An All-Round Introduction For Decentralized Derivative Exchange dYdX
dYdX, as the first decentralized derivatives exchange providing perpetual contract, leverage trading, and spot trading, combined the security and transparency of decentralized exchanges (DEXs) and the speed and user experience of centralized exchanges (CEXs).
Not only that but also dYdX, similar to Compound, could allow users to stake tokens for profits and lending and borrowing, based on which it added the trading feature and allowed users to add leverage in one operation.
dYdX’s first market investment included leading capital, mogul, and key opinion leaders in the industry — a profitable investment of investors from both institutions and retails. Polychain Capital, the globally leading capital, commented dYdX that, it is the fundamental outbreak for the financial market to conduct lending and borrowing and leverage trading via a trustless method.
dYdX is a decentralized derivative exchange based on the Ethereum blockchain. As per DeFi Pulse, there are around 107,000 ETHs and 4,100 BTCs locked in dYdX, with a total value of $140 million; and its daily trading volume reached around 1,300 ETHs, worth $1.79 million. This is a great performance amid the DeFi industry.
Three Key Businesses of dYdX
dYdX is currently committed to three businesses, including decentralized spot trading, contract trading, and lending and borrowing.
Decentralized spot trading
Assets categories available on dYdX are still extremely limited, merely including ETH/DAI, ETH/USDC, and DAI/USDC. David, the director of dYdX, noted during an interview that, at the end of this year, supporting 30–50 trading pairs will be available on the platform, which is indeed worth expecting.
It is worth noting that dYdX is still adopting the order book mode, greatly different from the currently popular decentralized exchanges based on the automatic market maker (AMM). In light of this question, David revealed that the order book is an advanced mode that offers convenience to traditional market makers and liquidity providers, and moreover, the order book mode has a lot of successful experience in the construction of the cryptocurrency market.
Similar to decentralized exchange, investors could also conduct contract on dYdX, with perpetual contract and deposit contract. On the other hand, the contract could merely last for 28 days on dYdX, after which it will be terminated, and the perpetual contract is not available for U.S. users.
Currently, the perpetual trading pair on the platform covers BTC/USD, ETH/USD, and LINL/USD. It will add to 10 following the StarkWark, an application of Layer2, goes online.
dYdX’s contracts consist of three major smart contracts:
Margin: responsible for the logic of deposit trading.
Proxy: responsible for users’ various fund’s transactions.
Vault: storage allowing the user to custody funds in a deposit.
Decentralized lending and borrowing
The lending and borrowing mode of dYdX is simple, which is to use the staked funds as a deposit so as to lend other funds. Investors could conduct lending and borrowing via ETH, USDC, and DAI on the platform, while the staking rate is at least 125%.
It is worth noting that dYdX acquires outside prices data, including real-time token price, lending interest rate, from oracle, and meanwhile, it adopts different oracle services in accordance with different crypto assets, for example, ETH/USD V1, offered by MakerDAO, for ETH.
dYdX’s scalability solution with Layer 2
The scalability of Ethereum is the biggest difficulty for DeFi. David also noted in an interview that a large number of scalability solution research shows ZK-Rollup is more suitable for the platform. Last August, dYdX teamed up with blockchain privacy solution StarkWare to integrate Layer 2 into its perpetual contracts, which lowered 100–1000 times of the gas consumption under the assistance of StarkWare.
Moreover, dYdX also transferred its oracle on Layer 2 to provide higher leverage products.
Once dYdX’s Layer 2 solution goes online, DEX’s users experience will possibly resemble that on CEXs, and also offer some advantages of DeFi.
Team and tokens
The core members of dYdX team almost come from renowned business teams and famous universities, for example, Antonio Juliano, its founder, was graduated from Princeton University and majored in computer science. As of October 2018, dYdX has totally gained $12 million from the seeding round, which was led by A16Z and Polychain Capital showing strong approval from the industry.
At present, dYdX has not launched its own native token, but rather focusing on its products. However, David also noted that its team will launch the native token in the future, but the exact timing is not acknowledged publicly.
Shortly speaking, dYdX is better for the three: the 100% utilizing rate of staked funds, swifter operation space (without lock-up and limitation of trading pairs), and more convenient leverage trading.
In the following year, with a number of DeFi derivative projects’ mainnet online, the contract market is expected to be the bursting point in decentralized derivative space, moreover, dYdX will also perform more actively.