The decentralized derivatives trading protocol dYdX has emerged as a breakout application in the current DeFi market.
Data from CoinMarketCap shows that as of 2 PM on September 28, dYdX's 24-hour trading volume reached $9.531 billion, ranking first among all DEXs. Its trading volume was approximately 6.8 times that of Uniswap V2 and V3 combined during the same period. This performance is impressive even when compared to major centralized exchanges (CEXs). The combined 24-hour trading volume of Coinbase, FTX, and Huobi Global during the same timeframe was only $9.023 billion.
dYdX's rapid expansion in trading volume is largely due to its transaction reward mechanism. According to its rules, dYdX will distribute 3.835 million of its native token, DYDX, every 28 days over five years to incentivize users to trade on the protocol. The recent price surge of DYDX, from $12.8 to a high of $23, significantly increased the arbitrage opportunities for transaction mining, attracting a large number of users to trade for rewards.
How Transaction Mining Propelled dYdX to Prominence
On the evening of September 28, the first 28-day "Epoch" of dYdX's transaction mining concluded. Starting from September 1, dYdX's daily trading volume repeatedly hit new highs, surpassing both Uniswap and Coinbase.
According to CoinMarketCap data, as of 2 PM on September 28, dYdX's 24-hour trading volume reached $9.531 billion, securing the top spot among all DEXs—a 74.6% increase from the previous 24-hour period. On the DEX trading volume leaderboard, dYdX overwhelmingly outperformed its competitors, including the widely recognized "DEX king" Uniswap.
During the same 24-hour window, Uniswap V3's trading volume was $1.105 billion, placing it second on the list, but this was only 11.6% of dYdX's volume. Even when combined with Uniswap V2's trading data, Uniswap's total 24-hour volume was $1.395 billion, meaning dYdX's volume was about 6.8 times larger.
dYdX's dominance over Uniswap is not new. As early as August 29, its daily trading volume exceeded $1 billion, surpassing Uniswap for the first time. More notably, its recent 24-hour trading volume also exceeded that of Coinbase, the largest regulated cryptocurrency exchange in the United States.
On September 27, dYdX founder Antonio Juliano tweeted that dYdX's 24-hour derivatives trading volume reached $3.68 billion, surpassing Coinbase's $3.61 billion for the first time. This milestone was celebrated as a historic breakthrough in the crypto community.
However, dYdX did not slow down. Data from September 28 at 2 PM showed its 24-hour trading volume had surged to $9.531 billion. During the same period, Coinbase's volume was $2.9 billion, FTX's was $2.013 billion, and Huobi Global's was $4.11 billion. The combined trading volume of these three major platforms was $9.023 billion—still less than dYdX's.
What fueled this explosive growth? The secondary market provides part of the answer. Between September 26 and 27, dYdX's governance token, DYDX, rose from a low of $12.8 to a high of $23, a gain of nearly 80%. This rapid price increase directly fueled user enthusiasm for transaction mining on dYdX.
Since August 3, when dYdX launched its platform token, it has simultaneously implemented a transaction reward system. According to the rules, any user trading on dYdX can receive DYDX rewards. This incentive program is scheduled to run for five years, with 3,835,616 DYDX allocated to trading users every 28-day Epoch.
The Epoch 0 phase concluded at the end of August, and Epoch 1 ran from September 1 to 28. It is worth noting that DYDX rewards from Epoch 0, as well as tokens from early airdrops, only became claimable on September 8. This was also the day DYDX was listed on major exchanges, marking its first secondary market price.
After its initial listing, DYDX stabilized in the $10 to $15 range. Users engaged in transaction mining calculated that the cost of mining DYDX by trading on dYdX was below $10, attracting many users to the platform specifically for this purpose. When DYDX recently surged above $20, the arbitrage opportunities expanded further. Users began trading aggressively to maximize their DYDX rewards, driving dYdX's trading volume to unprecedented levels.
One dYdX user explained that since the reward distribution per Epoch is fixed, higher trading volume increases the cost of acquiring DYDX. "After DYDX's price surge, competition among users intensified. Everyone is trading frantically to mine tokens. The estimated cost to mine each DYDX is now slightly above $10. If DYDX maintains a high price, the rewards can still be attractive."
