The opening statement on the dYdX exchange website is very bold as the company describes itself as “the most powerful open trading platform for crypto-assets”.
Although this is a very strong claim to make, they just might be right. The dYdX exchange is a non-custodial DeFi platform that allows its users to trade in a decentralized manner and with leverage.
The unique thing about the trading interface is that it is catered both for regular and advanced traders that are looking for more sophisticated trading tools such as margin trading or perpetual swaps. In addition to this, the platform allows users to borrow their assets and earn interest from that.
dYdX has a mission to create a more open, transparent, and secure financial system where everybody can have access to high-quality financial tools through the power of decentralized technology.
It serves as one of the core elements within the DeFi puzzle.
Antonio Juliano, a software engineer with prior posts at Uber and Coinbase, launched dYdX in 2017. Since then, the project has conducted two seed funding rounds in which they had managed to raise around $12 million.
The funding rounds were led by;
- a16x crypto
- Andreesen Horowitz
- Dragonfly Capital Partners
- Vy Capital
- Abstract Ventures
- Craft Venture
- Fred Ehrsam
- Briand Armstrong
Team Behind DyDx
Antonio Juliano - Founder
- Coinbase (software engineer)
- Uber (software engineer)
Juliano studied Computer Science at Princeton University and went on to graduate in 2015.
After interning at MongoDB for a few months, Juliano went on to become a software engineer for Coinbase in July 2015. He stayed there for a year and eventually moved to Uber for a year under the same role. Juliano would go on to leave Uber in April 2017 and eventually moved on to found dYdX in August 2017.
Brendan Chou - Software Engineer
- Bloomberg (financial engineer)
Chou worked at Bloomberg straight after graduating in 2015 as a Financial Software Engineer. He would stay here for 2 years before moving to Google and then to dYdX in January 2018. Chou also attended Princeton at the same time as Juliano.
Zhuoxun Yin - Head of Strategy and Business Operations
- Bain & Company (Senior Associate Consultant)
- Nimble Pharmacy (Head of Strategy)
Yin graduated from The University of Queensland with an Economics and Finance degree. He worked as a Senior Associate Consultant at Bain & Company after graduating. In 2016, Yin would move onto becoming head of strategy and operations at Nimble Pharmacy for 2 years before joining dYdX in March 2018.
Along with these three great leaders, dYdX also has a number of different advisors helping the project. The most prominent advisor is Fred Ehrsam, a co-founder of Coinbase and Paradigm and previous trader for Goldman Sachs.
dYdX team looks like a nice group of people!
Features & Use Cases
One of the main things to grasp here is the fact that all trading occurs on-chain as the platform is entirely non-custodial. Users are in charge of their funds throughout the entire process of the trade and never have to deposit cryptocurrency into any centralized exchange wallets.
On top of trading, dYdX also allows users to borrow crypto or lend it to the protocol to earn interest. Let us take a look at each of these different use cases individually.
Trading on dYdX
dYdX offers three different types of trading options:
- Perpetual Contracts.
Spot trading markets offer ETH/DAI, ETH/USDc, and DAI/USDc pairs. Users would have to fund their spot account balance if they wish to trade on this market. Except for the Metamask process, everything else feels like your regular centralized exchange.
Margin trading allows users to trade with up to 5x leverage on the same markets as the spot markets. This allows traders to execute trades that are up to 5x the size of their original position sizes. The margin trading feature also has two different options that are isolated and cross.
Isolated trading opens independently collateralized trades that are capped to the margin of that specific trade. On the other hand, cross trading will modify the account balance without even making a trade as the collateral is spread across the entire account.
A nice feature rarely seen elsewhere is that dYdX allows you to manually enter leverage between 1 or 5. For example, you can enter 3.5 as your leverage.
Perpetual contracts are a new type of financial trading tool that allows users to trade with up to 10x leverage. With perpetual contracts, users can trade an asset as if it was a real market as the price would be reflected directly from the underlying asset.
As expected from a top-flight exchange, users have the option to place either market, limit, or stop orders when trading perpetual contracts. The market orders allow traders to enter in at the market price. Limit orders allow traders to enter in at a specific set price whilst stops are utilized to cover any trading positions and manage risk.
dYdX was the first to launch a perpetual contract market for Bitcoin in the DeFi industry (source)
This means that dYdX is not strictly just an Ethereum DeFi platform as it allows for Bitcoin derivatives trading. dYdX moved to include the perpetual contract for BTC because this is where the majority of the volume is within the industry and where the institutional players mainly focus.
The introduction of the Bitcoin perpetual contracts was the first Bitcoin finance tool to be used in the DeFi industry. This brings a whole load of liquidity to all DeFi platforms as Bitcoin can finally be used as a means of entry.
The pricing data for the BTC/USD market is taken from the BTC-USDC market from the Maker Oracle V2.
The Fee Structure
The trading fee structure for dYdX is fairly simple. For makers (people that are adding liquidity to the protocol) there is no fee.
However, for takers (people that are taking liquidity out of the protocol) there are two fee brackets. If you are trading under .5 ETH you will incur a .5% fee for all markets. If the trade is over .5 ETH then the fee is reduced to .15%.
For BTC/USD perpetual swaps, the fees are 0.025% Maker and 0.075% taker.
Lending on dYdX
The dYdX platform also allows users to lend cryptocurrency to the protocol and earn interest. Users simply have to deposit any type of accepted cryptocurrency into their dYdX account to earn interest every minute. Currently, users can lend DAI, ETH, USDC, and DAI. This interest is paid by other users that are borrowing the same asset.
The great thing about lending on dYdX is the fact that there is no lockup period required. This means that lenders can deposit and withdraw their funds whenever they see fit to do so without having to wait for any form of ‘cool down’ period.
The interest rates are floating and often change over time. Currently, in July 2020, you can earn the following;
- 0.11% APR on ETH,
- 1.74% APR on USDC
- 3.65% APRon DAI
Users also have the option to borrow cryptocurrency on the dYdX platform. Currently, ETH, USDC, and DAI can be borrowed on the platform.
To borrow the cryptocurrency, users must deposit either DAI or USDc as collateral. They must also maintain a 115% level of collateral in order for them not to have their positions liquidated.
The entire protocol is designed so that both lenders and borrowers interact with global lending pools. Each different asset has its own unique global lending pool that is managed by smart contracts.
Anytime a user deposits cryptocurrency into dYdX the token is deposited into the global lending pool to increase the liquidity available for borrowers. This type of model ensures that both borrowers and lenders can withdraw their assets at any time.
The interest rate that borrowers have to pay is based on the utilization ratio that changes as borrowers and lenders interact with lending pools.
Since opening its doors the dYdX protocol has grown quite substantially. The protocol has already managed to attract around $35 million locked into its smart contracts;
This puts dYdX in the 8th position in the DeFi rankings;
In fact, over the past year the dYdX platform managed to originate well over $1 billion in loans;
From January 2020 through to June 2020, the dYdX platform managed to conduct over 296,000 loans totaling around $1.2 billion. The majority of these loans have already been repaid with just under $16 million outstanding as of early July 2020 and it was largely a result of a surge in loans during February and March.
DeFi is certainly on the right track to get to where it needs to be with platforms like dYdX pushing the boundaries further. dYdX has created an all-in-one solution that allows users to trade, borrow, and lend.
This all has been normal for a long time already at centralized exchanges like Binance. dYdX managed to materialize these features within smart contracts on Ethereum.
As time progresses we can see more liquidity and users moving from CEXs to DEXs such as dYdX.