dYdX is the world's first decentralized derivatives trading platform founded by former Coinbase engineer Antonio Juliano in 2017. The goal is to give users a smooth experience like centralized exchanges while still retaining ownership of crypto assets. Users can trade with up to 20 times leverage, and its trading volume even surpassed Coinbase and Uniswap at one point, making it a leader in decentralized derivatives trading platforms.

What is dYdX V4?

V4 represents dYdX’s move to its own self-established chain, leaving Layer 2 on Ethereum. The chain is built based on Cosmos SDK. V4 was announced for the first time in January 2022, and the test network is now online.

Why build your own dYdX chain?

To be completely decentralized.

The current version is V3, which is a hybrid decentralized exchange. The decentralized component is the zk-rollup technology supported by StarkWare, while the centralized part is the order book and computing engine. While this centralized model allows dYdX to quickly match and process orders, it can also become a potential security risk and trust issue.

The V4 version can make dYdX completely decentralized. There will be no centralized control or single point of failure. The protocol can hand over all control rights to the community.

dYdX’s Market Position: Strong Competitor

Locked amount: 4th among many Layer 2

Currently, dYdX is a Layer 2 built on Ethereum using StarkWare, with a total locked-up amount of approximately US$330 million, ranking fourth among many Layer 2s. The top three are Arbitrum, Optimisim and zkSync Era.
Many Layer 2s have their own ecosystems, in which there are various different protocols. Unlike other Layer 2s, only dYdX has created an environment specifically for trading, but the lock-up amount can be arranged. In fourth place, it is quite successful as a decentralized leverage exchange.

Trading volume: Market share exceeds 50%, making it the absolute leader

The daily trading volume of dYdX is approximately US$580 million, surpassing other decentralized leverage trading platforms such as Synthetix and GMX. The trading volume of dYdX alone accounts for 50% of the overall decentralized derivatives market. Based on the trading volume From this perspective, dYdX is the absolute king.

dYdX financing situation: raised a total of US$87 million, with a strong lineup

After four rounds of financing, a total of US$87 million has been raised, with as many as 45 investment institutions participating, including a16z, Polychain Capital, Wintermute, StarkWare, Hashkey, Paradigm and Delphi Digital and many other well-known institutions. The investment lineup can be said to be starry. Yiyi.

Features and highlights of dYdX: Smooth user experience

Good user experience: The trading interface is a traditional order book model, and the website has the same experience as a centralized exchange. New users do not need to change too many usage habits and can seamlessly connect.

Has an exclusive iOS app: It is the only decentralized margin trading platform to launch a mobile application.

Trading rewards: To encourage users to trade on the platform, DYDX tokens are distributed as rewards.

dYdX’s operating model: aligning with centralized exchanges

Use the order book model: Different from the AMM mechanism used by common Dex, dYdX introduces market makers to provide platform trading liquidity, and the mechanism is more like a centralized exchange.

Cross-margin function: Treat all funds in the account as a unified fund pool, and any leverage positions opened by the user share this margin.

Funding rate: dYdX adopts a funding rate mechanism, which is a rate set to maintain a balance between the contract price and the underlying asset price. It is usually applicable to perpetual contracts, the same as most centralized exchanges.

From the above mechanism, we can clearly understand that dYdX is committed to creating a centralized exchange-like user experience, allowing centralized exchange users to use it seamlessly.

Is DYDX coin worth buying? Will it rise?

We evaluate from the perspective of token unlocking.

Around December 2023, the total supply of DYDX tokens will nearly double. What is worrying is that it may bring a lot of potential selling pressure if the market value remains unchanged.

When we break down the token unlocking structure, we find that 30% of it is allocated to "employees and consultants." There have been similar delays in unlocking in the past to better align with the launch of V4, possibly to ensure that token supply is aligned with demand for its value growth.

In addition, of the tokens allocated to “employees and consultants”, 70% will be fully unlocked on June 1, 2024, and 90% will be fully unlocked on June 1, 2025. Such an arrangement provides token holders with a longer period of time to ensure their interests are better aligned with dYdX’s goals and vision.

If you simply sell coins or even short them based on the large amount of unlocking, you may want to reconsider.

Stick to your own path

DYDX has been criticized for having too many tokens locked and too much potential selling pressure.

Among them, the transaction reward of DYDX is 25% of the total supply. In March 2023, the transaction reward was reduced to 14.5%, which was a significant drop. Obviously, the community and team are aware that excessive token rewards will only create a negative impact on the market. Selling pressure makes it difficult for token prices to rise. This kind of community and team awareness will undoubtedly give long-term investors of DYDX tokens a shot in the arm.

Putting aside the issue of token selling pressure, dYdX has always been the benchmark protocol for decentralized leveraged exchanges (Perp Dex), unlike most projects that embrace Ethereum Layer 2, such as GMX, MUX, GNS and the recent strong rise of HMX These four Perp Dex are all built on Arbitrum, and many protocols want to enter Layer 2 to enjoy the security of Ethereum and the fast settlement and low handling fees of Rollup.

Only dYdx wants to leave Layer 2 and create its own application chain to achieve more complete decentralization, which also implies that the token economy is about to undergo major changes.
There will be no centralized group collecting transaction fees from the platform, and the fees will flow back to DYDX holders. dYdX V4 has taken a different path, and its subsequent development is still exciting.

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