The dYdX cryptocurrency 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.
- dYdX is a decentralized margin trading platform based on Ethereum.
- dYdX allows users to borrow and place bets on the future prices of popular cryptocurrencies.
- dYdX wants to bring trading tools typically found in fiat markets to the world of blockchain.
In this article, we will discuss:
What is dYdX (DYDX) Token?
Decentralized loans and loans already exist on DeFi through popular platforms like MakerDAO and Compound , but dYdX is focused on building more advanced trading tools on the Ethereum blockchain. As with other DeFi products, the dYdX protocol is available for anyone to use and build – with user assets managed by smart contracts rather than people.
It is the most popular decentralized margin trading platform, peaking at over 150.000 ETH (worth over $30 million at the time) closed on its smart contracts in November 2019. As of April 2020, over $500 million was traded on the platform
What is margin trading?
Margin trading is essentially about borrowing money to make bigger bets. Crypto traders are betting that the price of a cryptographic asset will move the way they predict – up or down. Margin trading allows them to increase their profits if they're right, but also their potential losses if they're wrong.
Margin trading creates leverage – the more leverage used, the greater the risk (or reward) of profit or loss. For example, using 2x leverage essentially doubles a trader's potential gain or loss.
How does the new version of the DEX dYdX platform work?
The new version of DEX is powered by Solo, which is their new open source protocol. The dYdX token has passed two security audits.
The new dYdX token highlights the following features:
- Loans and loans without imposing restriction periods or minimums.
- Trading in custom, non-tokenized margin positions that have up to 4x more leverage than other DEXs.
- Specialized portfolio management of your positions and assets.
It's an intuitive yet simple platform that offers the following
Resources:
- Basic trading of ETH, USDC and DAI
- Isolated margin trading
- cross margin trading
- Loan with interest
dYdX token users can trade on margin or sell any ERC-20 token for hedging or speculation. Also, they can buy any token as a form of leverage.
This would require lengthy negotiations. In that case, a margin trader will have to look for a lender who will let him borrow the tokens.
Users would typically trade privately or outside the blockchain or through relayers; then terminate the deal on the chain. In addition, the dYdX cryptocurrency is also eyeing options trading. With options, the owner has the right (not an obligation) to buy an asset at the strike price.
How does the dYdX token work?
In the dYdX token, the individual borrower or loan transactions are now replaced by a chained global transaction in a “global loan pool”.
Basically, each asset has individual loan pools that are under smart contracts, so any digital transactions like loans, loans and withdrawals can happen at any time without having to wait in line for correspondence, approvals or adequate capital. Interest rates for each loan would be based on the supply and demand behavioral chain between lenders and borrowers, as well as assets.
The accrued interest would be paid to creditors, while 5% is dedicated to the dYdX insurance fund. In addition, a liquidation would incur a 5% penalty.
Margin trades and loans can remain open for a maximum period of 28 days. After that, they would be charged with a 1% expiration fee. Like another DeFi project, dYdX requires an Ethereum and ETH wallet to pay for gas.
As of March 2020, dYdX has zero trading fees for manufacturers and 0.15-0.50% for buyers.
Loan on the dYdX(DYDX) Token platform
The loan allows users to enjoy passive income from their cryptographic holdings in the dYdX token. Funds deposited on the platform will continue to earn interest. Furthermore, interest rates are dynamic and automatic.
Users can easily get their funds as the platform allows easy deposits and withdrawals at any time.
Through the dYdX token, you can easily borrow funds and send them to your Ethereum wallet with any of the supported assets, as long as you are able to maintain an initial or minimum guarantee ratio of 1.25x or 1.15x. In addition, borrowed funds can be used for anything, such as working capital, expansion, marketing or any other personal or commercial activities.
What are the guarantees?
As reliable credit checks and identity solutions are not widely available on the blockchain, almost all decentralized loans use collateral.
Collateral is the minimum deposit required to take out and repay a loan. The more collateral you deposit, the more you can borrow.
What are sales?
When the value of your collateral drops below a certain point, that collateral is automatically sold to pay off your loan – a process called liquidation. Loans are at high risk of settlement when there is too much borrowed and too little collateral. Settlement risks increase severely in more volatile markets such as cryptography.
What's so special about the dYdX token?
As a pure trading platform, the dYdX token is quite limited, but as a fully open, reliable and non-custodial financial protocol, it is one of the most advanced.
The platform's capabilities are currently limited to basic trading between three simple assets (ETH, DAI and USDC), loan assets to collect interest, and two types of margin trading: stand-alone margin trading and cross-margin trading. While these are simple tools for the veteran trader, they are a big leap forward for the fledgling DeFi ecosystem.
Unlike margin trading, dYdX borrowing is considered to be low risk and passive. With dYdX, creditors automatically earn interest each time a new block is extracted. Any funds deposited on the platform will earn interest continuously on each block and can be withdrawn at any time with no minimum requirements. As all loans are secured and face the threat of settlement, the lender will always be repaid.
What is the future of the dYdX token?
The plan for the dYdX token has always been to offer increasingly advanced trading features such as options and derivatives, along with its core margin trading features. Recently, the project added “stop-loss” options to allow traders to limit their potential losses.
The team also plans to expand beyond the three core cryptographic assets currently available on the platform. By adding more complexity to its platform, dYdX is also increasing the complexity of the broader DeFi ecosystem—a sign of a maturing market.
Conclusion
The dYdX token is an open, no-custodial and trusted platform on Ethereum, designed to attract experienced traders.
Future plans for the dYdX token include the adoption of more advanced trading features or capabilities. Recently, the dYdX project has added stop-loss options that help reduce potential traders' losses.
The dYdX cryptocurrency team is also planning to expand to include other tokens in addition to its three basic cryptographic assets that are available on the platform.
Undoubtedly, this was a bold move by the dYdX cryptocurrency. It filled in the complexity of the protocol and the entire DeFi sphere, which speaks volumes about how far this technology has advanced.
dYdX was founded by Antonio Juliano in 2017. He is known for being an authority on cryptography, as well as being a former Uber and Coinbase engineer.
