Our Take On dYdX
THE BOTTOM LINE:
The dYdX derivatives exchange offers an alternative to both centralized finance and traditional crypto exchanges. The platform’s main focus is on perpetual and margin trading, all while embracing a strong view on financial decentralization.
- Low fees for average users
- Uses ZK-rollups
- Earn interest through lending
- Low number of assets available on swaps
- Varying interest rates
- Limited margin trading pairs
The dYdX derivatives exchange has set out to alter the landscape of crypto trading. While this is no small feat, there are undoubtedly plenty of people looking for positive change. It is estimated that over 180 million people now own Bitcoin and more than 300 million use cryptocurrency globally. Not only that, but the market is expanding, and users’ demands are growing.
The dYdX platform is a decentralized exchange that offers perpetual futures, as well as margin trading, spot trading, borrowing, and lending. It is ideal for users who want to earn interest when long or short on crypto assets. It allows users to trade dozens of cryptocurrencies, all while eliminating intermediaries, prioritizing decentralization, and offering a sound, beginner-friendly user experience.
In this article, we will look at what dYdX has to offer, how the platform works, and whether you should be keeping a watchful eye on its development.
While dYdX earned plenty of attention and significant profits due to its on-chain perpetual features available on Layer 1, the platform is expanding. The protocol’s implementation of Layer 2 solutions has brought positive changes. For example:
dYdX announced a new trading fee structure Aug. 1 for monthly trading volumes under $100,000. In its announcement, dYdX explained that it would rather have fee-free trading for average users and charge expert traders fees. If your 30-day trading volume is under $100,000, then you can enjoy no trading fees on dYdX, a huge advantage over many of the other best crypto exchanges.
In order to reduce Ethereum gas costs, dYdX uses ZK-Rollups. These protocols execute transactions outside of the Ethereum mainnet, batch the information related to transactions together, and transmit them back on-chain. All of this means that transaction costs are reduced while processing speeds increase. The rollups contribute to the dYdX protocol which offers leverage of up to 25X for trading.
Earn Interest Through Lending
It is easy to also use the protocol to accrue interest for passive income. The interest rate value becomes visible to each user as soon as they create their accounts and begin depositing assets. It is paid continuously and earned when lending ETH, DAI, and USDC.
The dYdX decentralized exchange, as previously mentioned, is growing. With this in mind, there are still issues that the team will need to work through to get this project up to its full potential. For example:
Limited Assets Supported For Swaps
While dYdX includes plenty of features, some of these will require a revamp in the immediate future. There just aren’t many assets featured at the moment. However, this is changing with new markets being added at a strong pace. It is a task that the project’s developers are promising will continue to be improved in the immediate future. Spot trading now includes a few dozen cryptocurrencies that are traded against USD.
Varying Interest Rates
It is true that lending is encouraged by the dYdX platform, and, indeed, rewards can be pretty high. However, since the value of the interest rate is determined by the supply and demand for each asset, this can change quickly. The dynamic nature of the rates can, potentially, negatively affect the crypto lender.
Limited Margin Trading Pairs
Margin trading involves the process of borrowing funds in order to purchase digital assets. While dYdX’s system is well constructed and even includes a lower collateralization level than some of its market competitors, there are few trading pairs available at the moment. Once more, the project’s developers have announced that this is likely to change for the better this year.
Who dYdX Is Best For
The dYdX decentralized exchange is ideal for crypto users whose needs go beyond the basic trading tools offered by traditional exchanges. Specifically, users of this platform will be able to engage in trading with perpetual futures contracts and in leverage trading, all while using an efficient Layer 2 solution. These features offer numerous benefits, including
- Perpetual Futures Traders: The derivative instrument that allows for trades of futures that contain no contract expiry dates and are available with leverage of up to 25X. Crypto enthusiasts who like to go beyond buying and investing can find the tools they need on dYdX.
- Experienced Margin Traders: Margin trading on Ethereum is available with a leverage of up to 5X and dYdX offers both isolated margin and cross-margin trading for users.
Key Features Of dYdX
While it is true that there are numerous decentralized exchange services available in the crypto space, dYdX aims to provide its users with some innovative features. These include:
- Focus On Decentralization: dYdX promises complete decentralization and greater transparency over traditional financial services
- No Gas Fees: There are no direct gas fees, as information is processed off-chain
- Low Fees For Average Traders: dYdX just announced its new fee structure, which includes no trading fees for users with monthly trading volumes under $100,000.
