dYdX Review – Is dYdX Legit & How Does It Work?
Petar Jovanović
dYdX is a decentralized exchange that uses a smart contract on the Ethereum blockchain to facilitate perpetual trading, marg dYdX sin trading, spot trading, lending, and borrowing. Thus, users can trade freely with no intermediaries.
A decentralized exchange combined with the speed and efficiency of a centralized exchange, dYdX was founded by Antonio Juliano. This article will examine what dYdX involves and how you can utilize various features on this crypto exchange that have recently come into the limelight. Let’s start.
| Feature | Description |
|---|---|
| dYdX Overview | dYdX is a decentralized exchange that allows users to do margin trading with up to 100x leverage or buy perpetuals of assets, and earn interest on deposits. |
| Supported Wallets | dYdX can be connected to web3 compatible wallets such as MetaMask, Ledger Hardware Wallets, Trezor Hardware Wallets, Coinbase Wallet, TrustWallet, Rainbow Wallet, TokenPocket, WalletConnect, imToken. |
| Best Features | Margin and perpetuals trading, no gas fees when trading perpetuals or swapping supported assets, high leverage, earning interest on deposited assets, and competitive borrowing rates. |
| Available Assets | For margin trading, only Ethereum (ETH), Dai (DAI), USD Coin (USDC) are available. For perpetuals trading, many different crypto coins and tokens are available such as Bitcoin (BTC), Solana (SOL), Polkadot (DOT), Polygon (MATIC), Cosmos (ATOM), Chainlink (LINK), Uniswap (UNI), Cardano (ADA), Filecoin (FIL), Dogecoin (DOGE) |
| Fees | The trading fees on dYdX vary based on the assets and trading pair, but generally range from 0.03% – 0.1%. There are no gas fees when trading perpetuals. Interest rates for borrowing assets and earning interest on deposited assets can vary. |
What you'll learn 👉
SUPPORTED CRYPTOS
When this article was written, dYdX offered support for five different cryptocurrencies in its three trade modes. These cryptocurrencies are Ethereum(ETH), Digital fiat(DAI), and USD Coin(USDC) in spot and margin trading with Bitcoin(BTC) and Chainlink(LINK) added in perpetual trading.
Other coins like Uniswap(UNI), AAVE, Solana(SOL), Sushiswap(SUSHI), Yearn Finance(YFI), Compound(COMP), and Avalanche(AVAX), among others, will be added in due time.
WHY TRADE WITH dYdX?
As explained earlier, the dYdX platform combines the good points of decentralized and centralized exchanges, works on their weaknesses, and delivers near-perfect service.
The platform has been around for some time and has proven to be successful. Consider the following reason:
The main challenge with centralized exchanges is that they have single points of failure, which can potentially be exploited to rob users of their hard-earned money. However, because of the deep liquidity they possess, they have a significant advantage over decentralized exchanges – they can conveniently offer leverage trading to their users. For experienced traders, leverage trading is a desirable feature as it ensures that gains can be easily multiplied.
That is where dYdX comes in. It allows users to lend, borrow, and margin-trade cryptocurrency in a trustless manner. Thus, traders can trade leveraged positions or margin positions and store their profits in their own wallets, free from the insecurity of funds that sometimes plagues centralized exchanges.
dYdX TRADING FEES
dYdX uses a maker-taker fee model for determining trade fees. Maker orders are orders that rest on the order book and do not immediately fill. They make liquidity for the order book. On the other hand, Taker orders do not rest on the order book and are immediately filled. They take liquidity away from the order book.
Concerning this, the fee schedule for perpetual contracts trading on the exchange is based on a trading volume-weighted 30-Day trading mechanism. The highest fee paid on the exchange for maker orders is 0.05% for accounts with a 30-Day volume between $0 to $1,000,000, while the lowest fee for maker orders is 0% for accounts with a 30-Day volume of upwards of $50,000,000.
On the other hand, the highest fees for taker orders is 0.1% for accounts with a 30-Day volume between $0 to $1,000,000, while the lowest fees for taker orders is 0.06% for accounts with a 30-Day volume of upwards of $200,000,000
dYdX also offers discounts for accounts that hold a certain number of its governance token, dydx. The discounts start from a 3% discount for accounts that hold between 100-999 dydx tokens and go as high as 50% for accounts that hold upwards of 5,000,000 dydx tokens. As a rule, after all the discounts and benefits, taker fees cannot be lower than 0.05%.
