dYdX Token

What is dYdX (DYDX)?

dYdX is an advanced trading protocol on the Ethereum blockchain that provides tools like margin and perpetual trading in a trustless, decentralized manner.

Most people who refer to DeFi (decentralized finance) tend to be talking about decentralized borrowing and lending, and advanced trading tools aren’t all that common. For a long time, these instruments were only available on cryptocurrency exchanges, which could use order books and serve as counterparties to customer trades using internal ledgers.

Disruption is just a matter of time in many industries, and dYdX emerged in 2017 to push the boundaries of DeFi. While some original features of the dYdX platform have since wound down, it remains a powerhouse in perpetuals and lets users trade with no intermediaries.

Better yet, dYdX has joined forces with StarkWare to offer leveraged perpetual on layer 2. This means trades that settle immediately, and traders pay minimal fees and no gas while maintaining their privacy, thanks to zero-knowledge rollups.

Who are the Founders of dYdX?

Founded in 2017 by Antonio Juliano, dYdX started with $10 million in seed capital, allowing it to go live in 2019. The project also carried out an Initial Coin Offering in 2021 and has garnered over $87 million in investment.

Previously employed by Uber, Juliano entered the world of blockchain and cryptocurrencies in 2015 when crypto exchange Coinbase hired him as a software engineer. He graduated from Princeton with a degree in computer science.

How Does dYdX Work?

dYdX is a decentralized exchange that runs on audited smart contracts on Ethereum, eliminating the need to trust a central exchange while trading. Smart contracts are the reason for Ethereum’s massive adoption because they allow developers to build entire decentralized applications using smart contract code.

dYdX has also partnered with StarkWare to use layer 2 in the form of zkSTARKS, which significantly increases dYdX’s trade settlement capacity while maintaining dependence on Ethereum for security.

Trades made on dYdX are settled on the StarkEx layer 2, which then publishes zero-knowledge proofs periodically to an Ethereum smart contract to prove the validity of the layer 2 state transactions.

The main reason for dYdX to move to a layer 2 network is that Ethereum only has a processing power of 15 transactions per second (TPS). Given the almost innumerable number of projects that count Ethereum as their lifeblood, the growth of DeFi is stunted by such a low throughput.

This also means that traders on dYdX don’t need to worry about gas fees, a significant problem in 2021 when layer 2 solutions weren’t as prevalent.

What makes dYdX Unique?

Beyond the absence of gas fees when trading on dYdX, users of the platform can also make much smaller trades since it’s so much cheaper to execute transactions on layer 2. This promotes inclusiveness, allowing more users to use the platform. In fact, dYdX has a minimum deposit of just $10 to get started.

Traders can also trade on multiple perpetual contract markets using a single margin account. This allows for dramatically increased capital efficiency while trading multiple pairs and a vastly simplified trading experience.

Traders on dYdX can deposit any asset, which is then converted into USDC collateral. They can then trade all of the markets that dYdX offers with that same account. This is called cross-margining.

With cross-margining and the increased scalability of layer 2, dYdX could springboard from an initial 3 pairs (BTC-USD, ETH-USD, LINK-USD) to over 30 pairs.

How is the dYdX Network Secured?

dYdX uses a layer 2 solution in partnership with StarkWare, one of the advantages of which is that security and consensus remain with the Ethereum blockchain.

Ethereum is as “battle tested” as blockchains come and is extremely decentralized. Its thousands of validators have to stake at least 32ETH to the protocol, with many bonding even more. This bond determines how much income they make, but also how steep of a penalty they face if they fail to perform.

What is the dYdX Chain?

The dYdX Chain, or dYdX V4, is an in-development standalone blockchain based on the Cosmos SDK and Tendermint proof-of-stake consensus. It will feature a fully decentralized, off-chain orderbook and a matching engine capable of extreme scaling performance.

According to the dYdX Chain announcement, “the DYDX token appears to be the most natural fit for use as the L1 token of dYdX V4.”

The reason for wanting to transition to a standalone blockchain is that the team found that no existing solution could handle the throughput needed to run a first-class orderbook and matching engine.

In dYdX V4, each validator will run an in-memory orderbook that is never committed to consensus. Orders and cancellations will be propagated through the network, similar to normal blockchain transactions. The design intends that the orderbook stored by each validator is consistent and orders are matched in real-time before being committed on-chain.

What is the Use of DYDX?

DYDX is the governance token for the dYdX derivatives trading platform. Users of the platform can earn DYDX by trading and staking and then use the token to have a say in the platform’s management.

How Much DYDX is In Circulation?

The DYDX token has a total supply of 1 billion, scheduled to be distributed over 5 years beginning in August 2021. Half of the supply has been earmarked for the community, split between trading rewards, retroactive mining rewards, liquidity provider rewards, treasury, and staking.

The other half of the token supply has been set aside for the team and investors. 15.27% of the DYDX supply went to founders, employees, advisors, and consultants, while 7% is being saved for future employees. The remaining 27.73% went to dYdX investors.

How Do You Buy DYDX?

You can buy DYDX on any Ethereum-based decentralized exchange that allows swaps, including Sushi and Uniswap. Alternatively, most major centralized exchanges also offer the DYDX token.

How Do You Store DYDX?

To actually use DYDX tokens in staking, liquidity provision, or governance, you will need to store them in your own self-custodial wallet. As an Ethereum-based ERC-20 token, most common wallets, including Metamask and Ledger, can store DYDX safely.

Is DYDX a Good Investment?

Many analysts have suggested that the DYDX token isn’t very volatile, but the platform itself seems anything but stable in terms of its direction.

Radical innovation and being agile to the pivot are generally good things. Still, dYdX has seen many changes since its migration to layer 2, ditching its Solo Protocol and now attempting to build an entirely new blockchain.

While there are no guarantees, the adoption of a new chain could be extremely positive for the DYDX token itself.

Currently, the token serves very little purpose for the average investor, given that the lion’s share is in the hands of the team and major investors. However, if the new Tendermint-based dYdX chain adopts the DYDX token for consensus, its story could certainly change.