What is Dymension? RollApps, Tokenomics & More

What is Dymension?

Dymension is a Layer 1 blockchain designed to support the creation of RollApps, modular blockchains that prioritize scalability and customization. As a decentralized hub, Dymension handles security, liquidity, and transfers for these RollApps. It utilizes the Inter-Blockchain Communication (IBC) standard to ensure interoperability with other blockchain networks.

Since launching in January, Dymension has only seen two RollApps deployed to mainnet, which is a slow start for a project aiming to simplify modular blockchain deployment. RollApps on Dymension leverage external data availability networks for transaction data, allowing them to focus on performance and custom features without the burden of managing consensus.

One standout feature is Dymension’s Automated Market Maker (AMM). It routes liquidity and facilitates token trading within the ecosystem, making it easier for RollApps to tap into network-wide liquidity.

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How Does Dymension Secure RollApps?

Dymension secures RollApps using its Layer 1 validators to oversee state transitions and verify transaction integrity. When a RollApp processes transactions, the sequencer batches the data and sends it to a Data Availability network (Celestia) for validation. The DA network ensures the data is accurate, while external nodes can check the proofs to confirm correct execution.

Here’s how it works at a high level:

• Sequencers handle transaction ordering and batching for RollApps, publishing data to DA networks for validation.
• Validators on Dymension verify the final state of RollApps by confirming the published state root after the DA network accepts the data.
• Fraud Proofs: Validators monitor RollApps for incorrect data. If fraud is detected, they can submit fraud proofs to correct the state, maintaining the security of the system.

This structure ensures RollApps can operate efficiently without managing their own consensus while benefiting from Dymension’s robust security model.

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Dymension RollApps

Dymension RollApps are modular blockchains designed to scale and customize specific use cases within Dymension’s ecosystem. While still early, two RollApps have gone live on the Dymension Hub mainnet, each with a distinct use case and target market.

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Nim Network: Bringing AI and Games Together

Nim Network focuses on blending AI and gaming, but its adoption has been minimal. Despite a market cap of $24.5 million, the Total Value Locked (TVL) stands at just $10.91K, a clear sign that the network is virtually unused. The platform's ambitious goal of driving AI ownership through games has yet to resonate with users or the broader crypto community.

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Mande Network: Web3's Credibility Hub

Mande Network aims to be a credibility hub for Web3, offering tools for decentralized reputation management. However, like Nim, Mande has seen little real-world use. With a lower market cap of $974K, its TVL is only $1.38K, suggesting that the platform has yet to attract any significant activity or users.

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Dymension DYM Token Utility

The DYM token is central to Dymension, securing its Layer 1 blockchain and enabling critical functions for RollApps. It's the backbone of the network’s security and liquidity mechanisms, with clear utility and demand drivers across several key areas.

• Staking and Security: Validators and sequencers stake DYM to propose state updates, ensuring network security. Stakers earn rewards, incentivizing active participation in maintaining the system’s integrity.
• Transaction Fees: DYM is used for transaction fees, including RollApp execution and liquidity transfers, ensuring efficient resource allocation across the network.
• Governance: DYM holders vote on critical decisions like protocol upgrades, inflation rates, and fund allocations, maintaining decentralized control.
• Liquidity in AMM: DYM powers the Automated Market Maker (AMM), driving liquidity and price discovery for RollApps, enabling seamless trading within the ecosystem.
• Burn Mechanism: A portion of DYM is burned from transaction and swap fees, reducing supply and creating long-term value by tightening the token’s availability.

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DYM Tokenomics

DYM’s tokenomics are designed to balance security, liquidity, and long-term value, but current adoption challenges are impacting key metrics. The system is built to adjust supply based on staking participation while maintaining a deflationary pressure through its burn mechanism.

• Initial Supply: DYM started with 1 billion tokens, with issuance scaling based on network participation.
• Issuance Model: Annual issuance ranges between 2% and 8%, depending on whether staking falls below or exceeds the 50% target. More staking drives issuance down, while lower staking boosts it to incentivize security.
• Staking Rewards: Validators and RollApp sequencers earn rewards proportional to the DYM staked, encouraging network security through active participation.
• Inflation Control: The inflation rate is governed to ensure the network grows sustainably, adjusting to balance token issuance with security needs.
• Burn Mechanism: A portion of fees is burned, reducing circulating supply and adding a deflationary element to counterbalance inflation. However, daily burn rates are low, 
• currently averaging just 600 DYM ($1,000) due to minimal adoption.

Despite the built-in mechanisms for long-term value, the current burn rate highlights the lack of traction in Dymension, which could see more aggressive token burn as adoption grows.

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Bottom Line

Dymension is a Layer 1 blockchain for modular RollApps, offering security, liquidity, and an Automated Market Maker (AMM) for token trading. However, its high token inflation, coupled with minimal adoption, is a red flag. 

Competitors like Conduit and EigenLayer have gained far more traction, with more application chains deploying on their networks.

Without a significant uptick in RollApp adoption, DYM’s inflationary pressure will likely keep driving prices down, leaving Dymension at risk of being overshadowed in an increasingly competitive space.