In anticipation of the launch of dYdX’s native layer-1 chain, the original DYDX operated as an ERC-20 token on dYdX’s initial Ethereum layer-2 protocol. To ease the transition to their independent layer-1 chain, the dYdX community cast their votes to designate DYDX as the primary L1 token for the dYdX Chain. They also resolved to establish a one-way bridge from Ethereum to the dYdX Chain and grant wethDYDX (wrapped Ethereum DYDX) the same governance capabilities as ethDYDX in dYdX v3.

Thanks to these community-driven decisions and the governance structure, the utility of the DYDX token has significantly broadened. It is now employed for staking, enhancing network security, and contributing to governance responsibilities on the dYdX Chain.

Much like Ethereum’s shift towards Proof of Stake (PoS), those who stake and validate assets play a vital role in safeguarding the network and receive rewards from the dYdX protocol commensurate with their staked holdings. The fees collected by the dYdX Chain protocol are subsequently distributed to validators and stakers through the Cosmos distribution module.

In a recent announcement from dYdX, they expressed their belief that governance on the dYdX chain will be more inclusive compared to their prior Ethereum-based layer-2 protocol:

“The dYdX Chain does away with the concept of ‘Proposing Power’ seen in dYdX v3. Instead, the governance module enables any token holder to propose changes with a deposit.”

Measures have been put in place to counteract spam proposals, including the introduction of minimum deposit requirements and voting mechanisms that include veto powers. Only staked DYDX tokens can be employed for active participation in chain governance.

Additionally, chain validators are given the added responsibility of representing the voting weight of stakers, except in cases where individual stakers choose to vote on proposals autonomously.