- Lower Collateralization: The platform offers additional lending and borrowing services that provide better conditions than numerous market competitors
- Lending With A Dynamic Interest Rate: Users can accrue interest from lending their assets, and the interest rate is determined by general supply and demand
Cryptos Listed On dYdX
As discussed, the dYdX exchange strives to offer a number of different trading and investment opportunities.
When it comes to perpetuals, as well as lending and borrowing, their markets are relatively limited. Borrow and supply APR is currently 0%, although the lending pool seems to include over $15 million in assets. The assets included are:
In terms of spot trading, the dYdX exchange includes a few dozen cryptocurrencies traded against USD at a leverage of up to 10X. Some of these currencies include:
Of note is also the DYDX currency. This is the native currency of the exchange. It was issued out in a supply of 250 million units, and it is offered as a reward to traders based on an algorithm that includes the fees paid and the open interest. The token can also be added into a Safety Pool where the current APR is 12.64%, or in the Liquidity Pool where daily yield is 0.21 DYDX/day
Fees For Using dYdX
Decentralized finance exchanges are known to generally charge lower fees than the majority of traditional exchanges. Typical fees vary around 0.3% to 0.5%. This does not include potential gas fees that are charged by the network. The services provided by dYdX include the following fees:
|Deposits or Withdrawals||None|
|Borrowing Rates||Varies based on supply and demand|
|Fast Withdrawals On L2 Perpetual||0.1%|
|Liquidation Of Perpetuals||1%|
|Trades For 30-day Volume Under $100K||0%|
|Trades For 30-day Volume Over $100K||0%–0.02% maker; 0%–0.05% taker|
Alternatives To Consider
Leverj.io: Good For Users Looking For High Trade Leverage
Leverj.io is a decentralized exchange that is currently building its reputation. Like dYdX it supports perpetual contracts. Leverj offers 50X maximum leverage, and does not charge gas fees.
Sovryn: Good For BTC Leverage Traders
Sovryn is a decentralized trading and lending platform focused on Bitcoin. The team behind Sovryn argue for better user control over their BTC assets. The platform includes services such as yield farming, borrowing, lending, as well as spot and margin trading.
Margin DDEX: Good For Beginner Traders
Margin DDEX focused on spot and margin trading, as well as borrowing and lending digital assets. It distinguishes itself through an easy-to-navigate platform that is focused on the needs of beginner traders. Margin DDEX supports 5X margin trading and charges 0.1% for makers and takers on all trades.
Is dYdX Right For You?
The crypto ecosystem is expanding and maturing. Naturally, the needs of many crypto traders also involve a higher degree of sophistication. The dYdX exchange caters toward those that want the type of financial products provided by the traditional financial sector, without any of the issues related to centralization.
The dYdX platform strives for complete decentralization and transparency all while using smart contract technology to offer perpetual trading, spot trading, margin trading (sometimes with 25x leverage), as well as lending and borrowing services.
Final Thoughts On dYdX
While it is true that dYdX is still growing and improving some of its features, its current offer will please experienced traders, especially those interested in perpetual and margin trading.
MilkRoad.com reviews cryptocurrency and Web3 products, services, and companies based on five quantifiable metrics to help crypto users understand how they compare based on similar metrics. For the best decentralized exchanges, our editorial team compared layer 2 access, the platform’s native token market cap, cryptocurrencies available to trade, and total value locked from each operator to rate the top competitors in the space.
Frequently Asked Questions
The dYdX platform is noted for its security features. Much of this is due to its use of smart contract technology that locks up users’ funds, rather than having them stored by a centralized entity.
DYDX is the native cryptocurrency of the dYdX decentralized exchange. It serves an important function within the protocol, regulating governance and rewarding lending efforts. While the token is being traded on several exchanges, its popularity is not yet fully established.
dYdX claimed its smart contracts were audited by security firm PeckShield in February 2021, but the firm announced in November 2021 via Twitter that these claims were false. However, dYdX claims it’s one of the only major DeFi protocols to have never received a bug report that puts user funds at risk.
No, dYdX doesn’t report to the IRS given it’s a decentralized exchange that doesn’t collect personal information on users. However, you should self-report your trading income on the IRS Form 1099.