Playing to our strengths
This was originally posted as a tweetstorm here
1. First public tweetstorm on dYdX strategy 🧵1️⃣
️⃣We need to play to our strengths while mitigating our weaknesses 👇
2. * Thoughts are my own / not financial advice
** When I say “we” I am referring to the dYdX community, of which I am a member, and the protocol overall
3. What does this mean? Isn’t this obvious?
Not necessarily. Many startups based on new technologies fail because they try to go toe to toe with incumbents in areas they are weak at, which is often impossible due to the limitations of the technology / business
4. Instead, the reason startups on new technologies succeed is because they are 10x better on *some* (but not all) areas that turn out to be critical 🥇
5. Takeaway: we should focus exclusively on our strengths while bringing our weaknesses up to 75–90% parity with CEX competitors ✅
6. Note: dYdX’s goal is to become the biggest crypto exchange (not just biggest DEX), so DeFi competitors are not currently relevant to consider towards this goal as they do not have significant market share
100% of our effort & thinking should go towards competing with CEXs
7. So what are our strengths?
What is dYdX 10x better at than CEX competitors? What can they never compete with us on? Why are these strengths critically important? 🤔
8. Community control 🤝🗳
Our users can control the platform itself and over time will move towards ownership
Users will prefer to use a neutral platform where they can have a real say in how it evolves and who profits from it
9. Censorship resistance 🌐🔒
Decentralization enables the creation of products that cannot be shut down or censored. This drives network effects in a large way and unlocks new types of product features
10. Incentives 💸🤑
We can offer huge incentives to users & ecosystem participants due to the token, liquidity mining, and DAO grants programs. We can efficiently direct these to drive specific behaviors through the use of smart contracts
11. This is not to say we shouldn’t even try to compete on areas we are weak at
It’s *very important* we mitigate our weaknesses to the point they are not major hurdles for our users 👈
And this is very challenging as we are at a competitive disadvantage here vs incumbents
12. So what are some examples of our weaknesses?
What can we not compete with top CEXs on for the next few years no matter how well we execute?
* Not intended to be an exhaustive list
13. Remember the goal is to get to be 75–90% as good as CEXs at our weaknesses
This does *not* mean we need to spend 75–90% as much effort as CEXs do on our weaknesses — we can get to 90% with much less effort than it takes to get to 100% ✅
14. Speed of execution 🏃
We cannot compete with exchanges like FTX and Binance on speed of execution
Because the underlying technology is changing so rapidly we must constantly spend massive effort building huge new versions of the protocol and throw out everything we’ve built before
15. Additionally, the technology for building on DeFi is still not to the level of traditional software development
Finally, enacting changes takes time as it must undergo governance in most cases
16. So the question is how can we get to 75–90% parity and offer the major features and products our users want?
This is why dYdX has been building a top product & engineering org. We can also play to a strength and use incentivization to drive others to build for us 🚀
17. Marketing execution 💬
We will never out execute or out spend CEXs on marketing. It’s just not how a protocol core team is set up
18. So how do we get to 75–90%?
By playing to our strengths instead of weaknesses. We can empower our users to organically market dYdX because they feel like owners & are incentivized in ways CEXs cannot compete with 💬🤝
Others like Chainlink & Aave have already proven this model
19. So how is this thinking impacting dYdX’s strategy?
The major strategic decision this has impacted is V4 and its full decentralization. This will drive an order of magnitude improvement in our strengths of community ownership and censorship resistance 🎉🛳
20. We’ll keep using this framework to impact strategic decision making, and I’m hopeful it will be useful for the community to start thinking through this lens as well! 🤝