What Is DYDX? How Does It Work? A Comprehensive Guide

What Is dYDX?

dYdX is a decentralized exchange (DEX) that has been making waves in the world of cryptocurrency trading. Founded by Antonio Juliano in August 2017, dYdX has quickly become one of the biggest decentralized exchanges in the world in terms of trading volume and market share. The platform offers perpetual trading options for over 35 popular cryptocurrencies, including Bitcoin (BTC), Ether (ETH), Dogecoin (DOGE), and Cardano (ADA).

dYdX stands out from other exchanges by offering cross-margin perpetual trading, which allows users to repurpose their available balance on the platform to provide liquidity to existing trades. This is a popular method to avoid liquidations during high volatility.

Key Takeaways

  • dYdX is a decentralized exchange (DEX) platform that offers perpetual trading options for over 35 popular cryptocurrencies.
  • The platform stands out from other exchanges by offering cross-margin perpetual trading, which is a popular method to avoid liquidations during high volatility.
  • The dYdX protocol was built over the Ethereum smart contracts and STARK (zero-knowledge) Rollups powered by Starkware, and most of the exchange is built on trustless protocols, which are publicly extensible without any permission.

What Is The History of dYdX?

dYdX, a decentralized exchange (DEX) pioneering margin trading on Ethereum, embarked on its journey in 2017, spearheaded by entrepreneur Antonio Juliano1. Its genesis can be traced back to July 2017, when the platform launched, initially offering margin trading, lending, and borrowing services.

A key moment occurred in August 2021, when dYdX introduced cross-margin perpetual trading, expanding its capabilities and attracting a wider user base2. This innovation enabled traders to leverage their positions with a single asset, streamlining the margin trading process.

In October 2022, dYdX made a strategic move to the Layer 2 scaling solution StarkEx, leveraging its ability to handle significantly higher transaction volumes without compromising security. This partnership marked a significant step in dYdX’s evolution, enhancing its performance and scalability.

The platform achieved a monumental milestone in March 2023, surpassing 1 trillion in trading volume on its v3 platform3. Throughout 2023, dYdX actively developed the dYdX chain, building advanced order types, a trading front end, IBC connections, and multiple testnets.

In November 2023, dYdX responded to market volatility by introducing stricter margin requirements in some markets. This proactive measure aimed to safeguard user funds and maintain the platform’s stability amidst market fluctuations. The project also began its migration onto its own Cosmos layer-1 chain4.

What Is The Difference Between Perpetual Trading/Contracts vs. Traditional Contracts vs. Spot Trading?

To better understand how dYdX works, it is important to differentiate between the various trading options available in the market. Perpetual futures contracts, also known as perpetual contracts, enable users to place a buy or sell order at a fixed price indefinitely, without any expiry date5.

This differs from spot trading, which involves buying or selling cryptocurrencies immediately based on the market price. Meanwhile, traditional futures contracts have a time limit on every order, which automatically expires once the time has elapsed.

As a decentralized exchange, dYdX primarily features perpetual markets, which have expanded to offer spot and margin trading on the Ethereum layer-1 blockchain and layer-2 cross-margined perpetual.

Compared to traditional futures contracts, perpetual contracts offer greater flexibility since they do not have an expiration date. Additionally, perpetual contracts generally have higher liquidity compared to spot trading, which may result in greater slippage during transactions.

What Are The Trading options on dYDX?

dYdX is a decentralized exchange that offers a range of products to its users. The exchange has four key products: perpetual trading, governance, staking, and nonfungible tokens (NFTs). Each of these products has unique features and benefits that cater to different types of users.

Perpetual trading on the dYDX exchange

Perpetual trading is dYdX’s flagship offering, which allows users to trade open markets with non-expirable contracts. The contracts allow investors to hold their buy or sell positions indefinitely until the predetermined trade conditions are met.

For example, if a user places an order to sell 1 Bitcoin at $100,000, the order will remain active until Bitcoin reaches $100,000 and the trade is complete. However, an investor may choose to terminate the contract by pre-closing the buy or sell order.

