In-depth analysis of DeFi derivatives’ leading dYdX product mechanism, development status and economic model

dYdX is the first decentralized futures exchange to be launched, adopting the order book model and StarkWare expansion plan, and will begin to distribute governance tokens tonight.

dYdX is the first decentralized futures exchange that was established and launched available products. It is an order-book DEX, where traders conduct peer-to-peer transactions, and a three-way game between market makers and long-short traders. dYdX erected Ethernet Square on the second floor network Starkware, and uses StarkEx trading engine, to achieve a decentralized self-hosted assets. dYdX can provide a trading experience close to that of a centralized exchange, and also adopts a similar operating model to CEX. At present, its trading volume is the first among derivatives DEX driven by transaction mining. In summary, the project deserves attention.

Investment summary

The futures DEX track will further develop. With the further improvement of product experience and product innovation, the total transaction data will continue to enlarge, and in the next few years, it is expected to gradually take over the trading volume that originally existed on centralized derivatives exchanges, and dYdX as the current The track leader will undoubtedly develop further in the data. What needs attention is whether other projects can use more decentralized product structure and operation methods to obtain the same amount of transaction volume.

dYdX carries the expectation of explosive growth in futures DEX and even the entire derivatives decentralized trading market. In its first transaction mining cycle in August, “mining” traders created $9.8 billion in transaction volume.

From the perspective of transaction organization, it adopts the order book type, where professional market makers conduct market making, and LPs provide part of the market making funds.

dYdX has a good product experience. It adopts the trading engine StarkEx developed by the Ethereum second-tier network project Starkware, which realizes the self-custody of decentralized assets (users transfer funds from the wallet to the smart contract for custody), and achieves low Gas and High transaction speed.

dYdX attracted a large amount of liquidity by introducing a number of liquidity providers as investors in its Series C financing, designing transaction mining and liquidity provider reward rules, etc., and quickly created a large number of transactions after the transaction was officially launched. The trading volume in a week has reached billions of dollars, and the average daily trading volume is more than 300 million US dollars. In February, the test network went online and the whitelist restrictions were lifted to half a year before the start of transaction mining in early August. Although its products were consistent with the dYdX experience after transaction mining started, the daily transaction volume was only at the level of tens of millions of dollars.

The underlying technical architecture of dYdX is decentralized, and its operating model is closer to centralized exchanges than other DEXs. It can be expected that if you want to become the long-term decentralized derivative DEX leader, dYdX needs to move towards a more decentralized operation and product model after a rapid increase in data—replace the entire model, not just the company The power of the entity is transferred to the foundation. Obviously, the realization of decentralization should not rely on the deep binding between the project party and the liquidity market maker.

Since the capital and the team currently have the largest voteable tokens (the capital accounts for 27.7% of the total tokens and the team’s 15% of the tokens are locked but can be voted), the team and the capital can basically decide on the project’s current stage Direction of development. The dYdX project team’s plan for 2022 is to continue the decentralization of the project, and its specific plans can be closely watched.

The attribution of dYdX’s transaction costs has not yet been clarified. The official website information is vaguely pointing to this part of the project. Its token dYdX may not capture this part of the value, but this problem may be resolved through a community proposal.

In summary, dYdX is worthy of attention, and tokens will be issued on September 8.

Basic profile

Project Description

dYdX is the order book futures DEX and the current leader in the futures DEX track. After the three leveraged trading products on the Ethereum mainnet were released, the perpetual contract product on the second-tier network was launched in February this year. In early August, the product was officially launched. online.

Basic Information

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Detailed project


Since its establishment, dYdX has received a large amount of funding and support from well-known capital, which stems from the background that its team is largely based on the entrepreneurial background of former employees of well-known companies such as Coinbase . According to LinkedIn, there are currently at least 23 people in the dYdX team, of which 8 are software engineers.

Antonio Juliano, founder of dYdX, graduated from Princeton University in 2015, majoring in computer, bachelor of science degree, internship in MongoDB before graduation, first job after graduation as a software engineer at Coinbase, after a year of work, he joined Uber to continue working as a software engineer , Created a search component in a decentralized network called Weipoint in 2017, and founded dYdX in August 2017.

Brendan Chou, software engineer and designer, a classmate of the founder in Princeton, graduated from Princeton in 2015 with a bachelor of science, professional computer, first job as a software engineer at Bloomberg, then worked as an engineer at Google, early 2018 Joined dYdX so far.

Achal Srinivasan, a product designer, graduated from Rice University in 2020 with a major in computer science. He had an internship at Coinbase and worked as a freelancer (design engineer) for several years. He joined dYdX in 2020.

Vijay Chetty, Director of Business Development, graduated from Princeton University with a major in economics. From 2010 to 2015, he worked as an analyst and investment assistant in Hanergy Group and Blackstone Investment. From 2015 to 2018, he was engaged in business development/enterprise cooperation at Ripple Work and join dYdX in 2020.

The founder of dYdX has software development experience and work experience in the blockchain industry, as well as experience in establishing decentralized projects; the development of dYdX projects is strong and can support its development as a technology-based project. Although we haven’t seen enough information about the team members in operation, judging from past performance, dYdX has performed well in operation. dYdX’s team composition can support its project development.


Public information shows that dYdX has conducted at least four rounds of financing.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Table 2-1 dYdX financing situation

Four rounds of financing raised a total of 87 million US dollars, and the investment list includes well-known institutions in the industry such as Paradigm, Polychain Capital, Andreessen Horowitz ( A16Z ), Three Arrows Capital, and Wintermute, one of the largest liquidity providers on dYdX, and so on. Each round has the support of well-known investors in the industry, with a strong lineup and sufficient funds for project development. According to its token distribution plan, 27.73% of the tokens, that is, 277 million tokens are owned by investors, with an average valuation of about 300 million U.S. dollars, and the average cost of dYdX for the capital is 0.31 U.S. dollars, taking into account the valuation difference between the previous and the previous rounds , The cost of the last round of US$65 million investment may be higher than US$0.31. Part of the market attention that dYdX has received comes from its strong capital background. At the same time, this is also part of its current leading position on the track.

In addition, not only is part of the dYdX team from Coinbase, Coinbase also provides important support to dYdX at the two key nodes of seed investment and loan product liquidity injection, and the two have a deep relationship.


First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-1 dYdX’s code submission volume from May 2017 to the end of August 2021

The peak code submission period is mid-2018, mid-2019, and early 2021, and the two rounds of new product launch dates are July 2019 and February 2021 respectively. The code submission status is basically in line with the new product launch status. Note that at the time when the project party announced the official launch of the product and the start of transaction mining in early August, in terms of code and experience, there was no actual replacement of the new product, but the original product in February was continued.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-2 The number of dYdX code contributors from May 2017 to the end of August 2021

The number of code contributors presented by Github is in line with the change trend of the number of submitted codes.


dYdX currently has five products: perpetual contracts, margin trading, leveraged trading, spot trading and lending.