A slightly different mechanism is employed when it comes to spot and margin trades on the dYdX exchange. There are no fees collected for maker orders. On the other hand, taker orders are charged a 0.3% fee. They may also incur gas cost fees if the exchange fee does not cover the cost to complete the transaction.
The exchange uses the fees to continue covering transaction costs, earn revenue and incentivize more liquidity.
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DYdX WITHDRAWAL FEES
dYdX does not charge fees for deposits and withdrawals. Users will, however, have to pay miners for using the Ethereum platform. As an exception, the exchange charges a 0.1% fee for fast withdrawals.
DEPOSIT METHODS
dYdX accepts only cryptocurrency deposits. You can’t actually deposit to the exchange since it’s a decentralized one. You can only connect your crypto wallet, which already has your desired cryptocurrency, with it. It is recommended that you first set up an account with an exchange that accepts fiat, purchase cryptocurrencies there, and then move them to your wallet, which you can then trade with dYdX.
dYdX SECURITY
How secure is dYdX? Consider a few facts:
- It’s Non-custodial: This means that the exchange doesn’t hold your funds. You are in control at all times. This is a hallmark of decentralized exchanges as smart contracts secure users’ funds at all times.
- Audited thoroughly: The dYdX team is committed to ensuring the security of the exchange. To that end, they have conducted intensive internal testing and contracted top-notch security firms to analyze their systems. Audits conducted by these companies are open-source and can be verified by anyone. The following audits have been performed on the exchange features:
- Perpetuals Protocol on Layer 2 Audits: Independently audited by Peckshield.
- Perpetuals Protocol on Layer 1 Audits: Audited independently by Zeppelin Solutions
- Solo(Margin/Spot/Lending) Protocol Audits: These were performed independently by both Zeppelin Solutions and Bramah Systems
- Admin-Account Delay: There is usually an administrative account on many decentralized protocols that can perform administrative features. If hackers gain access to this account, they can add or remove features from the protocol for their own gain. In dYdX’s case, the administrative account has a 14-day delay for layer 2 Perpetuals and a 3-day delay for margin, spot, lending, and layer 1 perpetual contracts. Consequently, malicious actions can be canceled quickly or public announcements can be made before they occur. Their plan is to extend this delay in the future.
- Time-tested: The first product on dYdX was launched in October of 2018. Since then, no single user has ever lost funds on the exchange, and neither has any significant issue been found by independent auditors. There is no doubt that it is a dependable exchange based on its performance.
BORROWING WITH dYdX
To borrow an asset on dYdX, go to the exchange’s website and load the ‘borrow’ page. On the borrowing page, click the ‘Borrow Assets’ tab after selecting the assets you wish to borrow. There you can choose the asset you want to borrow as well as the repayment period.
There are some terms you need to understand well before borrowing, namely, Interest Rate(APR) and Account Collateralization. The interest rate is pretty self-explanatory. Collateralization, on the other hand, represents your collateralization ratio. The collateralization ratio determines your borrowing capacity and the point at which you will be liquidated.
When you borrow assets through dYdX, your collateralization ratio cannot exceed 125%. Below this threshold, you will not be allowed to borrow any more assets until you provide more collateral or repay some of your debts. Your account will be liquidated when your collateralization ratio reaches 115%, and all collateral will be sold until all negative balances are zero. In addition, your account will have to pay a 5% liquidation fee.
LENDING ON dYdX
On dYdX, lenders and borrowers have automatic access to global lending pools. Every asset has its own global lending pool, which is handled by smart contracts. In order to start lending and earning interest on dYdX, you simply need to deposit funds on the Balance page using an Ethereum wallet.
On dYdX, a deposit is deposited into the respective lending pool after which borrowing can be done. This allows both borrowers and lenders to deposit and withdraw assets at any time.
MARGIN TRADING ON dYdX
dYdX offers margin trading, enabling traders to borrow funds from a third party to take more significant positions.
- How to trade margin on dYdX:
- Select your position. Short positions gain value if the value of the base asset goes down, while long positions gain value if the value of the base asset goes up
- Select your position size. This is the total amount you want to long or short
- Select your leverage. This controls how much of your position is borrowed. The higher the leverage, the riskier it is
- Congratulations! You have successfully opened your margined position on dYdX.
- Isolated and Cross Margin trading: There are two kinds of trades you can make on the margin page:
- An isolated margin is a margin associated with a specific portion of an asset. This type of trade involves collateralizing each position separately. The margin deposit you put up for that specific position is all you can lose in the case of a liquidation.
