Coins: 13,925
Exchanges: 1,059
Market Cap: $2.389T 0.4%
24h Vol: $103.788B
Gas: 30 GWEI
Go Ad-free
Guides
TABLE OF CONTENTS

What is dYdX Exchange and How Does It Work?

4.3 | by Regiena Regunathan

dYdX is a decentralized crypto exchange, suitable for advanced traders, offering services such as borrowing, lending, margin, and leverage trading. The platform operates through smart contracts on the Ethereum blockchain, and a Starkware Layer 2 scaling protocol, where users are free to trade directly on the exchange without intermediaries. 

dYdX operates on a hybrid, partially decentralized infrastructure. This means that any user can easily access and perform trades on the exchange, as long as he or she has access to the internet. 

 

All You Need To Know About Perpetual Trading On dYdX

Unlike a traditional futures contract where there is always a fixed period, a perpetual is a cryptocurrency exchange-traded contract that has no end date and allows you to purchase or sell a cryptocurrency at any time in the future. Perpetuals are designed to mimic closely the spot value of the base cryptocurrency. When a party agrees to end a contract, settlement takes place in the predetermined cryptocurrency.

On dYdX, Perpetual Contract Markets are offered on the StarkWare Layer 2 solution with up to 25x leverage on synthetic assets. 

(a) What is a Layer 2?

A Layer 2 solution is a network that operates on top of an underlying blockchain protocol. Most Layer 2 solutions were built to provide greater scalability for the underlying blockchain, where transactions are aggregated and “rolled up” onto a smart contract on the underlying protocol.

In the case of dYdX’s StarkWare Layer 2 solution, it was designed specifically to provide greater scalability for dYdX’s cross-margined perpetual contracts. Through this Layer 2 solution, dYdX claims to be able to provide significantly lower gas costs, and in turn, much lower trading fees and minimum trade sizes for users. 

dYdX perpetuals are settled within the Layer 2 network itself, and Zero-Knowledge Proofs are periodically published to an Ethereum smart contract to establish the validity of state changes inside the Layer 2 network.

However, dYdX is slightly different from other fully decentralized exchanges in the sense that it operates on a hybrid infrastructure. In addition to the StarkWare Layer 2 solution, it also utilizes a low-latency off-chain system in order to construct and maintain the order book. The off-chain logic handles trades, liquidations, transfers, and deleverages, as well as updating oracle prices. It also periodically submits proofs attesting to the validity of the change in balances, given the users’ transactions.

(b) Perpetuals On dYdX

Given the considerable market interest in DeFi from customers, dYdX is currently focused on perpetual contracts. These are the currently supported pairs on the site:

  • BTC-USD

  • ETH-USD

  • LINK-USD

  • AAVE-USD

  • UNI-USD

  • SOL-USD

  • SUSHI-USD

  • YFI-USD

  • 1INCH-USD

  • AVAX-USD

  • DOGE-USD

  • SNX-USD

  • CRV-USD

  • UMA-USD

  • DOT-USD

  • MATIC-USD

  • MKR-USD

  • FIL-USD

  • ADA-USD

  • ATOM-USD

  • COMP-USD

  • LTC-USD

  • EOS-USD

  • BCH-USD

  • XMR-USD

  • ZEC-USD

  • ALGO-USD

  • YFI-USD

  • ZRX-USD

(c) Perpetual Order Types

There are currently four order types on dYdX. 

  1. Market Order - An order to buy or sell a specific asset that will be executed at the current market price established by the order book at the moment the order is processed by the system.

  2. Limit Order - a purchase or sale order for a certain item at a specific price. A limit order to purchase will only take place if the price is lower than the limit, and a limit order to sell will only take place if the price is greater than the limit.

  3. Trailing Stop Order - a modification on the Standard Stop-Market Order. The stop price will adjust to follow the index price depending on your trailing percent if the index price changes in your favor.

  4. Take Profit Limit Order - when the profit price is achieved, a limit order is triggered.

  5. Stop Limit Order - this order will only take place when the index price bypass a certain stop price.

(d) Fees On Perpetuals

The maker-taker fee system is implemented on dYdX and there are two different orders:

  1. Maker orders are orders that do not fill right away and sit on the order book for a while.

  2. Taker orders cross current Maker orders and they deplete the order book's liquidity.

© dydx.exchange.com

The calculation of taker fees depends on the total trading volume (USD) across all Perpetual order books during the preceding 30-day period. Users will not be charged a fee if they cancel an order. 

 

What is the dYdX token?

The dYdX token is the dYdX derivative platform's ERC20 governance token, which can be utilized in the governance process as well as for receiving discounts on trading fees. There is a maximum supply of 1,000,000,000 DYDX with a current circulating supply of 56,980,222.

There are two ways to earn dYdX tokens. The first one would be through staking USDC to a pool and being entitled to a daily reward. The staked USDC is used to contribute to dYdX’s liquidity and safety. The second way would be through trading rewards. By trading on the dYdX platform, users are able to earn a rebate in the form of dYdX tokens.
 

© dydx.community

 

Is dYdX Exchange Legit?

Since dYdX is decentralized, users' cash is locked inside smart contracts rather than being kept by an exchange, making it safe from centralized counterparty risk.

While trading on dYdX, you always have complete control over your money. Your private keys are not held by any central middlemen. When your money is on dYdX, they are always protected by smart contracts.

