On April 2, 2026, East Eight Zone Time, the dYdX community's on-chain proposal #372 was approved, agreeing to withdraw 10 million USDC from the protocol's insurance fund, allocated to multiple DAO entities for operations and reserve management. According to public data, the insurance pool had approximately 17 million USDC before the operation, and after this withdrawal, it will still retain about 7 million USDC as a buffer. The funds originally intended for risk mitigation were redirected to operating sub-DAOs, foundations, and Treasury SubDAOs, triggering intense debates within the community about “survival continuity” versus “depleting the safety net.” Supporters emphasized that the protocol must survive first to discuss long-term safety, while opponents were concerned about the weakening of risk controls and who would bear the risk in extreme market conditions. Above the governance voting results, a split sentiment regarding trade-offs between survival and safety is taking shape.

Opening the Insurance Pool: Redistribution of 10 Million USDC

From a specific proposal perspective, the core of Proposal #372 is to directly withdraw 10 million USDC from the dYdX insurance fund of approximately 17 million USDC, injected into the DAO system through three paths: first, 2.5 million USDC flowing into the dYdX operation sub-DAO for daily operations and team execution; second, 2.5 million USDC transferred to the dYdX foundation, primarily to undertake branding, ecosystem, and public goods maintenance; third, the remaining 5 million USDC entering the Treasury SubDAO as a more long-term and flexible fiscal reserve. On the surface, it appears to be an “internal transfer,” but in essence, it splits the safety net originally concentrated in the risk pool into multiple governance accounts to support the entire protocol machinery.

The use of these three funds reflects the community's different understandings of “survival.” The budget for the operation sub-DAO is logically the most rigid cash flow expenditure, used to maintain core development, product iteration, and daily services; the foundation leans towards brand building, ecological funding, and external cooperation, more akin to conventional “marketing and public relations budgets”; while the 5 million USDC in the Treasury SubDAO serves as basic ammunition for DAO-level finances, which can be flexibly deployed in response to subsequent governance decisions, counter-cyclically invested during market downturns, and may be reallocated under future proposals. Behind a unified allocation action, the community is actually splitting the “insurance money” into three different roles: operational funds, ecological funds, and fiscal funds.

From a procedural perspective, this decision has a high degree of on-chain participation. According to single-source statistics, the proposal garnered 77.96% approval, with a governance participation rate of 66.34%. This set of numbers not only proves that the funding adjustment was conducted through a public governance process, rather than being a “top-down decision by a committee,” but it also highlights its representative boundaries—despite a participation rate exceeding sixty percent, a considerable fraction of tokens and potential stakeholders did not express their stance. The data cannot clarify whether non-voters default to acceptance, were delayed in information, or chose indifference.

Repurposing Risk Mitigation Funds: Redrawing the Boundaries of Insurance

In a protocol like dYdX, which centers on derivatives, the original mission of the insurance fund is very clear: when extreme market conditions lead to liquidation unable to cover position losses, this fund bears the gap to prevent bad debts from accumulating in the system and to protect users' assets from experiencing “black swan losses” due to systemic risks. In short, this money is the “pressure valve” reserved for the worst-case scenarios, and its significance is not to increase daily yields but to lower the probability of tail risks exploding.

After Proposal #372 was approved, this boundary was redrawn by governance. Formally, the insurance fund still retains about 7 million USDC and is not completely emptied; but substantively, the fund originally designated for risk mitigation has, for the first time on a large scale, been repurposed for “development funds.” A portion clearly directed toward operational costs, another part invested in ecology and branding, and another portion entering the flexible Treasury pocket. Through a vote, the community transformed the singular use of “insurance money can only cover losses” into a mixed role of “risk reserve + protocol development funds,” signifying that the insurance fund is no longer a high-voltage line but rather a source of public budget that can be repeatedly utilized within the governance framework.

With only approximately 7 million USDC remaining, the market naturally questions: if the next real extreme market condition arises, will this buffer be sufficient? Given that there are currently neither detailed stress test assumptions nor simulated results in the publicly available information, external observers cannot rigorously assess whether the insurance pool can cover the worst accounting losses in a specific volatility scenario. The only directionally assessable judgment is that tail risks have indeed been elevated, but to what extent, and whether it remains within an acceptable range, lacks data support. It is within this uncertain space that the divergence of values between “development first” and “safety first” amplifies into emotional friction.

High Participation Voting: Some View It as Self-Rescue, Some as Depletion

From a governance participation standpoint, this vote undoubtedly had high mobilization: over 60% participation rate and close to 80% approval rate, which are considerably impressive figures for a decentralized protocol. This indicates that discussions about the use of the insurance fund successfully brought holders back into the governance arena and, in a short term, enhanced the sense of community around “we are making decisions together for the survival of the protocol.” In this sense, #372 represents not just a fund transfer but a collective action to consolidate or reshape the community narrative.

