Key Takeaways:
- dYdX, founded by Antonio Juliano, is a pioneering decentralised exchange (DEX) for perpetuals trading, backed by industry giants and driven by a commitment to security, decentralisation, and privacy.
- The platform’s strategic move away from Ethereum to its own blockchain on Cosmos reflects a dedication to enhancing user experience through customisable fee structures and transaction fees, signalling a significant evolution in its development roadmap.
- Unlike traditional DEXs, dYdX’s departure from Automated Market Makers (AMMs) in favour of a conventional order book plus matching model caters to the needs of institutional traders, attracting a diverse user base and positioning itself as a leading exchange in the market.
- The native utility token, DYDX, serves multiple functions within the dYdX ecosystem, including governance participation, fee payment, and incentivisation, driving community engagement and ecosystem growth.
What Is dYdX (DYDX)?
Founded by former Coinbase and Uber developer Antonio Juliano, this decentralised platform for perpetuals trading has garnered support from industry giants like a16z, Polychain Capital, Hashed, Spartan Group, and others. At one point, dYdX briefly surpassed Coinbase in trading volume, showcasing its growing popularity.
Operating as a decentralised exchange (DEX), dYdX is currently built on the Ethereum Layer-2 solution, StarkWare. Leveraging StarkWare’s Zero-Knowledge (ZK) proofs, the platform prioritises security, decentralisation, and privacy.
In 2023, dYdX transitioned away from Ethereum, opting to establish its own blockchain on Cosmos. This move enhances user experience with customisable fee structures and transaction fees, and introduces a decentralised, off-chain order book capable of scaling in tandem with the platform’s expansion.
How Does dYdX Work?
While dYdX resembles DEXs like Uniswap or SushiSwap, its primary focus lies in trading perpetuals — a specialised form of derivative contracts. These perpetual swaps, lacking expiration dates, enable traders to speculate on asset values, distinct from traditional futures or options contracts.
In contrast to Uniswap and other DEXs, dYdX diverges from relying on an Automated Market Maker (AMM) for trading facilitation. Rather, it employs a conventional order book plus matching model tailored to meet the demands of institutional traders. Despite its specialised trading approach, dYdX appeals to both institutional and retail traders, which has propelled its popularity, positioning it as one of the prominent exchanges in the market.
As of the latest data in April 2024, dYdX sat at ~$128 million in total value locked (TVL).
What Are Perpetual Swaps?
Perpetual swaps are a type of derivative contract commonly traded in financial markets, including the cryptocurrency space. They are essentially futures contracts without an expiration date, hence the term ‘perpetual’.
Here’s how they work:
- Trading Asset: Perpetual swaps allow traders to speculate on the future price movements of an underlying asset, typically cryptocurrencies like Bitcoin or Ethereum, without actually owning the asset.
- Leverage: Traders can use leverage to amplify their trading positions. This means they can control a larger position size with a smaller amount of capital, potentially increasing their profits, but also magnifying losses.
- Funding Rates: To keep the perpetual contract’s price aligned with the spot price of the underlying asset, funding rates are periodically exchanged between long and short positions. If the contract’s price is above the spot price, long positions pay funding to short positions, and vice versa.
- No Expiry: Unlike traditional futures contracts, perpetual swaps do not have an expiry date. This allows traders to hold their positions for as long as they wish, eliminating the need to roll over positions before expiry.
- Continuous Trading: Since perpetual swaps don’t expire, they offer continuous trading opportunities, allowing traders to enter and exit positions at any time.
Perpetual swaps are popular amongst traders seeking flexibility, liquidity, and the ability to trade with leverage. However, note that trading derivatives like perpetual swaps carries a higher risk due to leverage and price volatility.
What Is DYDX Token?
DYDX is the native utility token of the dYdX DEX. It serves various functions within the dYdX ecosystem, including governance, fee payment, and incentivisation.
Below are key aspects of DYDX:
- Governance: DYDX token holders have the ability to participate in the governance of the dYdX protocol. This includes voting on proposals related to protocol upgrades, fee adjustments, and other changes that impact the platform.
- Fee Payment: Users can use DYDX tokens to pay for trading fees on the dYdX platform. By holding DYDX tokens, traders may be eligible for fee discounts or other incentives.
