Following the FTX debacle, crypto has evolved into a narrative-driven market. Some apparent examples include:<ul><li><a href="https://www.builder.news/crypto-insights/chiliz-exchange" alt="Chiliz exchange - An optimal exchange for fan tokens" title="Chiliz exchange - An optimal exchange for fan tokens" target="_blank" rel="nofollow" class="">Chiliz</a>, <a href="https://www.builder.news/project-review/algorand-review-a-layerone-extensible-blockchain-based-on-proofofstake-ex4WF" alt="Algorand Review: A layer-one extensible blockchain based on proof-of-stake" title="Algorand Review: A layer-one extensible blockchain based on proof-of-stake" target="_blank" rel="nofollow" class="">Algorand</a>, and <a href="https://www.builder.news/crypto-insights/fan-token-is-it-worth-investing" alt="Fan token - Is it worth investing?" title="Fan token - Is it worth investing?" target="_blank" rel="nofollow" class="">Football Fan Token</a> - World Cup.</li><li>Self-custodial wallet - Trust Wallet, Metamask.</li><li>DEX narrative: "It is not safe to trade in CEXs." - <a href="https://www.builder.news/crypto-insights/all-about-uniswap" alt="Adequate understanding about Uniswap" title="Adequate understanding about Uniswap" target="_blank" rel="nofollow" class="">Uniswap</a>, dYdX, Curve, Sushi.</li></ul>When we look back to FTX, we see that its structure was heavily skewed on the derivative side, with the futures market accounting for more than 77% of its volume. As in the last story, the <a href="https://www.builder.news/crypto-insights/the-ftx-contagion-report-a6Cvl" alt="The FTX Contagion Report" title="The FTX Contagion Report" target="_blank" rel="" class="">disappearance of FTX</a> prompts retail users to look for alternatives to their preferred platform.Binance and Coinbase were the obvious choices since they were the most reliable exchanges at the moment (SEC-licensed and listed companies). When traders wanted to leverage their transactions as well as short futures, they turned to Binance. Many customers, however, decided against keeping their assets in a CEX since they didn't want to repeat the error.Users required a secure, decentralized futures platform with the volume to accommodate the bids of large traders because other major DEXs currently offer the best user experience for spot trading. The top two choices were as follows:<ul><li>dYdX: Leading futures DEX with a user interface akin to CEX futures.</li><li><a href="https://www.builder.news/crypto-insights/gmx-exchange" alt="GMX evaluation: Will its success last?" title="GMX evaluation: Will its success last?" target="_blank" rel="" class="">GMX</a>: A decentralized futures marketplace offering leveraged trading without slippage (backed by GLP Liquidity Providers).</li></ul>Since dYdX matched many of the services offered by FTX, our initial anticipation was that these customers would flow there organically. The idea was relatively simple, and simpler technologies like GMX were available. Our research, however, shows the opposite.This article will discuss some of our worries from a theoretical point of view, as well as the relatively poor performance and lack of demand that flowed into dYdX. This article is not intended to provide financial advice; rather, it is focused on a short- to mid-term timescale.<h2>dYdX platform</h2>dYdX is a <a href="https://www.builder.news/crypto-insights/best-decentralized-exchanges-to-follow" alt="7 best decentralized exchanges to follow" title="7 best decentralized exchanges to follow" target="_blank" rel="nofollow" class="">decentralized exchange (DEX)</a> protocol that provides perps for over 35 prominent cryptocurrencies, including Bitcoin (BTC) and Ethereum (ETH). When it comes to trading volume and market share, it is one of the world's largest decentralized exchanges.The dYdX protocol was created on top of Ethereum smart contracts with Starkware-powered STARK (zero-knowledge) Rollups. The platform began its crypto adventure by offering spot trading and has since rebooted three iterations of its services in order to decentralize its components. To decentralize the exchange, the majority of the dYdX exchange is constructed on trustless protocols, which are freely expandable by anybody.After the FTX disaster, the dYdX token outperformed all others for a brief time. It already had a few catalysts in motion, including the choice to relocate to Cosmos. Even while the dYdX platform is excellent, it also hinted at a few roadmaps to give the dYdX token more intrinsic value in the past when it had none.The basic tenet was that users may directly long and short-listed tokens without obtaining authorization from dYdX, which does not keep user funds in custody. Long-term, it is undoubtedly the best course of action, but we must carefully examine if this also means that the token will outperform others in the next weeks.