Among them, the V2 version of the perpetual contract is a new product set up on the second layer of the network, and the three products of margin trading, leveraged trading, spot trading and lending are the three products described in the white paper, which are set up on Layer 1, which is the main Ethereum network.

V2 version: perpetual contract trading

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-3 ETH perpetual contract trading interface on the dYdX testnet

As shown in Figure 2-3, dYdX’s perpetual contract interface has most of the functions of a centralized contract interface. The details of its perpetual contract products are as follows:

  • Leverage ratio: dYdX perpetual contract products provide a long and short two-party trading function of up to 25 times, and the minimum leverage ratio changes to 0.01.
  • Order book/AMM: From the perspective of transaction settlement, dYdX perpetual contracts are in the form of an order book, and market makers provide liquidity (note: the same is true for other dYdX products, so I won’t repeat them). From the product interface, it has a market interface similar to that of a centralized futures exchange, which can display red and green price candles, but the minimum time unit displayed is hours, that is, 15 minutes/1 minute and time-sharing trading prices are not yet available.
  • Price Limit/Stop Loss: dYdX perpetual contract has the function of limit order and stop loss order, and can carry out limit trading and stop loss and profit trading.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-4 Left: Limit order function for perpetual contract transactions, Right: Stop loss function for perpetual contract transactions

  • Positions: The number of positions, leverage, realized profit and loss, unrealized profit and loss, liquidation price and other data can be displayed on the product interface.
  • Margin: For BTC and ETH trading pairs, the maximum leverage is 25 times, so the initial margin requirement is 4%, and the maintenance margin requirement is 3%. Other trading pairs have different margin requirements based on their maximum leverage ratio.
  • Liquidation price/clearing price: The marked price used for liquidation is an index price fed by the second-tier price of Chainlink.
  • Deposit/Withdrawal: The upper left corner of Figure 2-3 shows the account balance (Account), and there are two buttons for deposit (Deposit) and withdrawal (Withdraw). Since the product is installed on the second-tier network StarkWare, it is in dYdX perpetual contract products For transactions, you need to deposit funds and perform transactions within the balance range. After closing the position, the funds are returned to the dYdX account, and the funds need to be withdrawn to return to the trader’s Ethereum wallet.
  • Mobile dapp version: dYdX has implemented a mobile dapp version, which can use mobile wallets for login and transactions, and the interface basically has computer web-side functions.
  • Funding rate (1 hour rate): Like other perpetual contracts, dYdX perpetual contract products have a fund fee design, which is charged every 8 hours, but the fund rate is expressed as a 1-hour rate, every 8 hours Charge a one-hour rate (do not multiply the one-hour rate by 8). The specific calculation method of the fund rate is as follows:

Funding Fee (Premium) = (Max (0, Impact Bit Price-Index Price)-Max (0, Index Price-Impact Ask Price)) / Index Price

  • Transaction fees: Maker (Pending Order) and Taker (Taker) fees on dYdX are different. The fee rate decreases with the increase of transaction volume. Maker’s fee rate ranges from 0.05% to 0, and the fee rate is 0 after the transaction volume reaches $10,000,000. ; Taker rate ranges from 0.2% to 0.05%, and 0.05% after the transaction volume reaches 200,000,000 USD.
  • Gas fee: Since it runs on the second-tier network Starkware, there is no gas fee for transactions, but gas needs to be paid during the deposit/withdrawal process.
  • Settlement speed: The actual measurement is very smooth. This is due to the performance advantage of the second-tier network and also because user funds have been hosted on StarkEx.

Margin trading

Margin trading, the V1 version of futures products, is set up on the Ethereum mainnet with a maximum leverage of 10 times. It can trade in both long and short directions, that is, the maximum 10X long and 10X short, and it has the function of limit order and stop loss order. .

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-7 dYdX Margin Trading Interface

Note that all steps occur in a transaction set (Bundle), which means that either the above processes succeed together or fail together. Therefore, there will not be a situation where the margin is locked or transferred but cannot be opened.

Spot Trading

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-8 Spot trading market interface

Spot trading on dYdX can realize market price and limit price trading, as well as stop loss function. The maximum slippage is 0.5%, beyond which no transaction can be made. The same as the margin trading interface, it can display the K-line and handicap status of similar centralized exchanges.


First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-9 Loan Market Interface

Lending is one of the earliest products/functions implemented by dYdX. It was launched in 2019, so that the outside world even included it in the “Lending” track project for a long time.

The product details are as follows:

dYdX lending uses a borrowing pool model, that is, a “point-to-pool” model, where both the lender and the borrower interact with the borrowing pool. Each asset has a lending pool, all managed by smart contracts. When a user deposits assets on dYdX, the assets will be deposited into their corresponding lending pool, and the borrower can borrow the same assets from the lending pool. Borrowers and lenders on dYdX can deposit and withdraw assets at any time.

The leverage ratio of dYdX lending is up to 125%, that is, at least $250 of collateral must be maintained for borrowing $200 of assets.


Perpetual contract

Since the Ethereum main network cannot meet the requirements of high performance and low gas fees, the decentralized futures products on Ethereum are basically online, that is, the standard second-tier network. Currently, dYdX chooses StarkWare in the second-tier.

Starkware is one of several second-tier network projects with strong competitiveness. The differences between the various second-tier network solutions can be roughly divided into the differences in transaction and data storage methods and state transition synchronization methods. There are two ways of transaction and data storage. Simply put, “Do you need to upload transaction data?” Starkware actually has both (StarkNet and StarkEx belong to these two). The StarkEx product used by dYdX uses data. The scheme is not on the chain; the state transition synchronization method is divided into two types: fraud proof and validity proof. Fraud proof is “incentive mechanism to incentivize a group of people to verify.” The common solution for the project is to use zero-knowledge proof. Starkware uses proof of validity-this “data not on the chain + proof of validity” scheme is called Validium (different from the “data on chain” type of Rollup scheme, such as Arbitrum, another well-known project).

Validium can realize users’ independent custody of funds, that is, funds are custody, but not custody to a centralized institution, but to the decentralized StarkEx, which is called decentralized self-custody. The custody process is as follows: the user transfers the currency from the wallet to StarkEx, which is actually transferred to a smart contract (Stark Contract). After the StarkEx contract accepts funds, it can be used in the second layer (off-chain). Transactions on dYdX are funds used off-chain, and users do not need to sign again, which improves the dYdX transaction experience.

If the user wants to transfer funds out of the contract, authorization is required for each transfer, and a request is sent to the chain, and then the request is sent to the chain.

