Proposal Lifecycle

Overview of the dYdX Improvement Proposal (DIP) lifecycle.

Proposal Stages

The dYdX Governance Process is fueled by governance forums at https://dydx.forum/ and ratified through dYdX Improvement Proposal (“DIPs”).

Below we outline a preliminary draft explaining how the dYdX v3 governance process will flow, from the inception and definition of the concept to the actual implementation. These processes are subject to change according to feedback from the dYdX community.

The following flow chart is the initial proposed stages to pass a proposal:

Stages of a DIP

0. Forum Discussion

Anyone can sign up and set up a thread on any topic on dYdX’s Governance forums hosted at https://dydx.forum/. Community members are required to register using an email address or an Ethereum wallet.

1. (Off-chain) DRC Creation

Off-chain dYdX Request for Comments (DRCs) creation is the first step in the governance improvement process. Anyone can participate in the Governance Forum, create off-chain DRCs, and discuss improvements.

To create a DRC, use this template (available on our Github). The DRC should cover all the information of the potential final DIP.

At a minimum, DRCs must include:

• Short and concise titles of the DRC

• A short and concise description of the proposal

• The rationale for the DRC, e.g. why?

• The title of the forum post must include DRC: with the short title of the DRC. E.g. DRC: New Market Request

• A community poll that community members can use to vote on improvements off-chain

2. DRC Discussion & Feedback

Once posted on the governance forum, all questions and comments should be addressed & taken into consideration, to further improve the DRC.

3. DRC Snapshot Polling

Snapshot polls serve two purposes: sentiment signaling for future on-chain DIPs and binding votes for variables controlled off-chain.

Once an off-chain DRC has a very rough consensus, a community member with a total proposing power of more than 10,000 Governance Tokens can create an off-chain vote for the DRC on Snapshot. We encourage the dYdX Community to create Snapshot polls on Mondays to increase visibility during the regular workweek.

Snapshot is a simple voting interface that allows users to signal sentiment off-chain. Votes on Snapshot are weighted by the voting power of the address used to vote.

For Snapshot polls related to sentiment signaling, the proposer will need to provide:

• details of the DRC,

• a voting system,

• a voting period - vote start date and vote end date set to a 4 day voting period, and

• a voting delay - a Snapshot block number that is 6570 blocks (approximately 1 day based on 13.2 second block time) in the future. The Snapshot block number locks the state of community members who can vote. Token holders who hold tokens before the Snapshot block number are eligible to vote. Before the snapshot of each address’ respective voting power, the voting delay gives Governance Tokens holders time to acquire tokens, delegate voting power, and move tokens between wallets. Note, moving between wallets only applies to $ethDYDX and $wethDYDX.

For decisions that don’t require an on-chain smart contract call, notably changes to the Trading and Liquidity Provider rewards formulas, Snapshot votes are considered the binding and final vote. The proposer will need to include the requirements above and provide:

• binary voting options - for clarity, an address is either voting for or against a proposal.

The proposed change(s) will be implemented by dYdX Trading Inc. if the results of the Snapshot poll satisfy:

• the minimum quorum - at least 1,000,000 Governance Tokens. The minimum quorum contributes to the decentralization of decision-making and protects against unilateral decision-making, and

• the minimum vote differential - at least 67% of votes must be in favor of the proposal. The minimum vote differential assists with filtering out proposals that are highly contentious and require further discussion.

dYdX Trading Inc. will have up to 1 Epoch (28 days), an execution grace period, to implement changes from a successful Snapshot poll.

Note, proposals and votes are just signed messages, stored on IPFS, and available via the Commonwealth portal.

4. (On-chain) DIP Creation

When a rough consensus is reached, an on-chain DIP may be submitted by a community member who holds enough proposition power for the type of proposal. An on-chain DIP is initiated via a smart contract call. The proposal should be based on the winning outcome of the off-chain DIP voting on Snapshot and can consist of one or multiple actions, up to a maximum of 10 actions per proposal.