<img src="https://cdn.builder.news/news/11ed85d44c28b46d8e59028438497b73.jpg" alt="DEX price performance" title="DEX price performance" width="600" height="322" class="lykafe0">Source: CoingeckoThe figure above shows that dYdX outperformed on the 14th (the day of FTX Chapter 11 filing). The rest of the tokens' demand automatically falls as the market reduces risk through market-selling. However, whatever goes up can often come crashing down much harder if not supported by fundamentals and sustained demand.Token price does not completely represent a platform's worth. They are frequently associated, but we frequently observe token performance that does not correspond to platform value. This is clearly demonstrated by examining the top 5 <a href="https://www.builder.news/crypto-insights/profitability-of-defi-protocols-9mcft" alt="Profitability of DeFi protocols: which one is doing well in the bearish market?" title="Profitability of DeFi protocols: which one is doing well in the bearish market?" target="_blank" rel="nofollow" class="">Defi protocols</a> with the greatest TVL on DeFillama:<img src="https://cdn.builder.news/news/11ed85d44c28bb2d8e59028438497b73.jpg" alt="Protocol TVL" title="Protocol TVL" width="600" height="128" class="lykafe1">&gt;&gt;&gt; Read more:&nbsp;<a href="https://www.builder.news/crypto-insights/which-protocols-benefit-from-the-merge-9s9S0" alt="Which protocols benefit from The Merge?" title="Which protocols benefit from The Merge?" target="_blank" rel="" class="">Which protocols benefit from The Merge?</a><h2>dYdX token</h2>So, now that we've distinguished the value dYdX provides to consumers in the form of a futures protocol and a token, we'll look at how valuable the dYdX token itself is. When analyzing a token, we consider a few factors internally. The two important points would be revenue accrual and inflation. There are relatively few protocols that have survived without a robust framework based on these two components.<h3>Accrual of Value and Utility</h3>Governance - The dYdX token is primarily a governance token that is utilized to vote on various dYdX platform proposals.Fee Discount: Similar to other CEX tokens, customers that possess dYdX (but do not need to stake) on their accounts can benefit from fee reductions when trading on dYdX.Staking: dYdX may have been placed in the Safety pool until DIP 17, when governance opted to stop paying out rewards.Reward: Users that produce a volume on dYdX are paid by dYdX. Users that trade gets a dYdX proportionally depending on the trading fees that you pay (therefore, dYdX holdings are already factored in as it influences discount) - presently, around 2.8 M dYdX is paid every 28 days.There were also further rewards for USDC liquidity providers, which were also voted to be discontinued on DIP 14.Grants: Recently, dYdX has been hard at work developing a grant system in which dYdX is given to certain teams with the goal of doing specified tasks that empower the dYdX ecosystem.<h3>Revenue</h3>Users on dYdX, like any other exchange, must pay a fee anytime they make a trade. Many people believe that fees are allocated to the dYdX treasury, however, at the time, these fees are routed to the dYdX Trading Inc., which means that token holders receive no money.Currently, dYdX imposes a fee of 0.025% on total trading volume (since February 2022). They are claimed to have produced approximately $39.5 million in the last six months, resulting in a P/E ratio of 3.05 (quite an amazing P/E ratio when compared to others). However, because no earnings are provided to dYdX holders, this P/E cannot be compared directly to other DEXs that accumulate value, such as Curve or Sushiswap.<img src="https://cdn.builder.news/news/11ed85d44c28bf9c8e59028438497b73.jpg" alt="dYdX cumulative fee" title="dYdX cumulative fee" width="600" height="222" class="lykafe2">Source: tokenterminal<h2>Inflation</h2>To summarize, the dYdX inflation rate is an issue that cannot be disregarded. The current circulating supply is around 14.73 percent (source: dYdX) (22% source: Token Unlocks). dYdX is around 15 months old.The elephant in the room foreshadows a large wave of dilution in the coming months. We can determine by looking at the graph that this is a significant sum.We shall refer to the Token Unlock circulation supply in this part for the time being while we determine the future supply of dYdX based on the data supplied here.<img src="https://cdn.builder.news/news/11ed85d44c28c3d08e59028438497b73.jpg" alt="dYdX vesting schedule" title="dYdX vesting schedule" width="600" height="367" class="lykafe3">Source: Token unlock<ul><li>Circulating supply on December 1, 2022 = 221 M dYdX</li><li>Circulating supply on December 1, 2023 = 681 M dYdX</li></ul>The inflation rate calculation algorithm will figure out how many more tokens will come out in the following 365 days, relative to the current circulating supply:<ul><li>The current anticipated inflation rate is: 207% (~$480 M)</li></ul>There is also a very huge distribution that will arrive on February 3, 2023. About 150 M dYdX (15% of total supply, 110% of present circulating supply) is planned to be supplied on this day. The dilution quantity is presented below (this table only contains the three primary distribution that occurs on the day).As simple as it sounds, the investors’ allocation has the biggest coverage on the day of dilution. On the third of every month from February to September, additional dYdX gets diluted into the market. The projected amount of allocation for the investors is:Starting in February, it will be a very challenging period for dYdX to maintain its price unless investors opt to keep their tokens.The dYdX team, on the other hand, has been a fantastic industry leader and is made up of really bright individuals. They've been working hard to innovate in the field and are undoubtedly well aware of the issue. They have recently attempted to build a few sinkhole models.As the company is conscious of the lack of value in the token, they have revealed in January a shift to a decentralized protocol architecture that may possibly distribute fees. This was a significant driver for dYdX and was scheduled for completion in the fourth quarter of 2022.On June 22, dYdX announced the switch to a Cosmos Tendermint-based L1. There are two significant basic points here:<ul><li>dYdX is promoted to Layer 1, and all Tendermint-based layer 1s need validators (with L1 tokens being staked).