Since the user needs to sign every time a transfer is made, the user’s funds are relatively safe.

dYdX is not only built on the second-tier network, but uses StarkEx developed by the Starkware project as the trading engine for V2 perpetual contract products.

StarkEx: A scalability engine consisting of multiple components.

Components: Including StarkEx Service (Stark Transaction Service), SHARP, Stark Verifier (Stark Verifier), Stark Contract (Stark Contract), etc.

Note that only Stark Contract is an on-chain component, and the others are off-chain.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 2-6 Schematic diagram of StarkEx components and process

Principle: First, dApp defines its own business logic (such as dYdX’s perpetual contract logic) and runs it on StarkEx Service. After the user sends an interactive instruction, StarkEx Service packages the user’s transaction and sends the package to the SHARP component; SHARP is responsible for generating a certificate, and then sending the certificate to Stark Verifier for verification; if the Stark verifier verifies that the certificate is valid, The Stark validator sends a status update transaction to the chain (Ethereum main network) to the Stark contract.
Performance of the oracle machine: Since dYdX needs to use the index price in the calculation of the capital rate and the calculation of the liquidation price, it needs the oracle to feed the price. The price on StarkWare is fed by the oracle Chainlink on the second layer, and the STARK-compatible signature is used for verification, allowing the price to be used immediately after signing, instead of waiting for the transaction block on the first layer. This significantly reduces the delay of the oracle price update, from a few minutes on the Ethereum chain to a fraction of a second on StarkEx.

Through the above components, dYdX V2 has realized the advantages of decentralized order book-style perpetual contracts, decentralized asset custody, smooth transactions, and no need to sign multiple times during transactions.

Limit order (implementation method): The limit order is matched by the user’s signature and authorized dYdX on Stark Service. Therefore, this process is off-chain, and the StarkEx engine also determines its security.

Margin trading, spot trading, lending

These three products essentially use the following “spot leveraged trading” logic. On the dYdX homepage, these products are all classified into the “leveraged trading” category.

Leveraged trading logic: a trader borrows an asset, then trades (buy/sell) into another asset, and at the same time begins to accrue interest, which is opening a position. When the position is closed, the position is sold and the borrowed assets are returned to the lender (the creditor) together with the interest. Short selling (leveraged shorting) and leveraged longing are both the above process.
Because dYdX is an order book transaction, there is no need to obtain external OTC prices or index prices, as long as there is a corresponding order, the transaction can be completed, and no oracle is required for quotation.

dYdX margin trading is realized by three contracts, namely: margin contract, agency contract and vault contract.

  • Proxy contract (Proxy): used to transfer user funds.
  • Margin contract: Provides the function of using margin trading.
  • Vault contract (Vault): Lock funds/tokens in positions.

The above three contracts cooperate with each other to realize the margin transaction formed by “borrowing/returning + trading spot”.

In this process, there are 3 participating roles:

  • Trader: Those who use dYdX for margin trading;
  • Lender: the person who lends tokens to the trader;
  • Buyer: After the trader borrows the currency, he conducts a buying and selling transaction, and the counterparty of the buying and selling transaction.

The opening transaction process is as follows:

The three protocols help traders issue instructions to borrow the required currency from the lender, and then trade on the exchange (such as 0x) to obtain the currency that the trader wants, such as borrowing ETH from A to sell, and then obtaining the corresponding USDC— -The agency agreement transfers the margin and the sold coins to the vault and locks it up to become a position.

The closing process is roughly similar, that is, the trader issues an instruction—the agency agreement helps to sell the position in exchange for the tokens that need to be returned—to return the tokens together with the interest to the lender’s address.

Spot trading and loan trading products also use some of the technologies in the above three contracts.

dYdX’s margin trading is actually spot leveraged trading, which is also a form of realization of “futures” contracts. In fact, in the previous round of decentralized derivatives exploration, “margin + borrowed coins/borrowed funds” is one This is a form of realization of futures contracts with high hopes, but the final data volume has been too small to break out. The reason is that this model requires enough LPs to be willing to lend large amounts of coins or funds to traders, which has a great impact on liquidity. The requirements are extremely high, and it is very difficult to guide liquidity. The current “perpetual contract” is actually a type of swap. In order to earn funds, the counterparty plays the role of the counterparty and holds the counterparty’s position (funding rate is much higher than the borrowing interest rate), which makes it particularly important for liquidity. The demand for specific currencies is greatly reduced, and the difficulty of guiding liquidity is greatly reduced.

Summary: dYdX’s current main V2 version, namely the perpetual contract on the second layer, has a good user experience, reflecting its technical capabilities since the V1 version, and a completely different operation and funding organization from AMM-style contract products. With its order book-style decentralized peer-to-peer transaction matching method, the product clearly hopes to achieve the “silk-smooth” trading experience of centralized exchanges in order to compete for professional traders who can contribute larger transaction volume and fee income. dYdX is indeed a futures DEX with a better product experience.



First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Table 3-1 dYdX major events

status quo

Transaction mining (transaction reward)

From August 3rd, dYdX entered the first round of transaction mining and ended on August 31st. As rewards are distributed based on transaction fees + open interest, a large number of liquidity providers and individual investors have been involved in transaction mining. After the first Epoch, the data disclosed by the project party showed that

Liquidity provider mining (market maker reward)

dYdX introduces a large number of professional market makers and conducts transaction mining, but also conducts liquidity provider mining. The time and cycle (Epoch) settings are the same as transaction mining. Each Epoch rewards 1.15 million pieces.

dYdX has both “liquidity provision mining” and “liquid nature bet mining”. “Liquid Provider Reward” refers to the rewards for market makers, and the reward threshold is required by a single market maker Reach more than 5% of the trading volume of all market makers, and the reward criteria include normal operation time, depth on both sides, bid-ask spread, and the number of supported trading pairs, etc. In the first Epoch, a total of 5 market makers reached the threshold and distributed 1.15 million DYDX according to a formula.

Mobile bet mining

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 3-1 The liquidity pledge page, the pledge amount has been stable at around US$120 million in the past two weeks

The total allocated tokens for this part is 25 million, which is about one-third of the liquidity-provided mining, and each Epoch is 380,000.

The rule is that LP (Liquid Provider) pledges USDC to the liquidity pool of dYdX to obtain DYDX token rewards; this part of pledged USDC is loaned and used by a professional market maker (Maker) approved by the project party , Used for market making on dYdX, is a supplement to liquidity in addition to market makers.

If the market maker loses funds when using this portion of USDC to make the market, it cannot repay the loan (the market maker cannot lend more USDC at this time), and the liquidity pool (that is, all LP funds) needs to bear the loss together.