- Liquidity Mining: The dYdX platform may offer liquidity mining programmes where users are rewarded with DYDX tokens for providing liquidity to the exchange. This incentivises users to contribute liquidity and improve the overall trading experience on the platform.
- Staking: DYDX tokens may also be staked in certain protocols or smart contracts to earn rewards or participate in additional features offered by the dYdX platform.
Migration to dYdX Chain
On 3 August 2021, dYdX Foundation launched ethDYDX, a governance token that allows the dYdX community to govern certain aspects of the dYdX Layer-2 protocol on Ethereum (‘dYdX v3’) to align incentives between traders, liquidity providers, and partners.
According to the project team, the ethDYDX token enables a robust ecosystem around governance, rewards, and staking — each of which is designed to drive future growth and decentralisation of dYdX.
Migration Timeline
The team documented the migration on their community docs in detail: On 26 October 2023, the dYdX Chain open-source software was deployed, and the first block of the dYdX Chain was created by the dYdX Chain validators. The dYdX Chain is a Proof of Stake (PoS) blockchain network built using the Cosmos SDK and leveraging CometBFT for consensus.
Through dYdX governance, the dYdX community voted in favour of adopting DYDX as the Layer-1 (L1) token of the dYdX Chain for staking to validators in order to secure the chain, as well as for stakers of the L1 token to govern.
Tokenomics of DYDX
Following the recent initiation of ethDYDX, several governance proposals have been enacted, leading to modifications in the original allocation.
The latest allocation of ethDYDX tokens at the time of writing was:
- 27.7% allocated to Investors
- 14.5% allocated to User Trading Rewards
- 15.3% allocated to Employees and Consultants of dYdX Trading or Foundation
- 5.0% allocated to Retroactive Rewards
- 5.2% allocated to Liquidity Provider Rewards
- 7.0% allocated to Future Employees and Consultants of dYdX Trading or Foundation
- 24.2% allocated to Community Treasury
- 0.6% allocated to Liquidity Staking Pool
- 0.5% allocated to Safety Staking Pool
The current allocation for the Community Treasury of ethDYDX stands at 24.2%, equivalent to 241,735,862 ethDYDX tokens out of the total token supply. This allocation aims to sustainably support various initiatives, including contributor grants, community projects, liquidity mining, and other programmes.
The total supply of ethDYDX is 1 billion tokens, with accessibility staggered over a five-year period from 3 August 2021. Beginning five years post-launch, governance reserves the option to implement a perpetual inflation rate of up to 2% annually to expand the ethDYDX supply, ensuring adequate resources for ongoing protocol development and community growth. Any inflationary adjustments must be approved via governance proposals and are capped at 2% per year.
How to Buy dYdX (DYDX) With Crypto.com
Crypto.com offers a user-friendly platform to buy DYDX tokens and engage with the dYdX DEX.
Follow these steps to buy DYDX tokens on Crypto.com:
- Download the Crypto.com App and create an account.
- Complete the necessary verification process to unlock full access to the platform.
- Deposit funds into the Crypto.com account; users can utilise fiat currency or other cryptocurrencies to fund their accounts.
- Navigate to the ‘Buy’ section of the App and search for the DYDX token.
- Specify the amount of DYDX tokens to acquire and review the transaction details.
- Confirm the transaction and wait for the order to be executed.
- Monitor the DYDX token holdings in the Crypto.com App, which doubles as a wallet.
Crypto.com provides a secure and reliable trading environment, ensuring that users can trade DYDX tokens with confidence. Take advantage of the platform’s intuitive interface, advanced trading features, and competitive fees to make the most of the DYDX token trading experience.
Conclusion
Built on the Ethereum Layer-2 solution, StarkWare, dYdX prioritises security, decentralisation, and privacy, exemplified by its transition to its own blockchain on Cosmos.
Distinct from other DEXs, dYdX opts for a traditional order book plus matching model, catering to the needs of institutional traders. Despite its specialised focus on perpetuals trading, dYdX has attracted a diverse user base, cementing its position as one of the leading exchanges in the market, with a TVL of ~$128 million as of April 2024.
The dYdX token, DYDX, plays a pivotal role within the ecosystem, enabling governance participation, fee payment, and incentivisation. The recent migration to the dYdX Chain further underscores its commitment to decentralisation and growth.
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