A DIP creation is subject to a minimum number of tokens held/delegated required for an account. A Timelock executor must be specified when a proposal is created. The initial parameters are as follows (and can be modified by governance):

Parameter	Description	Short Timelock Executor	Merkle-Pauser Executor	Long Timelock Executor	Starkware Executor
Proposal Threshold	Minimum tokens held/delegated to create proposal	0.5% of total supply	0.5% of total supply	2% of total supply	0.5% of total supply

5. (On-chain) DIP Voting

After an On-Chain DIP is created, the proposal enters a pending state for a period defined by the Voting Delay, which is currently configured to 6570 blocks or approximately 1 day (assuming 13.2 seconds per block). In other words, user snapshots are recorded 1 day after the DIP is created, at which point the proposal transitions to an active state.

After the Voting Delay, the Voting Period is activated. The voting period length depends on the proposal type.

The following chart shows a DIP state flowchart:

After a DIP is created on-chain it is subject to a Voting Delay, Voting Period, Minimum Quorum, and a minimum Vote Differential. The initial parameters are as follows:

Parameter	Description	Short Timelock Executor	Merkle-Pauser Executor	Long Timelock Executor	Starkware Executor
Voting Delay	Number of Ethereum blocks to wait before voting on a proposal may begin after a proposal is submitted	6,570 blocks	6,570 blocks	6,570 blocks	6,570 blocks
Voting Period*	Length of time for which proposals are available to be voted upon	4 days	2 days	10 days	4 days
Minimum Quorum	Minimum yes votes for a DIP proposal to pass	2% of total supply	1% of total supply	10% of total supply	2% of total supply
Vote Differential	Required yes-no gap for a DIP proposal to pass	0.5% of total supply	0.5% of total supply	10% of total supply	0.5% of total supply

*Timing based on 13.2 second block times.

Only the voting delay can be modified by governance, and it can only be changed to values in between (inclusive) the minimum and maximum delay. The voting period, minimum quorum, and vote differential can't be changed.

6. Proposal Queuing & Execution

After a DIP has passed, any address can call the queue method to move the proposal into the timelock queue. A DIP can only be queued if it has passed.

Parameter	Description	Short Timelock Executor	Merkle-Pauser Executor	Long Timelock Executor	Starkware Executor
Timelock Delay*	After a proposal passes and is queued, delay before the proposal is executed	2 days	0 days	7 days	2-9 days
Execution Grace Period*	The time after which a proposal becomes executable, during which it must be executed.	7 days	7 days	7 days	7 days
Minimum Timelock Delay*	Minimum delay before a proposal is executed (after queuing)	1 day	0 days	5 days	4 days
Maximum Timelock Delay*	Maximum delay before a proposal is executed (after queuing)	7 days	1 day	21 days	21 days

*Timing based on 13.2 second block times.

As soon as the voting period ends and a proposal has succeeded, anyone can call queue to begin the timelock delay.

For the Starkware priority timelock executor, it has a priority period of 7 days out of the 9 day timelock delay. This means that after 9 days anyone can execute a proposal, but within days 2-9 (the priority period) Starkware has the option to execute the proposal.

In practical terms it's:

• Days 0–2: No one can execute

• Days 2–9: Only Starkware can execute

• Days 9: Anyone can execute

7. (Optional) Proposal Cancellation

At any point in a DIP lifecycle, the proposer can cancel the DIP. A proposal can be cancelled by anyone before it is executed if the proposer does not have sufficient proposition power at the current block.

FAQ

What is the purpose of the Voting Delay?

The Voting Delay is the number of Ethereum blocks to wait before voting on a proposal may begin after a proposal is submitted.

Voting power must be delegated to an address either entirely before a proposal has been submitted or during the proposal Voting Delay.

For now, the Voting Delay is set to 6,570 blocks, which is about 1 day. This value is added to the current block number when a proposal is created.

In the future, dYdX Governance may vote to increase or decrease the Voting Delay. While there are obvious benefits to an increased Voting Delay. It may introduce some potential adverse outcomes such as opportunistic edge case exploitation.

What is the purpose of the Proposal Threshold?

Since $ethDYDX and $wethDYDX are freely tradable assets, anyone can attempt a governance takeover via market buying. That said, to force-pass a bad faith vote would require a minimum of 5,000,000 Governance Tokens in the event of a short timelock; or 20,000,000 Governance Tokens in the event of long timelock. If not outright impossible, this amount would be prohibitively expensive and likely cost more when accounting for price fluctuation than the net gain from the attack.

If a group somehow achieved a bad faith takeover, the timelock delay would give affected agents time to withdraw their assets from the protocol. This would also be an opportunity to fork the protocol, a path that would likely be taken by the remaining good-faith actors.