At present, the pledged funds are 124 million U.S. dollars. Based on an Epoch for 28 days and 13 Epochs per year, the annual liquidity mining reward is about 4.94 million DYDX. If calculated according to the current Epoch mining cost of about $2.26, the annualized amount that can be obtained The rate of return (APY) is about 9%. If calculated based on the DYDX price of $5, the APY is about 20%, which is much lower than the 100% or even higher annualization common to other Defi. It may provide liquidity support for related stakeholders.

dYdX also has pledged mining in the “Insurance Fund” pool, but it has not yet launched it.

V2 operational data

According to the data disclosed by the project party, the first Epoch, from August 3 to August 31, totaled 28 days, with a total transaction volume of USD 9.8 billion. The average daily trading volume was 350 million U.S. dollars, and the peak occurred on August 30.

As of September 6, according to Coingecko, dYdX’s perpetual (perpetual contract) 24-hour trading volume was US$255 million, and the contract holdings were US$300 million. According to the official data dashboard provided by dYdX, the total transaction volume rose rapidly after August 3, from 3.49 billion US dollars on August 2 to 15.7 billion US dollars on August 30 in more than three weeks. And before the end of the first Epoch, there was a trend of rising daily trading volume, and then fell back to around 300 million US dollars per day after September 1.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 3-2 The 24-hour transaction and position data of dYdX displayed by Coingecko on September 6

This phenomenon is closely related to its transaction mining rules: since the rewards distributed by each Epoch are 3.8 million DYDX tokens, the average transaction mining cost of the Epoch is relatively certain ( For example, the final cost of the first Epoch is about $2.26), so if the market expects the cost to be less than the market price (for example, the first Epoch reflects the market bet that the DYDX secondary market price will be higher than $2.26), such as a certain round If the price of DYDX token is 4 dollars and the transaction mining cost is about 3 dollars, it is easy for traders to obtain DYDX token rewards by “swiping the amount”. This behavior will make the transaction volume on dYdX easy to show every time. A significant decrease in the previous period of Epoch (compared to the last period of Epoch), and the rapid increase in trading volume close to the end of Epoch, the situation in which the final trading volume and the total transaction volume of a single Epoch are related to the DYDX market price-the total DYDX mining at the end of the period The mining cost is close to the market price of DYDX (but the price change caused by selling pressure may be included in the long-term game, that is, if the secondary market price is 10 US dollars, and the mining cost is only close to 7 US dollars or 8 US dollars).

The trading volume from August to early September shows this pattern:

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 3-1 dYdX official total transaction volume chart, as of September 6, of which the transaction volume on September 5 was 245 million US dollars

In the five weeks starting on August 3, the weekly trading volume was US$1.1 billion, US$1.5 billion, US$2.1 billion, US$3.7 billion, and US$7 billion.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 3-2 Weekly trading volume chart officially provided by dYdX

From the four weeks after August 3, the number of wallets actually deposited in the wallet (the number of quality wallet interactions) increased from 26,000 to 36,000. Especially in the first week of August, there were more than 7,000 wallets interacting. These people were obviously affected. The impact of transaction mining and retrospective airdrops.

After August 3rd, the task completion period for transaction mining and retrospective airdrops (retrospective airdrop recipients need to trade hundreds of dollars on dYdX between 8.3 and 8.31 to complete the task before they can receive rewards). The number of deposit-increasing wallets has drastically reduced. It can be seen that a considerable part of the airdropped addresses have completed their tasks, and the addresses for subsequent deposits (transactions) are real traders and transaction miners.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 3-3 Chart of the number of weekly deposit wallets and cumulative deposit wallets provided by dYdX

As shown in Figure 3-4, starting from August 3, dYdX’s single-week income exceeded US$1 million, and the four weeks were 1.2 million, 1.8 million, 1.7 million and 2.9 million US dollars, and 5.1 million in the last week of the first Epoch Dollar. (This part cannot be captured by dYdX, it belongs to the company behind dYdX)

Figure 3-4 also shows the main income structure of dYdX, most of which come from brown blocks, green blocks, and blue blocks newly added in the last week. They are contract trading pairs of ETH, BTC, and the newly added COMP, which shows that dYdX is indeed It is mainly relying on the top trading varieties to obtain income.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 3-4 Weekly income chart officially provided by dYdX


Transaction mining

dYdX has set up a total of 60 Epochs mining activities, which will last for 5 years.

After the end of the first Epoch at the end of August, there will be 59 cycles to continue. This activity will continue to provide dYdX with transaction volume and fee income at least initially, and the subsequent support for transaction volume and fee will depend on the currency. Prices, market conditions, and the natural growth of the decentralized derivatives market, especially the perpetual contract market.

The latest data is: after the first Epoch ended on August 30, the data showed that the transaction volume in the fourth week was 10 billion US dollars, and the average daily transaction volume was 700 million US dollars. According to different data website sources, August 29-30 dYdX trading volume may exceed 1 billion US dollars or even 2 billion US dollars. However, the data on the last day is of little significance and can only show the popularity (crazy) of the first round of “transaction mining” activities.

The total transaction cost of its first Epoch is about 8.6 million US dollars (the actual total transaction amount is 11.6 million US dollars, and the team judges 80 addresses as wash transactions, that is, the amount of scalping. After excluding this part of the transaction volume, it is 8.6 million US dollars). The number of DYDX reward tokens issued was 3.8 million, and the cost of acquiring DYDX tokens was US$2.26.

As of August 31, the top 10 traders’ trading scores accounted for 24.6% of the total number of transactions, the first place was as high as 9.88%, and the top 5 traders accounted for more than 1%.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 3-5 The ranking of traders shown on the official website, including addresses and ratio
summary: “Trading mining” was first launched by the former domestic exchange Fcoin in 2018 and was all the rage (even if it is not the first to launch, Fcoin is also the first A project that made transaction mining popular and involved a lot of funds)

This form itself has proven to be a good guide for liquidity.

Take Fcoin as an example. After Fcoin’s transaction mining was launched that year, the exchange became the world’s largest exchange in a short period of time, surpassing Coinbase and the domestic “three big” at the time.

However, because Fcoin does not set a ceiling for each short-period mining reward (only a hard cap for the total mining reward), it adopts the rule setting of “transaction fee is refunded in platform currency according to a fixed ratio”. As a result, the larger the transaction volume, the more platform coins will be returned, the platform coins will be sold under extreme pressure, and the model will collapse because of unsustainable, and Fcoin itself will fail.