In regards to being thorough with the security of their smart contracts, top security firms are called in to perform a thorough audit of their systems. The smart contracts for the perpetual protocol layer 2 are audited by Peck Shield, whereas smart contracts for the perpetual protocol layer 1 are audited by Zeppelin Solutions.

Since 2018, dYdX has reported that it has not received a bug report indicating that user money is in danger. Independent auditors have also to date not reported any substantial concerns. Thus far there have been no reported cases of users having lost money due to a security breach involving dYdX’s smart contracts.

 

Wrapping It Up

Developed by a team in San Francisco, this platform has successfully raised a couple of rounds of funding from the top investors of Silicon Valley. While the project used to offer other features such as margin trading and lending, it has pivoted to fully focus on perpetuals given the strong interest in DeFi.

More recently in September 2021, dYdX has logged certain trading days where it has exceeded USD 18.6 billion in transactions. This has put it on even footing with some of the largest exchanges in the world, whether trading crypto spot or futures. 

Curious to learn more about exchanges? Read this article to find out which type of crypto exchange is best for you.

CoinGecko's Content Editorial Guidelines
CoinGecko’s content aims to demystify the crypto industry. While certain posts you see may be sponsored, we strive to uphold the highest standards of editorial quality and integrity , and do not publish any content that has not been vetted by our editors.
Learn more
Tell us how much you like this article!
Vote count: 4
Regiena Regunathan
Regiena Regunathan

Regiena is a banker, an avid reader, and part-time freelance writer, currently exploring the realm of blockchain technologies.

Related Articles


Explore Polkadot's Ecosystem
Discover trending dApps, wallets, DeFi & more

What is Zeebu?
Learn more about the Web3 neobank


coingecko
Continue in app
Track prices in real-time
Open App
Select Currency
Suggested Currencies
USD
US Dollar
IDR
Indonesian Rupiah
TWD
New Taiwan Dollar
EUR
Euro
KRW
South Korean Won
JPY
Japanese Yen
RUB
Russian Ruble
CNY
Chinese Yuan
Fiat Currencies
AED
United Arab Emirates Dirham
ARS
Argentine Peso
AUD
Australian Dollar
BDT
Bangladeshi Taka
BHD
Bahraini Dinar
BMD
Bermudian Dollar
BRL
Brazil Real
CAD
Canadian Dollar
CHF
Swiss Franc
CLP
Chilean Peso
CZK
Czech Koruna
DKK
Danish Krone
GBP
British Pound Sterling
GEL
Georgian Lari
HKD
Hong Kong Dollar
HUF
Hungarian Forint
ILS
Israeli New Shekel
INR
Indian Rupee
KWD
Kuwaiti Dinar
LKR
Sri Lankan Rupee
MMK
Burmese Kyat
MXN
Mexican Peso
MYR
Malaysian Ringgit
NGN
Nigerian Naira
NOK
Norwegian Krone
NZD
New Zealand Dollar
PHP
Philippine Peso
PKR
Pakistani Rupee
PLN
Polish Zloty
SAR
Saudi Riyal
SEK
Swedish Krona
SGD
Singapore Dollar
THB
Thai Baht
TRY
Turkish Lira
UAH
Ukrainian hryvnia
VEF
Venezuelan bolívar fuerte
VND
Vietnamese đồng
ZAR
South African Rand
XDR
IMF Special Drawing Rights
Cryptocurrencies
BTC
Bitcoin
ETH
Ether
LTC
Litecoin
BCH
Bitcoin Cash
BNB
Binance Coin
EOS
EOS
XRP
XRP
XLM
Lumens
LINK
Chainlink
DOT
Polkadot
YFI
Yearn.finance
Bitcoin Units
BITS
Bits
SATS
Satoshi
Commodities
XAG
Silver - Troy Ounce
XAU
Gold - Troy Ounce
Select Language
Popular Languages
EN
English
RU
Русский
DE
Deutsch
PL
język polski
ES
Español
VI
Tiếng việt
FR
Français
PT
Português
All Languages
AR
العربية
BG
български
CS
čeština
DA
dansk
EL
Ελληνικά
FI
suomen kieli
HE
עִבְרִית
HI
हिंदी
HR
hrvatski
HU
Magyar nyelv
ID
Bahasa Indonesia
IT
Italiano
JA
日本語
KO
한국어
LT
lietuvių kalba
NL
Nederlands
NO
norsk
RO
Limba română
SK
slovenský jazyk
SL
slovenski jezik
SV
Svenska
TH
ภาษาไทย
TR
Türkçe
UK
украї́нська мо́ва
ZH
简体中文
ZH-TW
繁體中文
Login to track your favorite coin easily 🚀
By continuing, you agree to CoinGecko Terms of Service and acknowledge you’ve read our Privacy Policy
or
Forgot your password?
Didn't receive confirmation instructions?
Resend confirmation instructions
IT'S FREE! Track your favorite coin easily with CoinGecko 🚀
By continuing, you agree to CoinGecko Terms of Service and acknowledge you’ve read our Privacy Policy
or
Password must contain at least 8 characters including 1 uppercase letter, 1 lowercase letter, 1 number, and 1 special character
Didn't receive confirmation instructions?
Resend confirmation instructions
Forgot your password?
You will receive an email with instructions on how to reset your password in a few minutes.
Resend confirmation instructions
You will receive an email with instructions for how to confirm your email address in a few minutes.
Get the CoinGecko app.
Scan this QR code to download the app now App QR Code Or check it out in the app stores