Charles d’Haussy has left his role as global
head of business development at ConsenSys and joined dYdX Foundation, the newly
established governance organization for a leading decentralized exchange.
The foundation represents a move to shift
the governance of the exchange from a company, dYdX Trading in San Francisco, to
an independent entity representing the community user base.
“I’m here to accelerate the move towards dYdX
becoming a fully decentralized exchange,” d’Haussy said.
D’Haussy had also headed ConsenSys in Asia. He helped ConsenSys win projects with numerous monetary authorities in Asia Pacific to develop digital currencies.
He is also, with DigFin’s Jame DiBiasio,
author of “Block Kong”, profiling 21 blockchain entrepreneurs in Hong Kong.
In his new position he reports to the board
of directors of the dYdX Foundation.
Explaining his role, d’Haussy says he will
be involved in two projects to advance decentralized finance (DeFi): first, ensuring
dYdX exchange becomes as decentralized as possible, and second, building the
exchange’s own blockchain apps to be used by mainstream companies.
From CEX to DEX
The move to full DEX (decentralized exchange)
is due in the fourth quarter. This new version will shed the last central components,
both in operations and in revenues.
dYdX is known for trading perpetual futures
contracts on crypto, and the existing protocol for trading those will
eventually be phased out. Currently the order book and matching engine of the exchange
are still run on servers operated by dYdX Trading.
This centralized business has been key to enabling
the DEX to scale. dYdX now claims about $1 billion in daily trading volumes –
big for a DEX but still small compared to the $14 billion a day moving on
Binance, a centralized exchange.
The new version (V4.0) is meant to remove
any central decision-making over running the order book and matching engine. Achieving
this will require scaling dYdX’s transaction processing power, ensuring finality
of trades, and preventing network operators and market makers from extracting
value out of legitimate trading activity.
In turn, the trading system is meant to be
visible to all users, who will have to trust the code rather than a clearing
house or other entity. dYdX Trading will no longer receive revenue from trading
fees (unless the community votes to pay them).
DAO me
DEX proponents believe the screwups and scandals
in crypto stem from bad practices imported from the traditional world of
finance. The argument goes that centralized companies like hedge fund Three
Arrows and brokerage Celsius could operate badly because they are opaque and
acting only in the executive teams’ self-interest.
The DEX model doesn’t have a role for
regulation, which is seen as an extension of central authority – bad. Instead,
individuals or firms enjoy visibility of activity on-chain and trust in the
code to provide a level playing field that is beyond manipulation.
To achieve this will require building automated tools to ensure trades work smoothly and that disputes are managed by the community rather than by a clearing house, custodian, or some such intermediary.
In other words, a DAO: a decentralized
autonomous organizations and represent the idea of automating corporate functions
and allowing a userbase to collectively make decisions, rather than giving
control to founders or an executive management team.
The DAO track record to date has not been terrific,
with high-profile examples usually turning into bun fights on Discord and
surprises about members being liable for the protocol’s finances.
But d’Haussy is out to prove the model can
work. The governance and staking protocols are being built on smart contracts,
which are open source and meant to be audited by third parties.
dYdX Trading was born in San Francisco but the
Foundation is exploring basing DAOs on Guernsey corporate law, to avoid potential
liabilities in the US; and the taxes are low.
Dapp-chain
The second project that he’s taking on at
the Foundation is marketing a new blockchain, dYdX Chain, built on the Cosmos protocol
(a competitor to Ethereum et. al.).
This is being developed as a Layer 2, or
decentralized application layer, what d’Haussy calls a dapp-chain. Layer 1 is
like Bitcoin or Ethereum, the most basic, core, settlement level of a
blockchain. Layer 2 is what people can do on top.
Another company, Polygon, has made waves as
a L2 player, selling bespoke blockchain services to big brands like Disney and
Mercedes, who are experimenting with digital tokens or other Web3-type experiences
for their customers.
Because these uses are specific to the
company, and very intense, requiring massive computing power and security, the
big public chains like Ethereum can’t support them. Ethereum is too slow and
too expensive, charging high gas fees for every transaction. That’s the price
of popularity in blockchain.
D’Haussy says this is a wide-open commercial
opportunity for a vendors with decentralized exchange capabilities.
Down the metaverse hole
In theory a centralized crypto exchange
like Binance, FTX or Coinbase could deliver a similar capability. But a
decentralized exchange (DEX) is neutral because it’s operated at the community
level rather than by a traditional corporate structure.
Just like a Goldman Sachs may not be keen
to have its digital-asset business settled by JPM Coin, a big consumer brand would
prefer a trustless base layer of software run its Web3 projects.
“Companies need software that is optimized
for the best experience,” d’Haussy said. “The metaverse will run on specific
software.”
To be effective, however, any solution has
to wrestle with real-world legal wrangles: such as rights to intellectual
property, who owns it in a decentralized context, and how it moves and is accounted
for. Not to mention identity.
So far companies have preferred to operate
in consortium or walled gardens, because it’s safer and avoids some of the unknowns
of decentralized finance. But walled spaces are just intranets that can’t scale,
and without a big community, they lose their pizzazz.
If corporations come to trust in a
dapp-chain that can’t be manipulated by its creator, or subject to being gamed
by a group of bad actors, then they will trade on it and allow it to service
their user experiences.
Not a project for the faint of heart. “I’m
going down a new rabbit hole,” d’Haussy said.