- Cross margin utilizes your entire dYdX margin account as margin. In the selected market you can, therefore, trade any quantity as long as the minimum collateral ratio in your entire account is maintained. In the event of a liquidation, your total assets will be sold to balance out your debt
THE dYdX TEAM AND HISTORY
A former engineer at Coinbase and Uber, Antonio Juliano founded dYdX in 2017. On their LinkedIn profile, the company is noted to have grown to include 26 employees since then. Their headquarters is in San Francisco, and they are backed by some big investors, including Polychain, a16zcrypto, and Starkware, among others.
The first product on dYdX was known as Expo and was launched in October 2018, supporting leveraged long or short positions on Ethereum. After running for nine months, it was replaced by Solo, a revamped product that offered new functionality and interface Improvements.
dYdX SUPPORT AND EASE OF USE
Engaging in margin and perpetual trading can be a complicated process, especially for beginners. The dYdX support team tries their best to make it a less complicated endeavor. They do this through well-detailed articles on help.dydx.exchange. They also provide tech support via in-app help chat on their exchange interface. In addition, they have a blog as well as social media accounts on Twitter, Discord, WeChat, Youtube, LinkedIn, Telegram, Medium, and Reddit, where they provide live and updated help to users who might need it.
In terms of ease of use, though, the platform could do better. The exchange offers many features that are difficult to navigate, especially for beginners. On the plus side, a minimum deposit value of $10 makes it easy for retail traders to enjoy the exchange’s features.
dYdX TOKEN
DYDX is the governance token of the dYdX foundation. In addition to mining rewards and staking pool participation, the dYdX (DYDX) protocol tokens can also be used to receive trading discounts if you trade on the DYdX exchange. This token was first distributed as airdrops before being simultaneously listed on most major crypto exchanges.
TOKENOMICS
A total of 1,000,000,000 DYDX tokens are available to be distributed over five years. The breakdown is as follows:
- The dYdX community will receive 50% of the tokens. The community treasury will also receive a portion
- Tokens will be distributed to previously active investors to the tune of 27.73%
- dYdX’s official team, including its founders, advisors, employees, and others, will receive 15.27 percent
- The remaining 7% will go to consultants and employees who will join the team in the future
USE CASE
DYDX can be used for the following purposes:
- STAKING: Users can stake their dYdX tokens in two different pools on the trading interface: safety and liquidity. After staking their tokens, users have to wait 14 days before they can unstake their tokens if they wish.
- GOVERNANCE: Holders of DYDX tokens can propose changes to the layer 2 protocol and take part in the governance process
- REWARDS: The dYdX platform rewards users in three ways:
- Retroactive Mining Rewards: DYdX users have been rewarded with tokens that they have earned due to long-term use of the platform. Depending on their overall activity and the tier to which they belong, users got between 310 and 9,529 tokens.
- Trading Rewards: These are provided to crypto traders as an incentive to use the dYdX protocol on Layer 2. Several factors affect the number of rewards, including the trading activity and volume.
- Liquidity Provider Rewards: These can be earned by Ethereum addresses with an active status after 28 days.
- TRADING FEES DISCOUNTS: Depending on how many tokens they hold, DYDX holders will receive discounts ranging from 3% to 50%
HOW TO SET UP A dYdX INTEREST ACCOUNT
Follow these steps:
- Create an Ethereum wallet if you haven’t done so (preferably Metamask)
- Go to the dYdX website
- Click deposit. This will open up a modal(in some cases, it’s represented by a wallet icon)
- You must select an asset to lend
- The number of tokens you wish to lend can then be entered
- Click Deposit. This will require a confirmation of the transaction on the Ethereum blockchain
- That’s all. You have started lending. To withdraw your funds, click Withdraw on the Balances tab
HOW TO SET UP A dYdX LOAN ACCOUNT
To start borrowing on the dYdX platform, follow the steps below:
- As with lending, make sure you have an Ethereum wallet like Metamask or Coinbase wallet
- Go to the dYdX website
- Click on Trade and then Margin
- Click on More and then Borrow
- Connect your wallet
- To borrow an asset, select the amount and the asset
- You’re good to go!
AS AN EXCHANGE
dYdX could do better as an exchange, to be honest. This is because it may be too complex for beginners. The team is good, though. So, they may be working on coming up with more intuitive and accessible products.
AS A BORROWING PLATFORM
If you’re used to Defi, you would agree that dYdX offers competitive rates for loans borrowed.
FREQUENTLY ASKED QUESTIONS
