DeFi has only grown in popularity since last years, from 2020 on. The total value of assets in DeFi protocols, or the TVL (Total Value Locked), is now over $200 billion. Trading on a decentralized exchange or a DEX is not yet as popular as trading on a centralized crypto exchange, a CEX. But the DeFi phenomenon continues to grow. There are different types of DEXs, some use an order book, much like a CEX, some use a ‘swap’ protocol, and there are aggregators. In general, you can trade, borrow, lend or earn interest on a DEX in crypto. dYdX is a DEX that works with an order book and is one of the few DEXs where you can also trade margin, spot, and perpetual (a kind of future contract with no end date). dYdX is now one of the largest DEXs,
That’s what I’m going to talk about in this blog, the dYdX DEX and the DYDX token. I am going to explain to you what exactly dYdX is and how it works. We’re also going to take a behind-the-scenes look at this project’s team and take a closer look at the DYDX price. I will also tell you where to buy the DYDX token.
Please note: please note that the text below about ‘dYdX (DYDX)’ as well as the explanation thereof should in no way be construed as advice. The choice for whether and in what way you want to trade (crypto) and which choices you make in terms of investment is up to you and you alone. We are not financial advisors.
Here you can first watch a short video showing what dYdX is.
- 1 What is dYdX?
- 2 How does dYdX work?
- 3 Who is behind the dYdX protocol?
- 4 What is the dYdx Token?
- 5 What is the price of the DYDX token?
- 6 Where can you buy the DYDX token?
- 7 What is the best way to store the DYDX token?
- 8 Conclusion
What is dYdX?
dYdX is a non-custodial decentralized crypto exchange, or a DEX, that runs on a second layer or L2 of the Ethereum blockchain. Since the release of their DYDX governance token on September 8, 2021, they have been one of the largest DEXs when it comes to 24-hour revenue. It converts as much as $2 billion in volume every day.
With dYdX you have a protocol that is specialized for short selling or trading with derivatives. However, they also offer spot and leverage (margin) trading in their order book. Of course, as befits a good DEX, you can also borrow and lend. This is possible in all Ethereum-based tokens. I will also shortly explain what all these terms mean. All of these options are relatively uncommon to find on a DEX. These options are common on most CEXs, such as Bitvavo or Binance.
Since it is a DEX, you can trade without having to sign up. There is no KYC (Know Your Customer) procedure, and you remain in possession of all your assets. That is the ‘non-custodial’ part of this crypto exchange. On a CEX, all your assets are owned by the exchange. The CEX has the private keys of your wallet. On a DEX you are responsible for your assets, your private keys and your wallet. So you have full control over your assets. This of course has many advantages, but unfortunately, there are also a few disadvantages. If you lose, get stolen, or destroyed your private keys, you will no longer have access to your assets. So make sure you have one or more backups of your private keys.
How does dYdX work?
dYdX works with different ways of trading, which I have already mentioned. These options for trading on dYdX are discussed here.
What is going short?
Going short is the advantage and profit from a fall in price. You can use this as speculation, or to hedge an existing position. In a previous blog about making a profit in a bear market, shorting is well explained. This happens on the first ETH layer or L1.
What is margin trading?
Margin trading is trading with leverage. You can borrow money from the stock exchange so that you can trade with greater capital. The leverage then gives you the opportunity to trade, for example, x 3, x 5, x 10 or even x 25. So there is a chance to make more profit, without needing more capital. Your trading results are multiplied, as it were. However, there are also risks associated with this. So you can make 25 x profit, but your loss also increases. You have to pay back the borrowed crypto. Margin trading also happens on the first ETH layer.
What are derivatives?
Derivatives are secondary contracts or financial instruments that derive their value from a primary underlying asset. For example, a cryptocurrency such as Bitcoin. There is also a difference between a derivatives market and a spot market.
You can only make a profit on a spot market if the price of a cryptocurrency goes up. If the price falls, you can either sell at a loss or hold the coin. Even if you were fast enough to sell your crypto, to be able to buy back at a lower price, you have to wait for a price increase. In addition, in a spot market, you simply have to have the crypto coins in your possession.
With a crypto derivative, you can trade in contracts that follow the price of a cryptocurrency, such as Bitcoin. This is then possible without ever having to own Bitcoin. Derivatives are traded on the second tier. On November 1, 2021, the first tier will close and you can only trade on the second tier.
The image below of the margin market shows the message from dYdX that L1 is closing.
Let’s take an example of a derivative on an ordinary exchange. Let’s take oil as an example. You can of course buy a few barrels of oil now, and sell them again when the price goes up. However, this is not really convenient and practical, because you will also have to store the oil drums and you will have transport costs. So it is much more convenient to trade with an instrument or a contract, which is tied to the price of oil.
It works a little differently in a crypto market. Or as they say in Thailand, ‘same, but different. You make a contract with another person over a fixed period of time. We take Bitcoin as an example again, and you say that the price is going up. The other person then of course says that the price is going down. Suppose the rate is $60,000 when the contract is drawn up. After the agreed time, the exchange rate will be $62,000. The other person must now pay you $2,000. If the rate were $58,000, you would have to pay $2,000 to the other person. All this, without either party ever owning Bitcoin. This is the basic principle, but derivatives come in many different shapes and sizes.