There are several differences in dYdX’s trading mining rules: 1) dYdX itself is the leader of the track, gathering the expectations of the entire track and the capital voting of multiple top capitalists, and the project itself has strong expectations; 2) Its financing amount reached 87 million U.S. dollars and the average token cost (DYDX acquisition cost) was about 0.3 U.S. dollars, and it needed to be linearly released 18 months after the tokens went online. A large number of users went to exchange transactions to obtain DYDX tokens. The mining cost of this “swipe amount” is only 2.26 US dollars (calculated based on the total cost), the acquisition cost is not high, and it can be received and traded on September 8th, which is equivalent to a kind of “first generation” similar to “IXO” “Coin Issuance” activity-this is the essence of this round of dYdX transaction mining. Before DYDX is officially launched, the first token is issued by entering the market and paying handling fees. The average price paid by the market of US$2.26 is similar to an auction pricing, which reflects the expectations of “investors” for the price of DYDX under the condition of taking a certain risk-as the token goes online, dYdX has gone from the first level of illiquidity. The market enters a highly liquid secondary market, and the “investors” of trading and mining expect that they will receive a certain liquidity premium. 3) Since the real investment institutions and the tokens of the team and consultants will be locked for 18 months, the initial amount of tokens released is mainly the part of the community that is not locked, which is actually “airdrop + transaction mining” (see “4 Economic Model” content), so the selling pressure is not large (the first phase is 75 million airdrops + 3.8 million transaction mining + 1 million liquidity provider rewards, about 80 million, according to the project It was disclosed that only 8.11% of the tokens were in circulation on September 8, which is 81.1 million), and the market value in circulation is only 240 million U.S. dollars based on 3 U.S. dollars, and 810 million U.S. dollars based on 10 U.S. dollars.

Also because the first phase of transaction mining has a strong ICO nature, its 24-hour trading volume of 2 billion US dollars and 14-day trading volume of 10 billion US dollars can only reflect the primary market’s strong confidence in it and its liquidity The strong ability to guide, but can not represent its real huge transaction volume.

However, the subsequent 59 periods of transaction mining, continuous liquidity rewards and token unlocking, as well as market changes will always make transaction volume and transaction mining support from “swashers” and Maker support to real traders. This process will gradually manifest its real appeal to individual traders and institutional traders.

For exchanges with poor fundamentals, trading and mining is a game similar to capital trading. For dYdX, which provides good product, capital, and liquidity support, it is an investment + strong publicity + strong attraction of liquidity. Sexual activity is also a strong subsidy to the market during the market growth period.

This rule itself is worthy of recognition, but its future data development needs to be closely watched because of the madness of this round of transaction mining.

In addition, among the DEX currently in operation, projects that have been traded and mined include dFuture, ZKSwap and other projects, but there has not been a phenomenon that the average daily transaction volume has soared from 300 million U.S. dollars to 2 billion U.S. dollars in two weeks.

In early September, the dYdX project team’s plan for 2022 was to realize the decentralization of the project, but the specific plan has not yet been announced.

Economic model


DYDX is the token of the dYdX project. It has not yet been launched. It will be available for collection and circulation on September 8.

dYdX announced the launch of the governance token DYDX on the evening of August 3, 2021, Beijing time, although the team had previously stated that it had no plans to issue tokens.

The total amount of DYDX is 1 billion. DYDX will be allocated within 5 years. After 5 years, the maximum annual inflation of 2% will be activated through the governance mechanism. The implementation of inflation must be implemented through governance proposals. Starting from July 14, 2026, community governance can determine the upper limit of DYDX casting and the highest annual inflation rate.

The team stated in the document that although the token distribution rules are determined, DYDX token holders can modify the rules through the community governance mechanism (proposal-voting).

The distribution ratio of DYDX is as follows:

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Table 4-1 Distribution ratio of DYDX

DYDX has locked the tokens that will be allocated to investors, existing teams, future employees, and consultants, and will unlock them according to the schedule, as shown in Table 1-2. However, during the lock-up period, the above-mentioned token holders can use the locked tokens to make proposals, delegate votes, or vote.

DYDX’s unlocking schedule for investors, teams, and advisors is as follows:

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Table 4-2 dYdX investors and team unlocking schedule

DYDX tokens will end from Epoch 0 and begin circulation on September 8, 2021. The token supply within 5 years is shown in Figure 1-3.

Schematic diagram of the circulation of DYDX in 5 years: after the 18th month of issuance (March 2023), it will undergo a large-scale unlock, and then enter a stable unlock until 5 years after the issuance.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 4-1 Schematic diagram of DYDX circulation in 5 years

Although the non-reward part of the community is not locked, according to the data of only 8.11% in circulation on September 8 and the usage rules shown on the official website, the 50 million coins in the community treasury will not enter circulation immediately.

According to the project team’s disclosure in early September, the total amount of retrospective airdrops was 75 million, but only 55 million were eligible (20,000 addresses), and the other 20 million were not eligible (not received). This part will be included Community vault.

Therefore, the actual maximum circulation of DYDX on September 8 was 5.57%, or 55.7 million.


After DYDX goes online, the main project needs come from transaction fee discounts and community governance voting.

Transaction fee discount

DYDX holders can get discounts on fees, the specific rules are as follows:

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 4-2 Fee discount rules, traders who hold more than 100 DYDX can get 3%-50% fee discount

Transaction fee income

At present, the agreement income belongs to the project company of dYdX. DYDX token holders cannot obtain this income. In the future, this part of the rules can be modified through community governance.

Community governance voting

According to the governance rules announced by the project party, the number of Epoch rounds for transaction mining and liquidity mining can be modified within a certain range by the community, and other token distribution rules can also be modified. Proposal approval requires voting, and voting requires currency. At the same time, although the locked part of DYDX cannot be circulated, it can be used for voting, that is, the team and the capital’s currency can currently be used for voting, and the rules can be easily modified.




dYdX belongs to the futures exchange (Futures DEX) in the Defi-derivatives track and belongs to the order book futures DEX. Currently, the order book items in the decentralized futures exchange include dYdX, DerivaDEX (not online), Injective Protocol (not online), Vega Protocol (not online), etc. AMM-style futures DEX includes Perpetual Protocol, McDEX (just launched on August 31), dFuture, and so on.

Since the only projects with a long online time and strong comparative value in terms of product mechanism and operational data are Perpetual Protocol, this article will focus on comparing dYdX and Perp.

status quo

At present, cryptocurrency futures have surpassed spot trading and become a huge market. According to Tokeninsight statistics, the total trading volume of 43 futures exchanges in 2020 reported $12.31 trillion (average daily 34 billion), an increase of 402% from 2019, and the total market contract positions at the end of the year were 17.03 billion US dollars, an increase of 485% throughout the year.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 5-1 2019Q4-2020Q4 market-wide futures trading volume, source: TokenInsight

However, the main trading volume of cryptocurrency futures is currently still in centralized futures exchanges, mainly Binance, FTX, Bybit, BitMex, OKEx, etc. The latter two were once the main battlefields of futures trading, but with the outbreak of regulatory issues , And the huge growth achieved by the first two in 2020, the situation has changed, but the above and other centralized exchanges still account for more than 90% of the scale of futures transactions.

