What Is dYdX | Best Decentralised Perps DEX In Crypto?
Jack Moreau
Feb 2024
6 min read
Fact checked
Introduction: Are you looking to begin trading perps without needing to KYC? in this in-depth review, we will be diving into dYdX, one of the leading decentralised exchanges (DEX) built on the Ethereum network. From its powerful smart contract infrastructure to it's 20X leverage options, is dYdX the next hot thing when it comes to derivatives trading?
dYdX is a decentralized exchange that was founded by Antonio Juliano in 2017. Before founding dYdX, Antonio worked at Coinbase and was also involved in a project called Weipoint, a search engine for decentralized apps.
dYdX exchange
After Weipoint, Antonio decided to build something that was immediately useful in the market. Given the popularity of trading and speculation in the crypto space, he decided to build a platform for decentralised margin trading and derivatives, dYdX.
In 2018, dYdX raised a $2M seed round at a $10M valuation led by Andreessen Horowitz and Polychain. This funding helped dYdX transition from a solo project to a real company.
dYdX investors
The first version of the dYdX margin trading protocol was built and launched in 2018. This was followed by the launch of Expo, dYdX's first product, which was a brokerage that allowed users to buy leveraged tokens.
The team quickly discovered that users preferred a full exchange experience, leading to the development of a more sophisticated trading product.
In 2019, dYdX launched the second version of its margin trading protocol, codenamed "Solo". This version was based on a pool-based lending approach, which solved some issues with the original protocol.
The same year, dYdX launched an exchange product targeted at more sophisticated traders which significantly increased its trading volume. The year after dYdX began generating revenues for the first time when it turned on trading fees. dYdX soon after launched a new protocol for BTC Perpetuals.
In 2021, dYdX launched its next generation Layer 2 cross-margined Perpetuals built on StarkWare. Since then, dYdX has launched 36 markets generating over $100 billion in trading volume.
dYdX layer 2 on Starware
How does dYdX work?
dYdX utilizes various technologies to power its decentralised exchange platform. To begin, dYdX is built on the Ethereum blockchain, leveraging its smart contract functionality and security features. The platform runs on audited smart contracts on Ethereum which removes the need to trust a central exchange while trading.
dYdX operates on a hybrid infrastructure, combining the StarkWare Layer 2 solution with a low-latency off-chain system. StarkWare's zero-knowledge proofs technology is used by dYdX to create a more scalable and low cost decentralised exchange.
dYdX and Starkware
The off-chain system is responsible for constructing and maintaining the order book, handling trades, liquidations, transfers, deleverages, and updating oracle prices. This hybrid approach allows for efficient and fast trading while maintaining the security and decentralisation of the platform.
dYdX has also implemented Chainlink Oracles to provide reliable and accurate price data for trading pairs. Chainlink Oracles help ensure that the prices used for trading on dYdX are sourced from trusted and decentralised sources.
In June 2022, dYdX announced plans to migrate from Ethereum and Starkware to its own Cosmos-based blockchain. This move is expected to provide a better user experience through customisable fee structures and transaction fees, as well as a decentralized, off-chain order book capable of scaling alongside the platform's growth.
How to use dYdX Exchange?
dYdX is a decentralized exchange (DEX) that offers advanced trading services like borrowing, lending, margin, and leverage trading. To get started on dYdX, users need an Ethereum compatible wallet like MetaMask, Coinbase Wallet, Trust Wallet or Ledger.
dydX connect wallet
To get started, users need to connect their preferred wallets to the dYdX Exchange by clicking the "Connect Wallet" in the top right corner and then follow the prompts for authorization.
Before any trading can commence, users need to deposit funds into their Perpetual account. dYdX provides over 10 trading pairs including popular cryptocurrencies like ETH, Wrapped BTC, USDT, USDC, DAI, UNI, LINK, MATIC and MKR.
For those that don't have any cryptocurrencies at their disposal, they can simply buy directly via the dYdX website through the Banxa third-party integration.
Once a trading pair is chosen, users can place market orders executed at the current market price or limit orders executed at a specific price, specifying the desired quantity. After confirming the trade, the order is executed, and the updated balances are reflected in the dYdX account.
Users are advised to monitor their open positions in order to keep track of market movements and look after the welfare of their.
Trading on dYdX (like any other exchange) involves risks, so users should familiarise themselves with the platform's features, trading rules, and risk management strategies beforehand.
dYdX offers perpetual trading, which allows traders to buy and sell cryptocurrency contracts that have no expiration date. Perpetual futures are derivative contracts that allow traders to speculate on the price movements of an underlying asset without an expiration date
dYdX perpetual markets
On DyDx, traders can speculate on up to 36 different cryptocurrencies such as BTC, ETH, ADA, DOGE, DOT, LTC, LINK, UNI, SOL, ATOM and others with up to 20X leverage.
dYdX launched its DYDX token on 8th August 2021 which has a maximum supply cap of 1,000,000,000 and follows an inflationary emission rate. By July 2026, the entire supply of DYDX is expected to be fully unlocked.
dYdX Tokenomics
Five years after its launch, governance can propose a maximum perpetual inflation rate of 2% annually to increase DYDX supply, providing resources for Protocol development and growth. However, this inflationary measure must be approved through a governance proposal and is limited to a maximum of 2% per year.
The token allocation breakdown is as follows:
27.7% for Investors 20.2% for Trading Rewards 15.3% for dYdX Trading or Foundation 5.0% for Airdrop 7.5% for Liquidity Provider Rewards 7.0% for Future Employees & Consultants 16.2% for Treasury 0.6% for Liquidity Staking Pool 0.5% for Safety Staking Pool.
These tokenomics aim to ensure sufficient resources for community growth and development while rewarding various stakeholders for their contributions to the dYdX ecosystem.
What Is dYdX Token?
The dYdX (DYDX) token serves as the native utility and governance token for the dYdX decentralized exchange (DEX) platform.
Its key purposes include facilitating governance participation, covering protocol fees, incentivizing liquidity provision, encouraging staking, fostering community involvement, and providing controlled economic incentives through its inflationary emission rate.
DYDX plays a crucial role in shaping the platform's future, aligning stakeholders' interests, and supporting the growth of the dYdX ecosystem.
dYdX Fees
DyDx trading fees for it's perpetual contracts begin at 0.02% for makers and 0.05% for takers. This is the Tier 1 fee schedule for users who trade less than $1 million during a 30-day window or who hold less than 100 DyDx tokens.
dYdX trading fees
For users that trade between $1 million to $200 million during a 30-day window, maker fees can range between 0.015% to 0% and 0.04% for takers down to 0.02%. Additional discounts can also be given to those that hold a higher amount of DyDx tokens.
Is dYdX Safe?
dYdX operates through smart contracts on the Ethereum blockchain and the Layer 2 Starkware protocol. This allows users to trade directly on the exchange without intermediaries.
DyDx usage statistics
As dYdX is decentralized, users funds are locked inside smart contracts instead of being kept by a centralised exchange which removes counterparty risk.
Also, as dYdX is a non-custodial exchange, this enables users to not only have complete control over their funds but also maintain their privacy when trading.
eToro USA LLC: Investments are subject to market risk. Including the possible loss of principal.
Author
Jack Moreau
Jack is a crypto writer and reviewer who has been active in the space since he caught the crypto bug in 2017. With a passion for trying out new shiny things, Jack is always eager to try the latest cryptocurrency exchanges, wallets or DeFi applications.
