’s just that it would take time to be paid out, during which time the stocks could have lost value (like what happened to FTX creditors).

Mitigating the risk here is a similar concept.

It’s practically impossible to have completely bug-free code, even if most bugs are innocuous, but the fact that crypto is money-as-software means there’s value on the line, regardless. 

So, yes, be wary of cataclysmic bugs and if you were to be playing around in this crazy cypherpunk sandpit, perhaps consider spreading your activity around — especially so at the bleeding-edge.

— David Canellis