Article by DragonStake, validator of dYdX. We invite you to delegate to our validator DragoStake if you found these analyses interesting https://www.mintscan.io/dydx/validators/dydxvaloper1he9yn4jhuq50vtf95ncv9rvplnqug8w9yw8dwc

Let's analyze the outcome of Season 4 Incentives developed on dYdX. It is not easy to assess the direct impact of these incentives since there are many other variables, including the market, that directly affect the metrics we aim to measure. Isolating the effect of these strategies is nearly impossible.

One way to isolate this effect is by comparing the project's evolution against the market as a whole. This would help eliminate the general effects that benefit all projects. The initial goal of these programs should be to maintain leadership in the derivatives category, regardless of market conditions. In a business where network effects are so significant, leading the market is particularly important.

Let's use this table to analyze the key evolution data of dYdX, which shows Trading Volume, TVL (Total Value Locked), OI (Open Interest), and the list of traders.

The most relevant metric for the business is the Volume, although there are other metrics that are particularly important for the sustainable growth of the project. Let's analyze this metric in the general derivatives market and dYdX's data.

This chart from DeFiLlama shows us the evolution of the category, which had a significant uptick, especially in March, and has consolidated volume levels around 7 billion, up from an average of 4 billion at the beginning of the year.

In the last month, the project has shown worse volume metrics compared to the other Top 5 projects, coming close to Vertex. These are not growth rates from small projects that could explain these ratios. Therefore, I believe there is room for improvement in the incentive design to regain leadership in growth.

Another metric that I find relevant is TVL (Total Value Locked). Here, dYdX, even within the Top 5, again shows one of the worst results. This also harms its competitive position.

In general, the metrics of the incentive programs are heavily based on encouraging the retention of human users. This involves analyzing the retention of these users and establishing incentive programs that are highly oriented towards trading competitions.

Conclusions

The main conclusions from Crypto Plaza regarding this incentive program are as follows:

Retail Strategies

Firstly, we believe that the user metric can vary significantly without necessarily impacting dYdX's business. It's also not easy to make this attribution, as competitions tend to encourage the creation of multiple accounts to increase the chances of winning these incentives.

The sustainability of traders on the platform does not come from being profitable through competition incentive programs but rather from offering the best conditions for slippage and funding rates. Competitions are an excellent tool for adopting new users but do not provide any incentive for professional traders.

The most interesting aspect for professional traders is to have more capital allocated to their strategies to amplify their gains. This would also offer other users the ability to copy their strategies, thereby generating more volume for the platform. In this sense, it is crucial to offer the best trading talent capital to attract them to the platform. This strategy would also prevent the creation of multiple accounts, as the capital could only be assigned to one. Multiple account strategies are common to be exposed to all possible scenarios.

I believe a strategy of assigning capital to the most profitable traders and sharing profitability with them would be interesting not only to attract the most profitable traders but also to potentially grow the incentive budget itself. The assigned capital could be reused.

Cash & Carry

I think it would be important to allow the platform to use each market's assets as collateral. This would enable the development of Cash & Carry strategies entirely on the platform.

In a zero-sum game like derivatives, it is necessary to have actors who can be exposed to the asset such that, even if they lose part of an asset's rise and give it to positive traders, they are satisfied with earning the funding rate.

This would create a lot of efficiency for traders who engage in such strategies, allowing them to do so directly on dYdX, significantly increasing the project's TVL. Additionally, it could be considered to allow staking liquid assets to further increase the profitability of these actors. However, we would have to consider the DePeg risk.

Allowing collaterals beyond USDC could be one of the most important growth levers for the project.

Airdrops

One of the most important user acquisition strategies is to offer users who will receive these tokens the ability to hedge. This is not easy as these markets often have many liquidity problems.

The last ZK airdrop was delivered to over 200,000 investors, a truly potent target for the dYdX project. I believe the efforts of these incentives should be dedicated to trading in these new assets. This would provide liquid markets for this assets that attract many investors. This volatility risk could be compensated by the tokens for investors with more capital.

This is our contribution to new incentive strategies which we will continue to study and share with the community.