The Downsides of Transaction Mining and Token Volatility Risks
The transaction reward mechanism has undoubtedly helped dYdX achieve impressive metrics, surpassing established platforms like Uniswap and Coinbase in just over a month. This performance has raised market expectations, further driving DYDX's price upward in the secondary market.
While everything appears to be progressing positively, it is important to recognize that dYdX's rapidly inflating trading volume includes significant "wash trading" elements. If transaction rewards are reduced or if DYDX's price declines substantially, the protocol's ecosystem could face serious challenges.
Transaction mining is not a new concept. Back in 2018, an exchange called Fcoin gained immense popularity by introducing a similar mechanism. Like dYdX, Fcoin rewarded users with its native token, FT, for trading on the platform. This attracted a large number of users seeking to "farm" rewards, quickly propelling Fcoin to the top of exchange trading volume rankings. The influx of users initially drove FT's price up, generating substantial profits for early participants.
This model was soon replicated by numerous other exchanges, making transaction mining one of the hottest trends in the crypto space that summer. However, its drawbacks quickly became apparent. As more FT was minted and distributed, selling pressure increased, causing FT's price to decline steadily. With shrinking arbitrage opportunities, trading volume plummeted. The frenzy lasted only a few months, leaving many FT holders with significant losses. Today, Fcoin and its imitators have largely disappeared from the industry.
Following this episode, "transaction mining as a standalone mechanism is unsustainable" became a consensus among crypto industry participants. Now, dYdX has revived the model with considerable initial success, but the underlying risks remain.
According to real-time data from dYdX's governance page, the current circulating supply of DYDX is 51.0068 million tokens, with a total supply of 1 billion. This represents a circulation rate of approximately 5.1%. On October 6, when rewards from Epoch 1 are distributed, the circulating supply will increase to 54.84 million tokens, slightly raising the circulation rate.
In the short term, selling pressure on DYDX may be manageable. However, token issuance will gradually increase, and after 18 months, tokens allocated to the founding team and early investors will begin unlocking in large quantities. This could lead to significant price volatility for DYDX.
Currently, the primary utility of DYDX is to provide holders with trading fee discounts. However, some users find this feature less impactful at the current stage. "Since spending more on fees yields more DYDX rewards, users are incentivized to increase rather than reduce their fee expenditure. This limits the token's utility," one user noted.
The same user revealed that if rewards decline in the next周期, they would likely switch to centralized exchanges for trading. "While dYdX offers a decent experience, depositing and withdrawing funds incurs network gas fees of tens of dollars. Additionally, its trading depth and feature set still lag behind those of major CEXs."
Some participants warn that most current users are motivated primarily by mining rewards. If DYDX's price experiences a significant drop, eliminating arbitrage opportunities, trading volume on the protocol could decline sharply. This could reduce market expectations, further depressing DYDX's price and creating a "death spiral" similar to what occurred with Fcoin. These participants caution that dYdX's recent trading volume surge contains considerable speculation and advise users to exercise caution whether trading the token on secondary markets or participating in transaction mining.
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Frequently Asked Questions
What is transaction mining?
Transaction mining is a mechanism where users receive native tokens as rewards for trading on a platform. It is designed to incentivize usage and liquidity but can lead to inflated trading volumes and speculative behavior if not sustainable.
How does dYdX's reward system work?
dYdX distributes 3.835 million DYDX tokens every 28 days over five years to users based on their trading activity. The goal is to encourage platform adoption and provide liquidity for its decentralized derivatives market.
What are the risks associated with transaction mining?
The primary risks include token price volatility, increased selling pressure as more tokens are minted, and a potential decline in user activity if rewards diminish. Historical examples like Fcoin show that unsustainable models can lead to rapid ecosystem collapse.
How does dYdX compare to centralized exchanges?
dYdX offers a non-custodial, decentralized trading experience but currently has higher gas fees for transactions and less advanced features compared to major centralized exchanges. Its trading depth may also be lower for certain assets.
Can dYdX avoid the pitfalls of earlier transaction mining models?
While dYdX has implemented a longer reward distribution schedule and broader token utility, it still faces challenges such as token unlock events and dependence on speculative incentives. Long-term sustainability will depend on organic growth and real user demand.
What should users consider before participating?
Users should carefully evaluate the cost of mining rewards, potential token price changes, and overall market conditions. Understanding the protocol's tokenomics and historical context can help make informed decisions.