‘An absolutely terrible idea’: Crypto community strikes against dYdX webcam checks

The decentralized derivatives exchange recently came under fire for blocking some accounts linked to Tornado Cash following the Finance Ministry’s ban. It gave up the blocks days later.

dYdX scores an own goal

dYdX has made another mistake—and it faces the wrath of the crypto community as a result.

The decentralized exchange announced a new promotion this week, asking users to verify their identity with a webcam to be eligible for a $25 promotional offer. Users who deposit at least $500 on their first transaction are eligible to receive a $25 bonus, but they must first show their face with a webcam.

Described as “liveness checks” on the dYdX blog, the team said they performed the checks to prevent people from taking advantage of the offer multiple times. The post explained that since Ethereum addresses act as accounts for DeFi apps like dYdX, “it’s quite difficult for a dApp to offer promotions without being attacked by Sybil.” It added that it had decided that webcam checks “offered the best user experience for our users to indicate that they are indeed one person without revealing their full identity.”

While dYdX noted that the checks are not mandatory for all of the exchange’s users, the decision to run them as part of the campaign has received overwhelming backlash from the crypto community.

Twitter user LeftsideEmiri highlighted the update in a Wednesday tweet, asking “wtf is dydx smoking?” The post was widely shared, which led to many criticizing the project. “Whatever the reason, this is an absolutely terrible idea and you should back off immediately,” Cinneamhain Ventures partner Adam Cochran wrote after dYdX responded to the post. “There is absolutely no acceptable reason to collect user biometrics. It is better to drop the incentive program altogether.” dYdX team member Corey Miller responded to Cochran to defend the decision. “Honest question – what other ways are there to run sybil resistant campaigns in a web3 native way (that actually has good UX)?” he wrote. Another user gets off R89 described the update as “batshit crazy.” The popular merchant Clark added “DYDX failed itself. I would never use this platform.”

Reputational damage

The liveness checks update comes weeks after dYdX faced criticism over its response to the Treasury Department’s Tornado Cash ban. Within days of the US government sanctioning the mixing protocol, dYdX confirmed that it had blocked accounts linked to wallets that had interacted with Tornado Cash. dYdX posted a blog update following the ban, confirming that the compliance provider had flagged some accounts and that some had been unblocked.

dYdX also ran an airdrop last year, but the exchange’s US users found themselves excluded from receiving tokens, which amounted to six figures for some of the protocol’s more active users. It was widely speculated that dYdX excluded Americans due to fears that the SEC would investigate the platform. Over the past year, SEC Chairman Gary Gensler has repeatedly warned that some crypto tokens may constitute unregistered securities.

dYdX was one of the most promising Layer 2 derivatives exchanges to launch on Ethereum, but it chose in June to deploy its own blockchain on Cosmos. Alongside the likes of Uniswap and Sushi, it was one of several decentralized exchanges that DeFi enthusiasts hoped would overtake or “overturn” centralized exchanges like FTX and Binance in trading volume. But after a series of goals of his own that have ended up infuriating crypto’s freedom-focused enthusiasts, dYdX seems intent on self-destruction with misguided decisions that betray DeFi’s core values. According to CoinGecko data, dYdX handled around $1 billion in daily trading volume in the last 24 hours, which is still only a fraction of what its centralized counterparties see each day.

Crypto Briefing contacted dYdX for comment, but had not received a response at press time.

Disclosure: At the time of writing, the author of this piece owned DYDX, ETH, and several other cryptocurrencies.