But one trend is very clear: in the next few years, traders will continue to migrate from centralized exchanges with centralized risks to decentralized exchanges. The continuous improvement of product experience to be improved and the driving of various target wealth effects (surge), or the combined use of the Defi protocol (for example, the currency must be put in the wallet for staking or waiting for airdrop), and the event-driven of centralized exchanges ( Security, supervision, etc.).

At the same time, the “perpetual contract” is the first type of cryptocurrency exchange Bitmex in the cryptocurrency market. Although this form exists in a small amount in the traditional financial world, it is not a mainstream trading product. In the cryptocurrency market, perpetual Contracts are a major mainstream trading product.

At present, there have been several seed players on the decentralized futures exchange track, but they have not yet developed on a large scale (large-scale development means that the daily trading volume of the entire track continues to exceed 1 billion US dollars and continues to grow at a relatively rapid rate. ), the project with the largest transaction volume at present is dYdX. The daily transaction volume in the last two weeks of August was about 700 million US dollars, but it is currently in the transaction mining period (refer to the “transaction mining” part of the previous article) and needs to wait for transaction mining The crazily period of high profits for mines will not have reference value until the amount of data is stable.

However, it is obvious that the popularity of dYdX trading and mining has played a role in guiding liquidity and attracting industry attention, and can also enhance the trust of true professional traders in the security of decentralized derivatives exchanges.

For the development of decentralized futures exchanges, you can refer to the development process of spot DEX, such as Uniswap , Sushiswap, Bancor and other exchanges.

The mainstream spot DEXs have experienced a long period of time (ranging from several months to one or two years) during the product polishing period and the online period, and then realized the skyrocketing transaction volume. After a large-scale development period of less than one year, the current accounted for Centralized exchanges account for a fraction of the trading volume. At the peak of this year, Uniswap’s daily trading volume has surpassed the top 3 centralized exchanges.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 5-2 DEX transaction volume chart, showing the changes in transaction volume from January 2019 to the present. It is very obvious that the explosive growth has begun after May 2020

It can be seen that decentralized contract exchanges still have great potential for development. It is possible to develop from the current full-track daily trading volume of hundreds of millions of dollars to the daily tens of billions of dollars (that is, to 3.6 trillion US dollars per year. Volume), reaching a certain percentage (such as 10%-20%) of the trading volume of the central futures exchange.

Competitive product overview

Perpetual Protocol

Perpetual Protocol is an AMM-type futures DEX that provides perpetual contract products. It continues to develop the vAMM pricing method in the form of AMM. In the V1 version, Perp separates pricing and settlement, and removes the market maker (ie, the market maker in AMM). The role of liquidity provider, LP) has realized a simple market structure where only long and short parties play the game. As of August 25, the average daily transaction volume within 7 days was 110 million US dollars. From the perspective of data volume, it is currently in The track is second.

In the V2 version announced at the end of June, Perp will be coupled with Uniswap V3, Perp V2 will be directly installed on Uniswap V3, introducing the role of Maker (market maker), using Uniswap V3 style aggregate liquidity method to make market, with ” The “default market-making strategy” lowers the market-making threshold of ordinary LPs. In addition, V2 will implement the “Permissionless Market Creation” mechanism, which is Uniswap’s classic free currency listing mechanism. At the same time, Perp also set up the V2 version on the second-tier network Arbitrum.

Comparison item

Core business logic

dYdX: adopts Starkware’s StarkEx engine matching and on-chain settlement methods to realize asset self-custody, transaction organization method is peer-to-peer matching, mainly by professional market makers to provide liquidity, and StarkEx trading engine can be used to achieve decentralization Self-custodial of assets (that is, deposits/recharges on the previous two-tier network StarkWare). According to official introductions by StarkWare and dYdX, its self-hosting security is good. This business logic is close to that of a centralized exchange, which implements a decentralized version similar to a centralized point-to-point transaction in a technical way.

It’s worth mentioning that the entity behind dYdX is a company, and its business model is similar to Binance’s: They make money by charging transaction fees, that is, the transaction fees paid by traders in the transaction (excluding perpetual contracts). Funding fees) may be owned by the company entity and may not be distributed in the community. (Usually the agreement only gets part of the fee, and a part of the fee will be allocated to the token holders & the community).
Perp: The V2 version trades through vAMM coupled with Uniswap V3. LP provides liquidity and conducts market-making with aggregate liquidity similar to Uniswap V3. As a default market-making strategy (access to other protocols) will be introduced, most LPs are expected Passive market making will be maintained, and a few large-scale LPs will be large market makers, whose type is still “active market making AMM” futures DEX. At the end of August, Perp announced that it would organize free market creation in the community in the form of DAO (to put it simply, the “coin listing” of trading pairs). Since Uniswap is used as the basis for the erection, Perp V2 is on Arbitrum.

From the perspective of the security of user funds, it is mainly whether the user’s funds are guaranteed after being “custodial”. This mainly refers to the security of the second-tier network solution. dYdX uses StarkEx, Perp V1 uses xDai, and V2 uses xDai. The one is Arbitrum, and the plans for these three are as follows:

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Table 5-1 Comparison of the two-layer/side chain schemes used by the two versions of dYdX and Perp

It can be seen from Table 5-1 that StarkEx adopts zero-knowledge proofs in the validity verification link. It only requires calculations and does not rely on the goodwill of most people. The problem is that it may require a lot of computing resources; there is a small Probability of evil; Arbitrum’s fraud proof is considered to be an incentive mechanism that can effectively avoid evil. From this comparison, Perp V1’s financial security is slightly weaker.

The security of StarkEx and Arbitrum are both highly secure in terms of settings, but it cannot be said that they are both “very secure”. They need to continue to be tested by the market and time to see if they can be safe in the long-term and in various attacks. And under extreme market conditions, failures and accidents can be avoided.

dYdX is equivalent to a centralized exchange that realizes asset self-custody, avoiding the risk of centralization after the exchange runs off, the exchange uses user assets to manipulate the market, and the exchange assets embezzle funds into Cex. At the same time, its concept is based on StarkEx. High-performance and high-quality products to simulate a centralized trading experience, and currently the main focus is on top varieties such as BTC, ETH, and so on. Therefore, there is neither openness and freedom to create markets, but market-making is mainly done by professional market makers. Its founders also stated that what they hope to compete is precisely centralized exchanges such as Binance and FTX competing for customers, especially “professional” customers (usually referred to as high-volume professional traders and institutional traders).

