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).
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.
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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.
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.