Perpetual contracts are built on top of an underlying asset, which, in the case of dYdX, are Ethereum-based ERC-20 tokens. As a result, dYdX allows the creation of entirely new asset classes, which derive their value from underlying blockchain-based assets.

NFTs on dYDX

dYdX’s latest product offering is an NFT collection named Hedgies, a collection of animated hedgehogs designed by two independent digital artists, Anna and Arek Kajda. dYdX’s NFT collection went live in February 2022 and has since launched 4,200 NFTs minted over the Ethereum blockchain6.

Hedgies are distributed to users based on their trading statistics and community interactions such as voting. Owners of the Hedgies NFTs are entitled to certain perks while trading on dYdX. Minting Hedgies costs just the gas fees and was created to award users on various occasions and achievements.

Spot and margin trading on dYDX (legacy)

dYdX offered spot and margin trading services over the Ethereum layer-1 blockchain protocol. The exchange pulled the plug on its layer-1 offering on November 1, 2021, and has since migrated over to offering layer-2 perpetual products, furthering its goal of becoming a truly decentralized exchange.

The dYdX exchange uses Ethereum smart contracts to leverage spot and margin trades. Similar to other centralized and decentralized exchanges, dYdX also offers trading features, including stop-loss and limit orders.

What Are The Tokenomics Of dYDX (DYDX)?

The native dYdX token, ETHDYDX, plays a crucial role in the dYdX ecosystem, facilitating governance, staking, and transaction fees. As a governance token, DYDX holders can participate in the platform’s decision-making processes, voting on proposals that impact the dYdX roadmap and future initiatives. The ETHDYDX token is currently migrating to the native dYdX chain and users are engaged to bridge their tokens using the dYdX bridge7.

ETHDYDX has a maximum supply of 1 billion and 270 million tokens are in circulation according to CoinGecko as of January 20248. dYdx trades just above $3.1 and has a market capitalization of $853 million, placing it firmly among the top 100 cryptos.

The 2023 rally has pushed dydx towards a $1 billion market capitalization.
The 2023 rally has pushed dydx towards a $1 billion market capitalization. Source: CoinGecko

How Has dYDX (DYDX) Traded In 2023, And What Is The dYDX Price Prediction?

dydX has rallied by 176% this year, pushing its price over $3, according to data from TradingView9. Despite the rally, the crypto trades at an 88% discount on its all-time high price of $27.8.

Coincodex10 expects dydX to continue rallying in 2024 with a high price target of $7.2. They’ve forecast a potential new all-time high in 2025 with a $24 price target.

Coinwire11 has issued an average price target of just under $4 for 2024 and 2025. They don’t foresee a new all-time high, but they target over $10 before the end of 2030.

Remember that crypto prices are extremely volatile, and you should always do your own research before risking your capital. Nothing in this post should be considered as financial advice.

dYdx has rallied by over 175% this year, but it's still trading well below its all-time high.
dYdx has rallied by over 175% this year, but it’s still trading well below its all-time high. Source: TradingView

Final Thoughts on dYDX

When Juliano decided to leave Coinbase and set up dYdX, he took a massive gamble that has more than paid off. The exchange has grown into one of the most popular margins and perpetual trading platforms, and last year, it reached a major milestone of over $1 trillion in total trading volume. The DYDX native token has successfully built its market capitalization into the top 100 and the migration to the native dYdX chain is expected to further grow its utility.

Frequently Asked Questions

Who Is The Founder Of dYDX?

dYdX was founded by Antonio Juliano in 2017. Juliano’s vision for the platform is to provide a decentralized trading experience that offers greater transparency and security than centralized exchanges.

Where Can You Trade dYDX?

Dydx can be traded on several leading exchanges, including Binance and Gate.io

Peter Barker

WRITTEN

Peter Barker

Peter is an experienced crypto content writer and a DeFi enthusiast with more than 3+ years of experience in the space. Previously a journalist and news editor at a leading European news sourcing agency.

Recent posts

View more