However, high participation does not imply high consensus. Single-source information indicates that "to alleviate the operational pressure caused by the decline in DYDX token prices" is one interpretation of the motivations provided by some observers: when token performance is poor and the financial space measured in tokens is compressed, taking dollar-denominated assets from the insurance fund becomes a relatively direct “blood transfusion method.” This view remains a single perspective and cannot yet be cross-referenced with official financial data, but it has already influenced the understanding framework of the market regarding this fund adjustment at the public opinion level.

In contrast, there were also criticisms from within the community suggesting “depleting the funds pool”, arguing that reallocating funds originally designated for extreme risk containment for operational and financial expenditures dilutes the implicit commitment to users and may even shift risks back to ordinary traders in future bear markets. It should be emphasized that these specific criticisms are mostly general descriptions, lacking verifiable links to complete governance discussions and on-chain identity details, thus should still be viewed as unverified information. The real divergence lies more in risk preference and time perspective: supporters tend to view this as a “self-rescue for the protocol,” ensuring that “the team and infrastructure survive” while tail risks can be compensated in the future through new revenue or new proposals; opposers stress that the “current safety net is being weakened” is irreversible, contending that if extreme risks arrive prematurely, future fundraising and commitments to plug holes may be meaningless.

From Exchange to Company-like Structure: What Kind of Organizational Form is the DAO Heading Towards?

Placing dYdX within a longer industry context, this use of the insurance fund, to some extent, moves closer to a “company-like” model. In traditional centralized derivatives platforms, a distinction is typically made between proprietary capital and risk reserves: the former supports daily operations, marketing, and tech investments, while the latter serves as a user protection pool with relatively clear delineation and regulatory requirements. This time, dYdX withdrew a significant portion of funds from the insurance pool to fill operational and financial gaps, structurally resembling the integration of the “risk reserve” part into a broader “shareholder/management deployable funds pool,” merely shifting the executing body from the company board to a DAO voted on by token holders.

In regulatory contexts, DAOs as entities managing public funds and budgets are gradually being integrated into existing legal frameworks. Alabama in the United States recently passed a legal framework regarding DAOs, clarifying that such organizations can be recognized in certain forms as entities capable of holding assets, assuming responsibilities, and managing budgets. This change provides a certain “legal shadow” for organizations similar to dYdX: when the community can formally adjust the use of the insurance fund through established procedures, its operational logic resembles that of a company or foundation with budget authority rather than just an abstract “governance layer” of a technical protocol.

However, when the DAO possesses the power to “rewrite the use of the insurance fund,” users and investors need to reassess the rights-risk-responsibility combination they face: those participating in governance not only enjoy a voice in the allocation of public funds but also jointly bear the consequences of elevated tail risks; those who do not participate in governance or do not hold governance tokens largely surrender their fate to others, with their “user protection” no longer guaranteed by a fixed rule but sustained by a charter that can be rewritten by a majority vote at any time. This structural change exemplifies the transition of DeFi from “code is law” to a tripartite interplay of “code + governance + law.”

Short-Term Survival or Long-Term Chips: The Cost and Demonstration of This Vote

Returning to Proposal #372 itself, this decision made a clear trade-off between three dimensions. In terms of operational sustainability, by injecting a total of 10 million USDC into the operation sub-DAO, the foundation, and Treasury SubDAO, dYdX has secured a visible funding runway and maneuvering space, strengthening its short-term capacity to “survive”; in terms of risk firewalls, the insurance fund has dropped from about 17 million to approximately 7 million USDC, significantly thinning the buffer in extreme market conditions; although specific safety boundaries lack stress test data, tail risk has objectively been raised; in terms of community trust, the high participation and approval rate provide procedural legitimacy for this redistribution but also set a precedent—if there are enough votes, similar proposals to “utilize insurance funds” could very likely occur again in the future.

The next few observation points will determine whether this decision will ultimately be classified as “astute self-rescue” or “overdrafting the future.” First is the dynamic change in the on-chain insurance pool balance: whether protocol income can replenish the risk pool and whether the governance layer will proactively propose a timeline and mechanism to “restore the reserve”; second, during the next period of significant volatility or frequent liquidations, whether the 7 million USDC buffer can withstand the test of reality or expose the risk of insufficient funding; third, whether the DAO will establish clearer “rules for the use of the insurance fund” in the future, rather than relying solely on temporary proposals to dictate the opening and closing of the pressure valve.

In the longer term, dYdX's operation this time may become an important reference for other DeFi protocols: will insurance funds be more widely viewed as a “deployable fiscal reserve” rather than only opened in systemic crises? If the answer is affirmative, then the entire industry's definition of “risk reserves” will be rewritten—it will no longer be a sealed safety vault but an allocable asset class in the DAO's hands. How to establish rules between budget flexibility and user protection will determine whether DeFi can maintain the initial promised safety lines on the path to institutionalization and compliance.

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