The three most popular derivatives in the crypto world are;
A contract between two people to buy, for example, sell Bitcoin on a predetermined date in the future (future!). However, you do not need to own Bitcoin. You can set up the contract in USD, or any other currency, whichever suits you best.
With an option, you do not have to settle the contract on the expiry date. That’s why they’re called options because you have the right to buy or sell at predetermined prices on specified future dates. With a future, you go short or long, with an option you have a ‘call’ or a ‘put’ option. With a ‘call’ option, you have the right to buy Bitcoin at a predetermined price when the contract expires. With a ‘put’ option you can then sell Bitcoin. However, with both variants, you always have the option to execute the right or not. Let’s say you have a call option in a week for $60,000. If BTC is worth $62,000, you lift the option. If BTC is worth less, you let the option expire, but you have to pay a ‘fine’.
These contracts have no expiration date or settlement date. You can keep your position open indefinitely, but with conditions.For example, your account must have a minimum amount of Bitcoin. The financing percentage is another condition. This is a unique system that ties the price of the perpetual contract to the price of Bitcoin. Because a perpetual contract has no end date, the price of the contract can differ significantly from the Bitcoin price. To solve this problem, one side of the merchants, the other side must pay. So the longs pay for the shorts, and vice versa. This is done directly between the traders, without the intervention of the stock exchange.
At dYdX, 99% of all transactions take place on the perpetual market. That is why the spot and margin markets will also be closed as of November 1, 2021, and the perpetual market will be fully concentrated.
The following image shows part of the perpetual market.
Who is behind the dYdX protocol?
Antonio Juliano already started dYdX in 2017. He is a software developer who gained experience at Uber and Coinbase.
There are also 27 other profiles of dYdX team members on LinkedIn.
What is the dYdx Token?
This token came into existence on August 8. It is an ERC20 governance or management token. Of the 1 billion DYDC tokens, only 6% are in the market or 56,337,466.00 DYDX. The tokens will be unlocked in 5 years. In mid-October 2021, the market cap is $1,251,857,386.
The community can now take over the management of the dYdX protocol. You can also use the token for staking and then you will get rewards for that.
This short video will give you an idea of what the DYDX token is.
The distribution of the token will look like this over the next 5 years.
Unlocking is done in the following way, also in 5 years, as in the image below.
If you own the DYDX token, you can also get discounts on trading. This discount can be up to 50% if you own 5 million tokens!
What is the price of the DYDX token?
If you want to invest in the DYDX token, a good start is to know its price. If you are already going to trade, you also want to make a profit. You can make a technical analysis to see what the best buy or sell moment is.
The DYDX token has already reached its preliminary ATH on September 30, 2021, with a price of $27.22 almost immediately after it came out on September 8, 2021. After that, the price has gone up and up a bit, without too large exchange rate differences. At the time of writing, in mid-October 2021, the price is $22.12.
At CoinMarketCap, it’s just inside the top 100 in 83rd place. Not bad at all for a token so new. By mid-September, increases of 40% had occurred. This coin has a good outlook in my opinion, even regardless of whether Bitcoin will rise in 2021. I think it could have a good price development. If you want to invest in this coin, it is important to do your own research.
Where can you buy the DYDX token?
The DYDX token is unfortunately not yet for sale on Bitvavo, but it is on Binance. Most leading CEXs also offer this coin, such as FTX, Gate.io, Kraken and KuCoin. There are also many liquidity pools on DEXs like Uniswap where you can find a DYDX pair.
What is the best way to store the DYDX token?
If you want to go for the most secure storage option, it is best to choose a hardware wallet. As the name suggests, this is a wallet in the form of a USB stick. You can therefore completely disconnect this wallet from the internet. The moment you have not linked the wallet to a computer, it is impossible for hackers to get into the wallet. Of course, you still have to store the wallet in a safe way. The most popular hardware wallets are from Ledger, the X or S version or from Trezor.
You can of course leave your DYDX token on the exchange where you bought the token. However, now you do not have access to your private keys. The private keys of exchange remain in the hands of the exchange itself. The danger of a hacked exchange is always there and then you have a chance that you will lose your coins. These wallets on an exchange are also called hot wallets.
As a third option, you can also use an online wallet such as MetaMask or Trust wallet. Here is also another chance of an internet hack, but it is theoretically smaller than a hack on a stock exchange.
The dYdX protocol has gone through a stormy phase after the release of the DYDX token. The price of the token rose sharply in a short time. In addition, the platform was heavily traded at $2.375 billion in 24 hours. This has made it one of the leading DeFi platforms now.
It is even going so fast that all markets that run on L1 are closed, only the L2 perpetual market is traded. 99% of all trade takes place there. dYdX is doing well, and this will also affect the price of the token. It is very possible that it could go up. If you want to invest in this token, do your own research.
If you have any questions about dYdX, let us know on our Cryptokopen Facebook group.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com