</li><li>The protocol will not collect gas fees, but simply trade fees, which will all go to validators and inflationary incentives.</li></ul>The dYdX team made an excellent move by enabling users to stake dYdX to safeguard the network while also being given money from the dYdX platform. This creates a large sinkhole while also generating utility and value accrual.But when can we expect this to happen? According to the most recent update, the mainnet release date has been postponed to Q2 of 2023. This coincides quite nicely with the huge distribution that will be coming on February 3rd, 2023.<h2>Current state</h2>Many people were curious whether dYdX absorbed a large portion of the volume that used to be handled on FTX (since people do not want to retain their money on CEXs any longer). Regrettably, its performance has been pretty stable in recent days, which we will have to monitor for the next few weeks. At the time, this is how the volume looks:<img src="https://cdn.builder.news/news/11ed85d44c28c82f8e59028438497b73.jpg" alt="dYdX volume after FTX" title="dYdX volume after FTX" width="600" height="372" class="lykafe4">Source: TokenterminalThe blue bars represent dYdX volume, and we can observe that there is currently no significant growth in dYdX demand following the FTX debacle. When we compare the volume 7D rolling average, we are back to the lows of June and October. When we examine the dYdX token price at various stages, we can see that it is somewhat higher now than it was previously, independent of its performance.If we expand into the last 100 days to observe more closely if volume rose or not, we can very easily see this has not also been the case.Looking at the data above, FTX demand appears to have been mainly absorbed by other CEXs and DEXs. However, we may also infer that overall volume and demand are lower across all CEXs and DEXs.We were wondering whether the fall in volume was widespread and, if not, who had absorbed the majority of the FTX futures demand. We have studied the volume behavior of all future exchanges relative volume created by each exchange on Nov 1 (before any FTX-associated rumors hit the market).Based on the computed graph below, it seems Huobi is the strongest contender based on this information, as most exchanges have fallen in futures volume following the occurrence.dYdX was able to dominate volume primarily for four days at the FTX event's peak, but failed to continue its success when the market began to normalize. Another key option is GMX, a decentralized perpetual exchange that has its own mechanism allowing 50x leverage with no slippage. However, because GMX has recently had its own unique events, it may not be a viable choice for direct comparison with other prospective exchanges. However, to illustrate how much volume (possibly) was absorbed by GMX, consider the following performance: <img src="https://lh4.googleusercontent.com/oizHFXn6ZjD9P6gdHvmoLAoMwEJKU-lKnC5nE6lplQ468u0GjPbMvLEtsZfzyBgpo6017aQ-vtHh2YKMTHbehqD6lYpFgAD7G8zmmUuoxrJaQYkgh-SCvW96cLP3QOHX_9UlI9ctaADQ2fVt6RvCofZvpXJNzC3O--_D33nGTd0IhpzXwbIlgjN9PJ7VuA" alt="% change of derivate exchange" title="% change of derivate exchange" width="624" height="385">Source: Token terminalGMX's performance dwarfs that of any other exchange volume, including dYdX, and it has definitely outperformed significantly. However, this is only for reference and will not be considered.The aforementioned conclusion is somewhat supported by the unique depositors onto dYdX following the occurrence. Deposits are returning to pre-FTX event levels, as seen by the volume indicated above. GMX, on the other hand, has had a reasonably consistent influx of new users, as shown in pink on the chart below.<h2>Conclusion</h2>Although there was anticipation for dYdX to handle a lot of demand from <a href="https://www.builder.news/crypto-insights/the-ftx-contagion-report-a6Cvl" alt="The FTX Contagion Report" title="The FTX Contagion Report" target="_blank" rel="nofollow" class="">the collapse of FTX</a>, the story looks to be losing pace in the short run. We are seeing more money flow into other currencies and short-term capital rotation between other coins with other fresh storylines. The time frame of story-driven price movement without fundamental underpinning is growing shorter and shorter as users and traders feel uncomfortable about the broader ecosystem.In the next months, we should be monitoring dYdX's performance to see if it gains more users and creates more volume. The dYdX team will need to work tensely to not create any delays on the <a href="https://www.builder.news/crypto-insights/cosmos-vertical-scaling-solutions-KluWM" alt="Cosmos: A fresh wind with vertical scaling solutions" title="Cosmos: A fresh wind with vertical scaling solutions" target="_blank" rel="nofollow" class="">Cosmos</a> transition, as the February dilution is approaching faster than we thought.However, we feel that in the long run, dYdX and other such platforms are required in the ecosystem to decentralize permanent trading experiences. What is the purpose if we can't exchange decentralized tokens decentralizedly?<div class="pr-block-special">Disclaimer: This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

The unexpected FTX crash had catastrophic effects on the cryptocurrency industry. DYDX has a chance to blossom into a compelling story within this confusion.

dYdX: The FTX aftermath's leading narrative