Introduction to: dYdX

Yellowblock
Yellowblock October 19, 2022
Updated 2022/10/20 at 8:18 PM
5 Min Read

Introduction

dYdX is a decentralized crypto trading platform that allows users to trade perpetual contracts.

Launched in 2017, they initially offered margin trading, lending and borrowing services on top of Ethereum layer 1.

Back then, the idea of offering derivative products on a decentralized exchange was completely unique. And the real kickstart for the project began later in summer 2021. When traders started looking for decentralized alternatives after getting used to swapping coins with automated transaction protocols such as Uniswap, Pancakeswap…

 

How does it work?

Obviously, there is a major difference between dYdX and centralized exchanges. The way the platform is running needs to be ensured by an entire ecosystem and supported on- chain with no counterparty.

This is where things are getting a bit technical but we are going to break it down for you right now.

dYdX was initially divided into two layers offering different DeFi products:

– Spot and margin trading on Ethereum layer 1

– Perpetual contracts trading on starkware layer 2 powered with smart contracts

Since November 2021, products migrated to layer 2. Trading and borrows on layer got disabled.

The reason for it are multiple. Layer 2 trading offers a smoother experience with an increased speed and lower gas fees/trading fees since validation is updated off-chain. This is what we call the ZK-Rollups.

 

Available products:

There is a wide range of listed projects that keeps increasing overtime. Perpetual trading offers 37 pairs, with up to 20x leverage, including high cap coins but also some DeFi mid cap tokens.

 

Unique features

Nowadays, most exchanges require their customers to be KYC’d for legal reasons. This can become a problem for people living in countries where trading restrictions are applied.

A true decentralized exchange offering perpetual products can then be seen as a game changer.

Privacy is also ensured by zero-knowledge rollups, which makes transactions untraceable.

The non-custodial aspect of a dex is also a plus for people fearing third party freezes with the other centralized platforms.

Another important feature is the free-trading « policy » for people with less than $100,000 in volume per month. It should be sufficient for the smallest players. Bigger fishes will still have to pay for transacting/trading on layer 2, but this is marginal compared to layer 1 operations.

Withdrawal speed is also a considerable improvement compared to the competitors. A specific liquidity provider sends funds automatically and immediately when the option is selected. No more waiting time that can impact negatively your trading reactivity during highly volatile periods.

 

Interface

The user interface has a clean look and runs smoothly. Unlike some platforms, it is not fully customizable but it is clear enough to get used to it quickly.

You have access to multiple trading info such as: the OB, the depth, the funding and more in a single click.

If you want to start trading, things are easy to set up. You just have to connect your wallet through Metamask or any of other supported options. Sign in an ownership verification transaction and fund your trading account by depositing one of the assets accepted as collaterals.

It literally takes a few clicks to start opening your first position.

Overall dYdX is very user friendly and even beginners will understand it quickly. If you have been using traditional exchanges, you won’t feel out of place either.

 

dYdX native token

DYDX is the native ERC20 token of the platform. It is mostly used for governance and fee rebates.

Holders can participate in the strategic development leading to major community changes.

They can also stake those tokens and earn rewards for contributing to securing the platform.

 

Conclusion

DEXs have been playing an important role of DeFi economy for multiple reasons we mentioned in this article. But most importantly, their success shows a pattern among crypto users.

It is very important to keep these options available to ensure everyone gets access to trading without involving a third party.

Whether the reasons are political or fiscal, building a new digital world implies that nobody should be left behind.

dYdX is proving that they deserve a spot in this growing industry and by the look of their progress, they seem to be on the right path to thrive.

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