Staking Rewards and Governance: The Role of Dymension's $DYM Token


A few weeks ago I wrote an essay on a rising star in the Cosmos eco-system. In that essay I discussed the potential for stakers of the $TIA token to be rewarded with future airdrops from aligned protocols. Well, guess what? The first one has just landed.

Dymension aims to simplify and accelerate the development of new applications in this space. Blockchain, for those unfamiliar, is a decentralized digital ledger that records transactions in a way that makes them nearly impossible to change, hack, or cheat. It uses cryptography to allow participants who do not know or trust each other to agree on a record of events and achieve consensus.

One type of blockchain consensus mechanism is called Delegated Proof-of-Stake, or DPoS for short. In DPoS, those who hold tokens on the blockchain can vote for block producers to generate new blocks and validate transactions. This helps the blockchain scale far beyond older mechanisms like Bitcoin's Proof-of-Work, though it does sacrifice some decentralization. The $DYM token secures the Dymension blockchain through DPoS.

So where does Dymension come in? It aims to serve as the foundational layer that connects various "RollApps" to the broader crypto economy. RollApps refer to modular blockchains that can be rapidly deployed through Dymension's platform. It acts like a decentralized internet service provider, routing transactions between RollApps and facilitating their integration. Through its network and liquidity bootstrapping capabilities, entrepreneurs and developers can get their RollApps off the ground in just a few minutes, with connectivity and market access already taken care of.

Does this help simplify and streamline the process of launching new decentralized applications? We'll have to wait and see the real-world impact. But by coupling key components like network provision and liquidity sourcing, Dymension hopes to dramatically reduce the barriers to entry for innovators in the blockchain space.

Mainnet Launch & Issues

Go for Launch!

Go for launch!

Dymension launched its highly anticipated mainnet on January 15th, distributing 70 million $DYM tokens to a wide variety of participants across multiple blockchain ecosystems in a process known as an airdrop. An airdrop refers to when a new cryptocurrency project distributes its tokens for free, often to early adopters, supporters and those who contribute value in some way such as holding other relevant cryptocurrency assets.

Full disclosure, I received this airdrop and have been actively staking my tokens in the protocol.

In this case, Dymension airdropped DYM tokens worth around $420 million USD to holders of prominent non-fungible tokens (NFTs) as well as participants in ecosystems like Ethereum, Solana, Cosmos and others. NFTs are unique digital assets that represent real-world objects like art, music, in-game items and videos. By airdropping to NFT holders, Dymension was able to reward those who have supported various virtual economies and bring awareness to its new modular settlement layer.

So in one fell swoop, Dymension was able to distribute its tokens and bootstrap awareness, support and adoption for its mainnet. However, the launch was far from smooth sailing. In the decentralized world of blockchain, networks rely on nodes operated by various entities known as validators to propose and verify new blocks of transactions. These validators stake, or lock up, cryptocurrency on the network to do their job.

In Dymension's case, one validator called Chorus One ended up controlling a whopping 34.8% of the total DYM staked, far surpassing the recommended 20-30% range. With such a dominant stake, Chorus One single-handedly prevented the Dymension network from reaching consensus, bringing the chain to a grinding halt in its early mainnet hours. Panic ensued on Twitter as users watched in bewilderment as the chain failed to finalize blocks.

https://twitter.com/jake_xbt/status/1754853344458256691

https://twitter.com/jake_xbt/status/1754853344458256691

It was a rocky start for Dymension, but one that provided an entertaining case study in the challenges of launching a new blockchain in the real world, where decentralization meets network effects and the complexity of incentives.

The Market Looks Past Early Issues

Despite the technical difficulties experienced during Dymension's mainnet launch, $DYM investors remained bullish on the project. In the hours following the launch announcement, $DYM prices surged by an impressive 58% as demand rushed in. Several factors likely contributed to this pump.

She's looking good, Captain!

She's lookin' good, Captain!

First, the mainnet launch itself was a major milestone that signalled Dymension was moving from the testnet phase to full decentralization. For any cryptocurrency, launching mainnet means the project is live on its own independent blockchain rather than a prototype. This increased the perception of Dymension as a serious and viable venture.

Second, Dymension's modular settlement layer showed strong technical merit, seeking to provide interoperability between blockchains through its Cosmos-based design. Being built on established frameworks gave investors more confidence in its ability to gain adoption. The promise to help blockchains communicate in a seamless manner created an appealing value proposition.

Finally, the massive $420 million airdrop distributed a huge supply of $DYM tokens into many hands. While some saw this as an opportunity cost, others were simply excited to hold a new asset they received for free. The airdrop effectively boosted DYM's token distribution and liquidity from day one.

All these factors combined to generate strong momentum behind DYM's price in a bullish endorsement of Dymension from the cryptocurrency community. While the network issues were a bump in the road, the market appeared to be looking past short term technicalities to the project's longer term goals.

Opportunities for $DYM Holders

With the launch of Dymension's mainnet and the distribution of 70 million DYM tokens, many holders are now looking at opportunities to benefit from their newfound cryptocurrency assets.

One major incentive driving ongoing $DYM holding is the potential for future airdrops from other projects that build applications on the Dymension network. As these projects grow and launch, they may look to reward early Dymension participants with their own tokens. By staking DYM in the network, holders expose themselves to qualify for these airdrops down the line.

Staking DYM is the process of locking up tokens in a wallet to support network operations and potentially earn rewards. On Dymension, staking DYM allows holders to participate in the consensus process and have a say in the validation of transactions. In return, stakers earn more DYM over time based on the amount staked and the network's inflation rate.

For holders who received DYM and want to maximize their upside, staking is a relatively hands-free way to continue benefiting from Dymension ecosystem growth through qualifications for airdrops while also earning more DYM. Those who do not want to be active validators themselves can delegate their staked amounts to professional validators.

However, selling unstaked $DYM is not as straightforward for some recipients. While DYM is now listed on centralized exchanges, not all support direct deposits and withdrawals of the token yet due to its newness. This means those holding in non-custodial wallets like MetaMask.io may find it cumbersome to cash out their DYM for other cryptocurrencies or fiat until exchanges add better support.

You sold it? Do you hate money??

You sold it? Do you hate money??

Holders of the newly-distributed DYM face both opportunities and challenges. By staking their tokens, they can earn more DYM over time while qualifying for potential airdrops from future projects building on Dymension. This allows holders to passively benefit from ecosystem growth. However, unstaked DYM may be difficult to sell for some until exchange support improves.

Overall, Dymension shows the possibilities of modular blockchains to enhance communication between networks. While short-term issues highlighted the real-world difficulties of deployment, Dymension aims to solve pressing problems for the blockchain industry. If it delivers on this technical value proposition, Dymension and $DYM stand to become major players in the cryptocurrency landscape.

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Gryphonboy
Gryphonboy

Small-time nerd. Publishing my book online for free! Check back every Sunday for the latest chapter. If you have any suggestions, corrections, criticisms, or just want to say hi please feel free to make them in the comments.


Gryphonboy's Crypto Journey
Gryphonboy's Crypto Journey

Dedicated cryptocurrency advocate! I hold the majority of the assets I discuss. This is not investment advice. Views and analysis expressed are my own and pertain to projects that I am invested in and passionate about. Support my work by tipping what you can here or you can support me directly by donating to gryphonboy.eth

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