dYdX Review

dYdX Review

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January 19, 2023
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A comprehensive review of DeFi's most popular decentralized futures trading platform dydX. In this guide, we overview the platform's key features, fees and some of the issues underpinning scalability that has forced it to move from Ethereum mainnet to a Cosmos app chain.

Table of Contents

dYdX Review Highlights

Platform Highlights

  • Largest DeFi Futures Platform by 24 hour volume and liquidity.
  • Trade over 30 Perpetual Contracts with no fees and 20x leverage.
  • Trusted application backed by Coinbase, Paradigm, a16z and more.
dYdX Review
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What is dYdX?

dYdX is an Ethereum-based DEX that supports perpetual, margin and spot trading including lending and borrowing. The exchange runs on smart contracts and allows users to trade their crypto assets without intermediaries. dYdX beats the need to use a centralized exchange by offering the speed, security and usability of a centralized exchange and combines it with the transparency of a decentralized exchange. The DEX eliminates the need for traders to KYC, all you need is to fund your wallet and you’re good to go.

dYdx was initially built on the Ethereum Layer 1 chain but due to its scalability issues, the team had to migrate to Layer 2 (Starkware). On April 2021, the team migrated the platform from Layer 1 to zk-based Layer 2, as this upgrade offered instant trades, no gas fees and up to 25x leverage. The platform also offers over 30 perpetual trading pairs including BTC-USD, ETH-USD, SOL-USD, LINK-USD, ATOM-USD, AVAX-USD, CRV-USD and more. You can find the full list here.

dYdX Review

Key Features of dYdX:

  1. Permissionless trading
  2. Zero fees
  3. 25x leverage
  4. Cross-margining
  5. Fast deposit and withdrawal
  6. Secure and Private
  7. Non-custodial
  8. Mobile friendly

Founder and Investors of DYDX

The non-custodial exchange was founded in July 2017 by an ex-Coinbase employee – Antonio Juliano. The exchange was built to offer financial tools in a decentralized manner. dYdX successfully amassed $87 million in funding which was led by Andreessen Horowitz and Polychain. Other investors include; Paradigm, Dragonfly Capital, Kindred Ventures, Scalar Capital and much more.

How to Trade on dYdX

  1. dYdx requires traders to have a wallet before accessing the exchange. Supported wallets include; MetaMask, Ledger/Trezor, Coinbase Wallet, WalletConnect, imToken and Trust wallet
  2. Connect your preferred wallet to the exchange. After connecting, you will need to generate your “Stark key”
  3. Deposit funds, then select trade
  4. Open your position with your preferred leverage
  5. Track PnL
Join here to start trading on dYdX.

Borrowing and Lending on dYdX

On dYdX, lenders and borrowers interact via a lending pool which is a smart contract that secures all token deposits and borrows. Borrowers can borrow assets until their collateral ratio hits 125% where they’ll need to pay their debt or deposit more collateral. The over-collateralization model of the exchange helps secure lenders in liquidation cases. For lenders, there is no lock-up period and they can always withdraw their deposits at any time.

dYdX Token Governance and Utility

dYdX is the governance token of the Layer 2 non-custodial crypto exchange. It serves as a tool in facilitating the operations of the exchange. Being a governance token means that dYdX gives the community the power to vote on the operations of the protocol.

Other token benefits include:

  • Staking Pools: There are two kinds of staking pools on the dYdX protocol – Safety pool and Liquidity pool. In the safety pool, investors receive continuous rewards in proportion to their pool size (amount staked). Users would need to wait for 14 days before they can unstake their tokens. The Liquidity pool incentivises liquidity providers with dYdX. For every USDC deposited, the user stkUSDC; which serves as proof of share in the reward mechanism.
  • Mining Rewards: Aside from staking or providing liquidity, users can also earn rewards for using the protocol. These rewards are distributed amongst dYdX holders who perform trade on the decentralized exchange. The amount of rewards that the user can receive depends on their dYdX holdings and overall activities.
  • Trading Rewards: Any trader who actively trades on the protocol becomes eligible for trading rewards. This rewards model would encourage more traders to use the platform.

dYdX Tokenomics

The dYdX (DYDX) token has a total supply of 1,000,000,000 tokens, which would be vested over five years. 27% of the tokens are allocated to investors. 50% is given to the community for rewards and treasury. The remaining share of the token supply is reserved for the team.

Is dYdX safe?

When it comes to using an exchange that runs on smart contracts, the question of safety is always a key factor in adoption. dYdX claims to be secure based on its decentralized framework, however, the Mend research team reported that the exchange once had its NPM account hacked.

This issue was quickly noticed and resolved, but it only proves that an exchange is not 100% secured. This shouldn’t be a wade-off for users, centralized exchanges have been hacked before even the Ethereum and Binance Smart chain networks have been hacked. While the issue of security might be a turn-off for some users, it is good to consider that the exchange is continuously developing and upgrading its protocol.

Why are DEXs like dYdX Popular?

Decentralized exchanges (DEXs) like dYdX are popular because they offer several benefits compared to traditional centralized exchanges.

  1. Decentralized: DEXs are decentralized, which means that they are not controlled by any single entity. This makes them less vulnerable to attacks or censorship, as there is no central point of failure.
  2. Increased security: Because DEXs do not hold users' funds, they are less likely to be hacked or have funds stolen.
  3. Privacy: DEXs often offer greater privacy, as they do not require users to provide personal information in order to trade.
  4. No downtime: DEXs are built on decentralized networks, which means that they are less likely to experience downtime or maintenance.
  5. Accessibility: DEXs can be accessed from anywhere in the world, as they are not subject to the same regulatory restrictions as centralized exchanges.

Overall, DEXs offer an alternative to centralized exchanges that is more secure, private, and accessible, which is why they are becoming increasingly popular.

Final Thoughts

Overall, dYdX is the best and most liquid way to trade perpetual futures contracts on-chain. Their platform offers a wide variety of trading pairs, tight spreads and a trading experience that competes with centralized exchange providers like Binance and Bybit.

Pros of dYdX

  1. Zero fees for trading perpetual trading. dYdX offers its traders a zero-fee trading experience. Being built on Layer 2 also suggests that gas fees would be reduced to the minimum.
  2. 25x leverage
  3. Non-custodial exchange
  4. Earn interest on deposited assets
  5. Fast withdrawal

Cons of dYdX

  1. Limited pairs for margin trading.
  2. Inconsistent interest rates. Sometimes the interest rates for $ETH could hit 0%.
  3. A Low number of assets for swaps.

If you want to compare it with an alternative decentralized trading platform, we recommend you check out our GMX Review which is its main competitor in the DEX derivatives space.

Adrian Graham

Co-Founder & former Investment Banker (Finance MBA) turned Full-Time DeFi analyst and researcher. Left traditional finance to pursue my interest in digital assets and decentralized finance.

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