From the perspective of trading varieties and trading concept positioning, Perp is more oriented towards long-tail currency transactions, and its coupling with Uniswap also points to this point, and Perp adopts DAO method to “list currency”, etc., all of which are more oriented towards crypto-native Players. Since dYdX stated that it would not consider “free listings” before next year and focus on top varieties, the two have avoided competition in some aspects.

After “community operations are very important” became the consensus of several derivative DEXs, it was actually admitted that futures DEXs are more dependent on operations than spot DEXs such as Uniswap. From the current full-track transactions of around 1 billion In terms of volume, before the track grows to at least 5-10 billion transactions, community operations and operational strategies will be an important factor, so the development of the track can continue to be observed.

The following comparison and analysis will be part of the expansion of the above summary.

Pricing method / attracting liquidity

Since the pricing method and the liquidity attraction method are closely coupled, they are compared together.

Pricing method:

  • Perp: V1 is vAMM (virtual AMM), and V2 is a collective liquidity AMM very similar to Uniswap. (See the Perpetual Protocol research report for details)
  • dYdX: Order book transactions, market games, market makers place orders, and market makers have certain pricing power in the short term.

The final pricing power of the entire market depends on which exchange has the deepest trading depth, that is, the ability to attract liquidity. It may be a centralized futures exchange (Cex) or a decentralized futures exchange (DEX). ).

Liquidity attraction:

  • Perp V1: There is no liquidity provision in an accurate sense. Everyone trades with the pool. The arbitrage robot provides automatic arbitrage to smooth out the price difference. As long as there is a price difference, there is liquidity, and it does not even need to be specially attracted. From a perspective, it is a good design;
  • Perp V2: Similar to Uniswap V3, it will be conducted by staking (the plan is not determined, there may be other methods).
  • dYdX: Transaction mining, created a single-day trading volume of US$2 billion on August 30, but it should be noted that dYdX has adopted the strategy of a typical centralized exchange and introduced as many as 8 liquidity in the C round of financing Providers, including QCP Capital, CMS Holdings, CMT Digital, Finlink Capital, Sixtant, Menai Financial Group, MGNR, Kronos Research, etc. And, in the B round of financing, dYdX has accepted one of the largest liquidity providers in the current market A Wintermute investment.

dYdX uses market maker market making and trading engine matching method to match buyers and sellers’ orders. Strictly speaking, there is no “pricing”. Real-time prices are generated by market games, and market makers smooth out the price difference with other exchanges.

The comparison in this section actually contains two completely different pricing models and liquidity attraction models, which are actually a comparison between the quasi-centralized exchange operation logic and the decentralized operation logic exchange.

The operating logic of a similar centralized exchange, pricing and attracting liquidity are basically the same thing-the trading depth of the exchange determines whether it has pricing power, and the trading depth is created by the depth provided by market makers and traders. At the current stage, dYdX has established a very considerable scale of market makers by accepting investment from liquidity providers in the early stage and cooperating with market makers starting from the V1 version. In theory, market makers and liquidity have no loyalty, because robots always automatically select the best profit-making plan, but the capital liquidity provider bound to the project party will obviously be different.

The operating logic of the decentralized exchange is as described in the “Core Business Logic” above. Perp uses vAMM to set prices (according to Uniswap V3), while McDEX and dFuture are based on the index prices fed by external oracles. The formula “processing” adjusts the price to form a quotation. What needs to be added is that Perp V1 needs to use the index price when calculating the fund rate, and when the market price fluctuates sharply, the calculation of the clearing price also needs to use the index price.

Another important point is that the “market price” formed by the vAMM method has a certain degree of independent pricing ability. After the transaction volume is deposited on the exchange, a certain degree of “price power” on the market can be obtained. From the current competitive landscape From the above point of view, it is possible to realize a certain pricing power in long-tail currency transactions.

It can also be seen from the above analysis that, in fact, the pricing mechanism of various AMMs is similar to the order book-style dYdX. Who has the pricing power does not depend on the mechanism between the two, but on the entire market of a certain currency. The exchange where the maximum trading depth appears. Take the spot as an example, some currencies have the greatest depth in Uniswap, and some in Sushiswap, then in these currencies, Uniswap and Sushiswap have the pricing power respectively.

One of the operating mechanisms: Active market making VS passive market making

dYdX: Professional market makers take the initiative to make the market, and even large market makers can dominate the market. According to public reports, the market maker WinterMute once accounted for 40% of its trading volume[21], from experience to The commercial mechanism is the closest to the DEX of the centralized futures exchange.

Perp: Active market making is possible on Perp V2, or the default market making strategy (protocol) introduced by the project party from outside, that is, passive LP and active market making can be used, according to the ratio of Uniswap V3 to become passive market making [ 20]. In the future, Perp V2 is expected to be mostly LPs who choose the default strategy of passive market making, plus a small number of professional market makers.

In this regard, we mainly compare the designs of various companies in terms of capital requirements, capital utilization and capital risks:

LP (liquidity provider) income: There is a liquidity provider similar to AMM in dYdX. The liquidity provider pledges billions of USDC, and the income is 1 million dYdX tokens that can be allocated for each Epoch (28 days). Take the risk of loss (analysis below). dYdX is issued proportionally to LPs, that is, if the liquidity you provide remains unchanged and the overall liquidity increases, the dYdX you get will decrease, which is consistent with most LP reward rules of AMM. This part of liquidity is used to make market for market makers (most of them are centralized market makers), which is a supplement to liquidity-market makers obviously need to use a large amount of capital to make markets themselves. Market traders can only use the USDC of these LPs for market making but cannot transfer them away. Note that the design of this part of the rules is slightly centralized.

The LP in Perp V2 earns a handling fee (the specific rules have not been announced), and there is no LP in V1. Arbitrageurs can earn arbitrage profits, because arbitrageurs are a group of arbitrage roles that drive project-side robots or write their own strategies for arbitrage , There is a probability of turning into the Maker in V2, so it can be said that the arbitrageur in V1 will convert from obtaining arbitrage profits to obtaining commissions.

Impermanence loss: If the USDC pledged by LP in dYdX loses during the market making process of the market maker, the loss will be borne by the liquidity pool (LP). However, the market maker here is the market maker (centralized market maker that has been screened by dYdX), while the fund is provided by the LP, and the potential fund loss is subsidized by the dYdX project party and the secondary market (reward dYdX). The liquidity of this part of LP was 140 million US dollars as of August 31, which does not pose too much moral hazard. However, if the amount is extremely large in the future, it is necessary to consider the moral hazard of market makers or other financial risks.

In Perp V2, due to the market making in the Uniswap V3 pool, it will suffer similar gratuitous losses as in V3.

