What Is dYdX? All You Need to Know About DYDX

The birth of the cryptocurrency industry took the world by storm and has continued to thrive and grow amidst several backlashes and oppositions. The constant growth is triggered by the industry’s desire to become better and more mainstream. This has further led to the birth of several platforms commonly referred to as Decentralised Finance (De-Fi).

These De-Fi platforms have erupted in different forms and aim to incorporate the traditional financial services we are used to and the blockchain community. The fusion has given birth to several concepts; one of them is Decentralized Exchange (DEX), which facilitates quick and safe transactions between crypto community members without needing a third party.

In this article, we will look at a popular decentralized derivative exchange called dYdX, what it’s all about and how it works.

What is dYdX?

dYdX is a top-level decentralized cryptocurrency derivative exchange developed on the Ethereum network that offers both Perpetual trading and Marginal trading options for the top cryptocurrencies circulating in the industry. It is currently one of the leading decentralized derivative exchanges available and aims to become a major force in the cryptocurrency industry. dYdX, besides its elaborate name, offers a more decentralized platform that allows users to carry out transactions without needing a third party.

dYdX was launched in 2017 by Antonio Juliano, a former employee of Uber and Coinbase. In 2017, dYdX took an unexpected step during the ICO boom and decided to develop from scratch with only the help of its developers. This appeared to be a wise decision, as dYdX quickly gained a lot of attention and attracted investors such as Kronos, Paradigm, and many more willing to invest $87 million to fund the platform.

The early versions of the program allowed users to trade using basic crypto margins with limited assets. The latter version took it a step further and now provides a platform for margin and perpetual trading(a trading option where users can buy and sell open markets with contracts without a fixed time limit) for many cryptocurrencies.

From Layer 1 to Layer 2

Another event that greatly changed the flow of dYdX was when the platform managers decided to transfer its operations to the 2nd layer of StarkWare, which greatly boosted the speed of transactions at a significantly lower gas fee.

Source: dYdX

The programmers believed that moving to the second layer of stakware would make the platform faster and at a much lower gas fee rate than the Ethereum (ETH) network. This yielded another favorable outcome as dYdX grew rapidly to a total value of $60 million.

dYdX did not miss out on the De-Fi boom in 2021, as the latter half of the year saw the issuance of the dYdX token and an airdrop alongside the token’s launch on cryptocurrency exchange platforms. Since its release, dYdX has established itself as one of the leading De-Fi protocols.

How Does dYdX Work? StarkNet and ZK-Rollups

The dYdX platform is powered by StarkNet, an Ethereum layer-2 that employs ZK-Rollups technology. StarkNet enables dYdX users to make transactions without gas fees. Transactions can be completed quickly and instantly on the platform. Users can also access the StarkEx trading engine, which lets dYdX perform on a hybrid system.

A mixed system works well due to the centralized order book utilized by StarkEx but still performs in a non-custodial way (without centralized exchange). This means that user funds remain in their wallets until the transaction is completed, even though the trading engine is centralized. Once a transaction is completed, StarkEx immediately settles a transaction over the StarkNet and presents a ZK-Rollups proof that anyone in the network can verify. This proof stores the dYdX smart contracts in the Ethereum (ETH) network and executes the chain action.

One major advantage of using StarkNet is that commissions on transactions are relatively low and kept to a minimum.

Trading Options On dYdX

In its pursuit of a truly decentralized system, dYdX established a step-by-step process for unveiling new services. The exchange has four major trading options:

Perpetual Trading

Perpetual Trading is the pioneer option, allowing users to buy and sell open markets with contracts without a fixed time limit. As a result, investors can set certain conditions on their trade and hold their buy or sell positions until those conditions are met. The investor also has the power to terminate the contract by pre-closing the buy or sell order.

Perpetual trading with dYdX is a non-custodial, decentralized margin product that makes available various crypto assets. Perpetual contracts are developed on already existing assets; for dYdX, they used the Ethereum-based ERC-20 token, allowing dYdX to create an entirely new class of asset that derives its worth from an underlying blockchain-based asset.

Governance and Staking

The dYdX platform launched a year ago and released DYDX, the governance token for the exchange. Users can earn DYDX tokens through their trading activities. The token gives users a say in the protocol. Through the use of the token, the community members have decision-making capacity on the growth of the protocol in its smart contracts on Ethereum and on the Layer-2 launched on StarkNet.

Users can also stake the various tokens they possess to earn DYDX. The exchange of any token for DYDX comes in two pools; liquidity pool and safety pool. Users can stake their USD token (USDC) to gain rewards for adding to the dYdX exchange liquidity. Users can choose to help the community by investing in DYDX tokens through popular crypto exchanges like Kraken and Coinbase.

dYdX Governance Model

The protocol’s governance process is community-based, meaning users have a say in the affairs of the community, and votes directly affect the protocol’s activities. By having shared control, DYDX allows users, liquidity providers, and partners of dYdX to build an enhanced protocol.

dYdX currently employs a hybrid system that is both centralized and decentralized. While most of the platform’s components are decentralized, the company’s order book and matching engine are centralized. The platform’s order book and the matching engine must be decentralized to become fully decentralized.

