Published on October 2023
In anticipation of the launch of dYdX v4, Xenophon Labs has prepared a comprehensive report on some of the features we are most excited about going into the dYdX Chain. In this report, we cover dYdX's migration from dYdX v3, the DEX built on an Ethereum Layer 2 rollup, to its own sovereign Cosmos blockchain with dYdX v4. We also discuss the responsibilities faced by the dYdX community in operating dYdX Chain, from slashing misbehaving validators to performing market risk management and managing trading rewards.
Published on July 2023
The safety module is a form of decentralized insurance: stakers deposit AAVE in a pool to earn yield, giving governance the right to
Published on June 2023
A core concern of Curve`s liquidity providers is the risk of depeg for the LP`d assets. In our first engagement with Curve, Xenophon Labs has designed quantitative metrics for detecting asset price depegs to help protect Curve's liquidity providers. We developed a Bayesian Inference model for detecting changepoints in our metrics to alert LPs of potential depegs. By backtesting our models on 2022 and 2023 depegs, we identify which metrics are leading indicators of potential price depegs and show that some of our metrics detected major stablecoin depegs several hours before prices dipped below 99 cents. This is the first of hopefully many steps in identifying how to protect LPs from stable asset price volatility.
Published on January 2023
We formalized a definition for the value that Uniswap LPs should ascribe to orderflow, based on that orderflow's information theoretic properties. We provide multiple models that the Uniswap protocol can utilize when determining how it should value orderflow, and we provide practical guidance for the implementation of an orderflow incentivization program. In this analysis, we also discovered that over 13% of the orderflow on top Uniswap V3 pools comes from sandwich attacks, and we curated the a comprehensive sandwich attack dataset.
Published on November 2022
We conducted research that led to the discovery of critical economic inefficiencies in the dYdX Safety Staking Module. We advised that the module be wound down, and we carried out a successful vote to eliminate it. This change will save the protocol nearly 20M DYDX over the next four years, which was over $30M in value at the time the proposal passed.
Published on December 2022
We formalized a second price auction for the cow protocol solver competition, and we backtested the new mechanism on historical data to project its impact on the solver competition, demonstrating that it would save the protocol over $500K per year if implemented. There is currently a governance proposal for implementing an extended version of this mechanism.
Published on March 2022
A game-theoretic approach to understanding issues in the dYdX trader rewards mechanism, showing traders how to optimize their rewards and showing dYdX how to increase trading revenues by over $3M per month. We proposed our changes in dYdX governance, and these changes were implemented.