What happened: dYdX Chain Halt

Yesterday, the dYdX chain experienced a stoppage of about 10 hours due to an update to version 4.0.0, leaving traders in limbo as BTC's price surged from $69,500 to $72,700(4.2% up).

This incident effectively froze time on the dYdX chain, preventing any trading activities during the halt.

Over $3M Liquidation happened after the chain started

When trading resumed, the chain's immediate sync with oracle prices led to a flurry of liquidations, totaling approximately $3,430,000 across 425 positions (Source, retrieved from the Chaos Labs analytics dashboard).

This event has sparked a debate regarding the fairness of these liquidations, considering they stemmed from a bug introduced in the latest update(See below the bug detail).

Unlike centralized exchanges(CEXs) that sometimes offer compensation for losses due to system failures, the decentralized nature of DEXs complicates the assignment of responsibility.

Who is responsible for the Loss?

In the realm of cryptocurrencies, the principle of personal responsibility is often highlighted, suggesting users navigate the risks associated with digital asset trading on their own.

However, the decentralized governance model of dYdX, operated by a DAO, presents an alternative for those affected(at least we think in that way).

By proposing a compensation plan to the DAO, users have the opportunity to seek redress through community consensus.

This process illustrates the potential of decentralized finance to offer novel solutions for conflict resolution, emphasizing the power of community-driven decision-making in addressing the challenges of decentralized ecosystems.

But, compensation poses challenges

Indeed, compensating affected traders comes with its set of challenges.

• Deciding who is eligible

• Deciding the appropriate extent of compensation (e.g., 20%)

  are difficult tasks that require consensus.

Furthermore, calculating compensation becomes even more complex when considering potential opportunity costs.

Summary

Traders who believe they deserve serious compensation have the option to express their opinions through proposals to the DAO. This method provides a more constructive resolution than blaming the founder or the development team in SNS.

Operating a perpetual DEX is still exploring uncharted territory. System malfunctions are somewhat to be expected, and addressing such challenges requires a collaborative effort from the whole community including developers, validators, marketing teams, traders, stakers, etc.

As a community, we, Crypto Learning Club, will continue to support dYdX in becoming the most used Perpetual DEX.

If you found our article helpful, please consider delegating to us.

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P.S. For those who has an interest in technical matters

The Cause of the Chain Halt

The halt was due to the use of an outdated version of the iavl package, which contained a bug that prevented states from being saved correctly, leading to node crashes.

iavl is a core package used for managing merkle trees in chains built with CosmosSDK/Tendermint.

As of now, dYdX version 4.0.4 has been released, and the chain is operating smoothly without any issues.

Why the Bug Went Unnoticed

We guessed the bug likely remained undetected during tests due to the limited number of nodes running on the testnet rehearsal.

It only manifested when deployed on the mainnet with 60 validators, leading to an unforeseen incident.

Given the disruptive nature of updates, enhancing the testnet becomes a critical measure for the core team and validators to prevent similar issues in the future.