Trading rewards contemplated in the initial software are subject to adjustments by the applicable governance community.
How do trading rewards work?
As part of the default settings of the v4 open source software (”dYdX Chain”), traders have the option to participate in trading rewards after each successful trade on the protocol.
As an example use case of this v4 software functionality, these trading rewards have been activated by the dYdX governance community. See this blog post for full details and this blog post for more details on a launch incentives program managed by Chaos Labs.
How do trading rewards work from a trader perspective?
Immediately after each fill, trading rewards are sent directly to the trader’s dYdX Chain address, based on the amount of fees paid by the trader. Prior to each trade, the UI also shows the expected amount of rewards a trade of that size will receive. Traders can earn trading rewards up to, but not exceeding, 90%* of a fill’s net-trading-fees, paid in the native token of the chain.
*This percentage is adjustable by the applicable governance community.
For example, a use case of this v4 software functionality by the dYdX governance community makes ~50,000 native tokens per day available to be earned by traders. The amount available to earn could increase since native tokens that are not earned are rolled over. For example, if on day 0, 10,000 tokens are earned by traders and there are 40,000 tokens in the pool, then on the next day, 50,000 are added to the pool and thus, 90,000 tokens are now available.
As part of the default settings of the v4 open source software, traders also have the option to view their estimated rewards before placing a trade.
What formula for trading rewards exists within the open source software?
The software reflects a Rewards Treasury of tokens that are available to be distributed to traders. Call the size of this Rewards Treasury T. Each block, new tokens are transferred into this T from the vesting contract and rewards are then distributed. Each block, T can grow or shrink based on protocol activity.
Let A represent the amount of rewards that are distributed from this T to traders in a given block.
dYdX Chain defines a trader X’s “rewards score” in a given block as:
Let S be the sum of all the rewards scores across all traders for a given block. S is given by:
Every block, the amount A of the native token that is distributed to traders is defined as:
Where C is a constant configurable by the applicable governance community. The open source software is configured for the constant to be initially set at 0.
The amount remaining (T - A) is retained in the Rewards Treasury and new tokens are emitted into the Rewards Treasury the following block.
A is calculated and distributed to all the takers who traded in the block and T - A is rolled over and retained in the Rewards Treasury for the next block.
The rewards distributed, A, are allocated proportional to each trader’s score.
Once the Vesting Contract is funded, trading rewards will continue to run and settle automatically, every block.
Disclaimer and Terms