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DYDX’s false idea: authenticity checks get community reaction

September 6, 2022
in DEFI, News
DYDX’s false idea: authenticity checks get community reaction

The decentralized finance ecosystem is composed of thousands of protocols. However, not all of them have the same vision of decentralization and the intrinsic values of cryptocurrencies. For example, the DYDX protocol is at the center of a bad buzz after a lunar verification process was implemented.

Authenticity check: DYDX in turmoil

The DYDX exchange platform is a major player in the ecosystem. It records several million dollars of daily volume.

However, this week, DYDX found itself at the heart of a major scandal. This scandal occurred after the implementation of a more than questionable verification process.

On Wednesday, DYDX announced the implementation of a promotional program. The program aimed to give away 25 USDC for free to users who deposit at least 500 USDC on the platform.

“We are pleased to announce that every new DYDX user who deposits $500USDC or more on their first transaction is now eligible for a one-time promotional bonus of 25 USDC, subject to the promotion rules.”

While at first glance this program seems interesting, users quickly spotted a hidden flaw. This is in the “promotion rules”.

In order to get the $25 bonus, users must complete an “authenticity check”.

“The authenticity check scans your image with your webcam and compares whether your image has been used with another account on DYDX. If you have successfully performed the authenticity check with another account, you will not be able to do it again.”

While the reason for such a check is understandable, its execution is highly questionable, especially in a protocol that advocates decentralization.

A virulent reception from the community

Many voices were quickly raised to criticize this verification process. Indeed, many users considered the process to be a major invasion of privacy.

DeFi Watch protocol founder Chris Blec even went so far as to accuse the exchange of bribing its users to give up their privacy to regulators.

“They are deceiving users about intent. They know that every face scan they collect is from an innocent person. A criminal won’t do a face scan, but can still use DYDX. They bribe new users to give up their privacy just to satisfy regulators.”

An accusation quickly defused by DYDX, which ruled that this was in no way a regulatory standard, but simply a way to detect unique users. Indeed, no personal information was requested on the user.

Moreover, the platform explained that it had considered many methods to fight cheating. However, authenticity verification would prove to be the method with “the best user experience for our users to indicate that they are, indeed, one person without revealing their full identity.”

Indeed, this detection cannot be done at the level of an Ethereum address, as each user is able to create as many addresses as they wish.

Whatever the reason, it is unacceptable that such data collection is being conducted against users, as Adam Cochran of Cinneamhain Ventures pointed out.

Faced with a large demand DYDX backs down

Finally, on September 2, DYDX ended its promotional campaign. Thus, the platform announced on Twitter to end the program due to overwhelming demand.

“Due to extremely high demand, we are ending the $25 deposit bonus campaign, effective immediately. Thank you to the thousands of new users who joined DYDX today. We really underestimated the interest this campaign would generate.”

The platform took the opportunity to thank the community towards their feedback, both positive and negative.

In practice, it’s hard to know if the high demand was the only reason for the program to be stopped, or if DYDX tried to stifle the growing bad buzz.

This is not the first time the platform has been singled out for surprising decisions. Indeed, the exchange platform that claims to be open to all recently suspended accounts related to the Tornado Cash mixer.

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