On the surface, dYdX looks like just another lending protocol on Ethereum, but dig a little deeper and you'll find a protocol trying to take Decentralized Finance (DeFi) to the next level. So what is dYdX. In this article we will discuss dYdX and how it works.
What is dYdX?
dYdX is a decentralized exchange built on the Ethereum network that provides users with key financial instruments such as perpetual contracts, margin and spot trading, and lending. dYdX exchange began to provide cross-margin perpetual trading. In cross-margin trading, users can repurpose their available platforms to provide liquidity for existing trades.
It is the most popular decentralized margin trading platform, with a peak of over 150,000 ETH (worth over $30 million at the time) locked in its smart contracts in November 2019. As of April 2020, the platform has traded over $500 million.
Early iterations of the dYdX trading platform allow traders to have basic crypto margin trading capabilities with limited assets. Now, dYdX is upping its game by launching margin and perpetual contracts for many cryptocurrencies. It also added lending services to completely decentralize the entire trading experience.
How does dYdX work?
Like most DEXs, dYdX uses smart contracts for its services. Users can transact on its platform without the need for third parties or intermediaries. Smart contracts mean that dYdX is a non-custodial exchange, so funds are 100% under user control.
Instead of individual borrowers and lenders making and accepting loan offers, everyone interacts in a "global loan pool." Each asset has its own lending pool managed by smart contracts, so withdrawals, loans and borrowings can be made at any time without waiting for a match or sufficient funds.
To use dYdX, all you need is a crypto wallet like Metamask, some ETH for transaction fees, and supported crypto assets DAI, ETH, or USDC. ETH is the native token of Ethereum, DAI and USDC are stablecoins, and the price is stable at around $1.
So now you know what is dYdX and how dYdX works. dYdX recently announced the launch of its DYDX governance token and liquidity mining. DYDX token holders receive discounts on transaction fees, vote on proposals and parameter changes, and can stake tokens for rewards.