Hedgies: NFTs on the dYdX platform

The newest addition to the dYdX trading platform is an NFT collection titled Hedgies. It is a collection of animated hedgehogs created by Anna and Arek Kajda, two independent digital artists. The NFT collection was launched in February 2022, and since then, it has launched 4,200 NFTs minted over the Ethereum network.

Owners of Hedgies have perks that come while trading on dYdX. It was created to reward users on different occasions and for certain accomplishments.

Source: Hedgies.wtf

What Is the DYDX Token?

The dYdX platform released its governance token (DYDX) for its layer 2 protocol. Its main purpose is to facilitate transactions of layer two and allow traders and investors to contribute to the protocol’s future.

The total number of DYDX tokens minted is limited to 1,000,000,000, which will be distributed in a five-year cycle. 50% of the supply will be made available to the community; 25% will be distributed to users as trading rewards; 7.50% will be used to reward retroactive miners; another 7.50% will be distributed to liquidity providers as a reward, and 5% will be kept in the community treasury. Users staking USD coins to a liquidity staking pool will receive 2.50%, while users staking DYDX to a safety staking pool will receive 2.50%.

Additionally, 15.27% of the tokens will be distributed to the founders, personnel, advisers, and consulting teams, and 27.73% will be handed to previous investors. The remaining 7% will be maintained for dYdX consultants and future employees.

Is DYDX a Good Investment?

Decentralized exchanges are slowly becoming a norm, and several projects, platforms, and companies are looking to develop a fully decentralized system to meet the user’s demands. Although the trend of decentralization is growing, one can not help but notice the dominance of centralized exchanges like Binance and Coinbase. dYdX wants to create a fully decentralized system in which investors and users have complete control while rendering services with complete transparency. If the demand for this kind of service grows, most likely people could turn to the dYdX project, as it is one of the most complete of its kind.

How to Own DYDX?

One way to own [TOKEN] is to go through a crypto centralized exchange, so the first step is to create a Gate.io account and complete the KYC process. Once you have added funds to your account, check out the steps to buy DYDX on the spot or derivatives market.

News on dYdX

Earlier this year, the top derivative exchange announced they planned to build the next version of the platform as a layer-1 Cosmos-based blockchain. This news was unexpected since the current version of dYdX is built on the Ethereum blockchain and is powered by StarkWare scalability solutions.

Why Did dYdX Decide To Make Use of Cosmos Blockchain?

dYdX stated that the major reason behind its move is the desire for a truly decentralized platform. Currently, the order book of the platform and the current matching engine are centralized and controlled by the developers of dYdX.

Also, the issue of throughput faced by the platform is another reason for its move. dYdX stated that the issue it faced with L1 and L2 was that none of them could handle the throughput required to run a high-class order book and matching engine.

The current exchange version can process around 10 trades per second and a thousand order placements and cancellations per second. This is unsatisfactory to the developers since this prevents the platform from scaling orders of higher magnitude as required. dYdX developers believe that moving to the Cosmos-based blockchain will increase the throughput since Cosmos is fully customizable.

According to developers, the new version of dYdX will have no gas fees while trading. V4 will be void of a centralized party that would collect trading fees but would involve a percentage-based trading fee system like some other exchanges. These fees will be shared between validators and stakers.

dYdX Roadmap

The future of dYdX involves a fully decentralized system. According to the roadmap, the next version of the decentralized exchange (DEX) will usher in a new era of decentralization on the platform. dYdX v4, unlike its predecessor, promises to be a fully decentralized exchange with no centralized component.

dYdX v3 currently runs a hybrid system which is part centralized and decentralized. While most of the platform’s components are decentralized, the company depends on a centralized system for its order book and matching engine. So to become fully decentralized, the platform must decentralize its order book and matching engine.

dYdX v4 will be an open-source, decentralized, and user-governed platform built on the Cosmos blockchain. Aside from that, it will also reintroduce previous trading features it released in earlier versions. The company plans to enhance the existing margin and perpetual options and several other trading activities.

$Dydx Releases One Of Cryptocurrency’s Biggest Airdrops

Fans of cryptocurrency token airdrops are always looking to partake in airdrops from different projects for years. Airdrop popularity is fueled by the reward early adopters gain and the sudden increase in token distribution.

dYdX decided to reward its community of supporters with its newly minted tokens. It gifted users tokens based on their previous trading activities, with the lowest tier user gaining around 310 tokens for making trades around $1. The highest user earned 9,529 tokens for making trades exceeding $1 million.

dYdX released 7.5% of its initial token market cap of around a billion on September 8. The airdrop led to a surge in the token’s price, almost hitting the $16 mark. This placed the dYdX exchange alongside DeFi’s heaviest hitters.

The major controversy that covered the airdrop was the restriction placed on users who traded using the United States IP address. These users were not eligible for the airdrop and were restricted in the staking program because of concerns about security laws.

Useful References

For the latest updates about dYdX, you can visit:

• The official website
• Twitter
• Discord
• GitHub
• LinkedIn
• Reddit

Take Action on DYDX

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