What did @dYdX do wrong? dydx gave a bigger airdrop than Hyperliquid back then ($2b vs $1.6B initial value)
dydx had 5 years to build the most competitive product, and generated more than $530m in revenue
dydx also built its own chain, so it had all the tools to make the best-performing matching engine
What did they miss, and what can they do to become competitive again?
@srishtfateh @gauthamzzz @dYdX Yeah, I wrote smth about it recently
One thing that surprises me the most is that there is no single common opinion about AMMs, LP profitability, LVR, arbitrage, and other things.
IMO, there's a misconception that LPs are competing against traders, or that AMMs lose because traders win. This isn't how LPing works. LPs aren’t betting against traders - they’re selling volatility. The key risk they take is not trader skill but asset movement, and they're compensated with fees for providing that exposure.
LPing is conceptually similar to options selling: in options, you receive a premium upfront based on implied volatility, whereas LPs earn fees continuously based on realized volatility. LPs earn yield (fees) in exchange for taking on the risk that prices will move away from their position.
Arbitrage does not imply LP loss. It’s a necessary part of the mechanism. LPs do not care if they are selling to informed or uninformed flow, they care about their liquidity staying in range and earning fees. And while LPs could theoretically capture some arbitrage profit via MEV recapture, it's not the core design intent. The fact that billions of dollars remain deployed in Uniswap, even when some analyses show LP losses, suggests that the LPs understand they’re being paid for volatility exposure, not for making directional bets, and they are successfully hedging this exposure.
As the DEX infrastructure matures, LPs will have better tools to manage/hedge their exposure. Also, considering that options are one of the most traded financial instruments in the real world, the future of decentralized LPing remains strong, despite the timeline is doomposting on LPing.
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