Cosmos was chosen as the best fit since it would require not only decentralization but also the ability to manage and scale 1,000 orders per second.

On Thursday, dYdX, a crypto derivatives platform currently built on Ethereum layer 2, revealed that with its v4 upgrade, it would transition to a separate blockchain based on the Cosmos SDK and Tendermint proof-of-stake consensus. The decentralization and performance of the Cosmos blockchain, according to the business, make it a “best fit” for constructing dYdX for v4.

We’re excited to announce that dYdX V4 will be developed as a standalone Cosmos-based blockchain! 🔗🎉https://t.co/zQzZMIpzWO

— dYdX (@dYdX) June 22, 2022

The current dYdX protocol handles around 10 trades per second and 1,000 order placements and cancellations per second, with the intention of scaling to higher magnitudes in the future. However, the company claims that neither Ethereum layer 1 nor layer 2 solutions can achieve its throughput speed requirements while also meeting its 100 percent decentralization goal by the end of the year.

All dYdX code will be open-source, and the protocol will run on open permissionless networks with no services provided by parent company dYdX Inc. All validators and node operators will use the core node software to manage consensus, off-chain order book matching, deposits, transfers, withdrawals, and price oracles. Furthermore, unlike dYdX v3 and centralized exchanges, traders will not have to pay gas fees to trade, but only fees for executed trades. Fees will subsequently be given to validators and stakeholders as rewards.

dYdX also aims to connect blockchains by exploiting Cosmos’ inter-blockchain communications protocol. As a result, dYdX can directly connect digital assets, such as stablecoins, to other protected chains on Cosmos. The transfer of collateral for trading from/to blockchains such as Ethereum, as well as centralized exchanges, are top development goals. The protocol has processed over $626.6 billion in digital asset futures trade volume since its launch last February.