dYdX
dYdX (launched in 2017) is a decentralized exchange (DEX) and derivatives platform that offers perpetual trading options for cryptocurrencies including Bitcoin, Ether, Dogecoin, and Cardano. In June 2021, dYdX raised $65 million in a Series C round led by Paradigm. [1][6]
History
dYdX was founded by Antonio Juliano, a California-based entrepreneur, and former software engineer at Coinbase and Uber in July 2017 initially offering crypto margin trading, lending, and borrowing services over Ethereum layer-1. [1]
Juliano’s goal was to create an open-source, community-governed derivatives exchange that would allow users to own their trades truly and, eventually, the exchange itself. The protocol was launched in 2017 with the release of its layer-1 product. From the beginning, dYdX supported lending, borrowing, and margin trading on Ethereum. [8]
After its launch, dYdX faced issues with Ethereum's unpredictable gas fees that rose with user activity. To resolve this challenge, dYdX began migrating to StarkWare's layer-2 network, StarkEx, in August 2020. This enabled dYdX to increase the number of transactions while taking advantage of lower transfer fees. [8]
In April 2021, dYdX launched its cross-margined perpetuals product on a Layer 2 scaling solution powered by StarkWare. Since then, dYdX has launched more than 30 markets on the layer-2 network, generating over $100 billion in trading volume. [9]
In August 2021, dYdX Trading Inc. announced the creation of the dYdX Foundation headquartered in Zug, Switzerland. The foundation was made in charge of deploying governance smart contracts and issuing the dYdX governance token. The foundation also supports community research to help activate community activities and projects. It further educates investors on the dYdX ecosystem and manages the dYdX community treasury. [7]
On July 14, 2023, dYdX passed $1 trillion in total trading volume on its L2 platform. [15]
Funding
In December 2017, dYdX raised $2 million in its seed round phase, and in October 2018, it raised $10M in its Series A round led by Andreessen Horowitz and Polychain Capital. [2]
In January 2021, dYdX raised a $10 million Series B round led by Three Arrows Capital and DeFiance Capital with participation from Wintermute, Hashed, GSR, SCP, Scalar Capital, Spartan Group, and RockTree Capital. [3]
In June 2021, it raised $65 million in a Series C round led by Paradigm. Other supporting investors of the exchange include Abstract Ventures, Kindred Ventures, 1confirmation, Elad Gil, and Fred Ehrsam. New investors like Craft Ventures, Bain Capital Ventures, Naval Ravikant, Kevin Hartz, Dragonfly Capital Partners, and VY Capital also funded dYdX. [8]
Technology
dYdX operates through smart contracts, allowing users to trade crypto assets without intermediaries. By using smart contracts, dYdX is structured as a non-custodial exchange, enabling users to have control over their funds while trading. [8]
dYdX migrated to StarkWare in August 2020, a Layer-2 scalability solution that uses Zero-Knowledge (ZK) rollups to speed up transactions and reduce fees.
"Our engineering teams are collaborating on a Layer 2 scaling solution for Perpetual Contracts, based on StarkWare’s StarkEx scalability engine and dYdX’s Perpetual smart contracts. Our Perpetual Contracts will be powered by StarkEx by the end of this year," the team said.
dYdX still uses Ethereum to finalize transactions. However, its trading engine operates off-chain with an off-chain matching engine and order book. [8]
Products
Perpetual Contracts
In May 2020, dYdX launched Bitcoin (BTC) Perpetual Contracts Market. Perpetual contracts are financial derivatives that track the price of an underlying asset and have no fixed expiration date. They allow traders to take advantage of market volatility in a capital-efficient manner. The developers of dYdX noted on May 13, 2020, that the exchange went live for trading. The BTC-USDC Perpetual offers 10x leverage on BTC with no expiry, and settlement and margining in USDCoin. [10]
In August 2020, dYdX released ETH-USD perpetual contracts with up to 10x leverage and no expiry. As a part of the rollout, dYdX offered a 50% discount on all trading fees for the first 7 days.[10]
dYdX also launched a perpetual contract product for LINK-USD trading by pulling price data from Chainlink decentralized oracles and enabling users to trade LINK with up to 8x leverage. [10]
Overall, dYdX offers Perpetual Contract Markets that allow up to 20x leverage on synthetic assets with no expiry. They offer perpetual markets for BTC-USD, ETH-USD, and LINK-USD, etc., and will be adding more markets in the future. [10]
Governance & Staking with DYDX
In August 2021, the exchange launched DYDX, the governance token for the dYdX protocol with a total supply of 1,000,000,000 DYDX. It serves to facilitate the operation of layer 2 and allows traders, liquidity providers, and partners to contribute to the definition of the protocol's future as a community. Token holders are granted the right to propose changes on the dYdX’s layer 2, and are presented with an opportunity to profit through token staking and trading fee discounts. [11]
Users can earn DYDX tokens on their trading activities on the DEX — with all fees paid and open interest.
In addition, the DYDX tokens can be used on the platform for community voting and governance initiatives. Users can use their DYDX reserves to vote on community proposals related to various module upgrades, restorations, and grants. [6]
Hedgies NFT
Launched on January 26, 2022, the Hedgies collection consists of 4,200 unique avatars represented as NFTs on Ethereum and distributed to traders, voters, and the crypto community at large. [12][14]
The exchange made the NFTs free to mint during the initial distribution. The Hedgies NFT series has two phases of distribution. The initial distribution phase started on February 1st, 2022, and the daily & weekly distribution started on February 8th, 2022. [13][14]
Hedgies are distributed to users based on their trading statistics and community interactions such as voting. Owners of the Hedgies NFTs are entitled to certain perks while trading on dYdX. Minting Hedgies costs just the gas fees and was created to award users on various occasions and achievements. [14][6]
Controversy
In August 2022, dYdX blocked some users’ accounts linked to Tornado Cash, mistakenly also suspending some who never engaged with the mixer in the process. The derivatives platform had compliance parties scan for potentially illicit accounts, which resulted in many accounts being flagged, even those that were not directly involved with Tornado Cash. They later unbanned certain accounts. [16]
"We’ve made adjustments, within the limits of our compliance policies, that have unbanned certain accounts and we’ll continue to try to limit flagging and track this moving forward. If you believe your account is still incorrectly blocked, please email [email protected]" — dYdX (@dYdX) August 10, 2022[16]
In September 2022, dYdX discontinued its $25 deposit bonus promotion due to overwhelming demand. However, many believe that the real reason for its discontinuation was the backlash faced by dYdX over its "liveness check" feature for user verification, which sparked a privacy debate. [17][8]
To take part in the promotion, users were required to use a webcam to scan their faces to verify that they had not opened more than one account. This raised concerns about dYdX's commitment to user privacy. However, dYdX maintained that the verification was to prevent fraudulent activity and that participation in the promotion was optional. [17]
Team
- Antonio Juliano - Founder & CEO
- George Xian Zeng - COO
- Brendan Chou - Chief Architect
- Kyle Bailey - VP, Engineering
- Everett Hu - Head of Product
- Rashan A. Colbert - Head of Policy
- Vijay Chetty - Head of Business Development
- Jacob W - General Counsel
- Daniel Lian - Head of Finance
- Ivo Crnkovic-Rubsamen - Head of Research[18]