LP market-making method: LP in dYdX does not actively make market, which can be said to be a kind of “lazy liquidity” and “lazy LP”, but “lazy” generally means that LP relies on certain codes or rules to make market , Such as AMM, but dYdX relies on professional market makers.

Perp V2’s LP is active market making. Like the LP on Uniswap V2, there is a high probability that market making will be based on strategy-non-professional LPs may make market making through certain market making tool projects, otherwise they will suffer greater losses. As the market-making agreement of the Perp project parties to cooperate has not yet been determined, it is still too early to discuss whether the active or passive rebalancing strategy is used for market-making on Perp.

From this perspective, both of them are basically professional market makers with professional strategies for market making. Ordinary non-professional LPs are still earning the income of “providing funds”, and there is no active operation ability. The difference is between the two The sources of professional market-making capabilities depend on different sources: professional market makers and market-making decentralized products.

The degree of centralization of the two is obviously different on this point, but it may have little impact on small and medium LPs in the initial stage.

Capital utilization rate and slippage problem: Because dYdX uses professional market makers to make the market, its actual market-making capital utilization rate can be expected to be relatively high, but because this part is relatively “LP capital utilization rate”, its LP Fund utilization is only related to a few indicators: the first is “how much funds are provided by all LPs”, and the second is “how much is the price of dYdX”. The former determines how much dYdX can be obtained for every 10,000 USD of LP deposits, and the latter determines how much dYdX can be obtained. The USDC value of the dYdX reward has nothing to do with its actual market capital utilization.

On the issue of slippage, this is a problem that professional market makers care about. Different slippage determines what kind of strategy market makers need to use for market making, and also determines which trade they go to make the market more advantageous. It is possible to determine the direction of the liquidity of professional market makers, but this is not decisive in dYdX and will not be expanded here.

Thanks to the high capital efficiency design of Uniswap V2, the slippage of Perp V2 for market making with aggregate liquidity will obviously be significantly lower than that of V1. The slippage problem of V1 is because the slippage depends on the K value, and once a large order amount is If it is larger, it will have a greater impact on market prices, and its opening/closing process is likely to cause slippage. In V2, the liquidity will be concentrated near the price. In the case of relatively sufficient liquidity, the slippage will be significantly reduced.

Because dYdX is similar to the setting of centralized exchanges in market making, capital utilization and slippage have little effect on LP, at most whether the actual rate of return it provides can outperform the annualized rate of return (APY) of other Defi .

Perp V2 sets the rules for active market making. The advantage that can be obtained is naturally smaller slippage and market making with a high capital efficiency, but the disadvantage is that it needs to bear a certain amount of free loss and requires the use of strategies. Active market making.

Operation mechanism 2: Whether to create a market completely without permission

dYdX: dYdX is currently the project party adding a trading pair. It is voted by the community to add a trading pair every two weeks. The founder said that the free market creation will not be considered before next year (2022). It is relatively close to a centralized exchange. “Way.

Perp: V2 From the perspective of creating a market/trading pair, Perp is the project party’s self-built pool and transaction pair first, and also allows the community to create a market without permission. The way to create a market is relatively simple. In theory, liquidity can be placed, similar to Uniswap. Create a pool on the upper (the actual rules need to wait for more documents or products in the V2 version), basically only need to meet the project party’s limit on the maximum K value. This setting does not require high requirements for the creator of the pool, but at the same time it is not possible to carry out complex parameter settings. V2 will use DAO to create the market. Although the proposal has not yet been passed, according to the first-class warehouse, the probability of passing is extremely high.

Although the setting of dYdX is not free, if its strategy is to focus on the trading of the top type-the top type may concentrate most of the liquidity, which does not hinder its short-term development too much, and it can be used in the long-term. Continue to observe whether “technical decentralization and decentralization of operations” is a high-quality solution?

From the perspective of Perp’s creation of a market, Perp is more like preparing a self-built market for large currency holders or even traders with larger capital. From a traditional point of view, and even from a security point of view, setting up the market is of course the job of professionals, not a game of novices-this view has been applied to the logic of synthetic asset projects like UMA and Synthetix: professional The technical team creates the infrastructure, and the professional market operators create the market. But Uniswap V1 broke this preconception and succeeded-it provides a very easy place to create a market. However, the pros and cons of these two settings (specialization/low threshold) should be observed in the futures market. After all, the volatility of futures is more intense.

dYdX adopts the classic (traditional) professional market maker method, which has the same advantages as centralized exchanges, and the experience is better in normal conditions. From the perspective of market creation, similar to the above analysis, the project party directly reviews and adds transaction pairs, which is better from the perspective of security and prudence, but from the perspective of decentralization and freedom, it mimics centralized The way will be slightly weaker.

This dimension may be the most important dimension in the comparison of competing products, because with the gradual improvement of products, the “operational battle” of the dimensions of the operating mechanism and the actual operation method of the team may be the main point that gradually emerges in the next stage, which is closer to A mature and centralized approach is obviously better in terms of experience, so dYdX still has a higher probability of continuing to be the leader of the track.

And Perp is exploring another path: how to organize the entire futures trading market in a more decentralized way, whether it is applicable in terms of large currencies and small currencies (in terms of total market depth and trading volume) The mechanism is different. Is it possible to have a community-driven free futures market?

Since the decentralized futures market is still very early, we can continue to observe the development of the above-mentioned projects in the next year, and look forward to the point where the entire track transaction data increases tenfold or one hundredfold.

Operational data

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 5-3 Comparison of transaction volume data between Perp and dYdX in 2021

Figure 5-3 is a comparison of the perpetual contract product operating data statistics from The Block website. It can be clearly seen that after the launch of Perp, its transaction volume has been leading dYdX by a large margin, including after dYdX launched the testnet in February (The function of the testnet is almost the same as that of the current product, and real transactions can be carried out.) However, after dYdX announced the start of transaction mining in early August, the transaction volume on dYdX showed a rocket-like growth and exceeded it by a large margin.

Details are as follows:

dYdX: The average daily transaction volume in the near future is 700 million US dollars. On August 30, the first transaction mining is about to end and dYdX tokens will be online within 10 days. There is a big discrepancy in website data), and the official website shows that it is 1.3 billion US dollars.

At present, the official website shows that the number of deposit addresses is 36,000 (deposit means that traders deposit funds in the second floor, and may be ready to conduct transactions or liquidity provision activities). As shown in Figure 5-4, before the start of transaction mining, its active trading users fluctuated around 2000.

First-class warehouse: In-depth analysis of the DeFi derivative leading dYdX product mechanism, development status and economic model

Figure 5-4 The number of weekly active traders shown on the official website. After the peak period of completing the transaction volume task in the first two weeks of August, the number has dropped significantly

Perp: The current average daily transaction volume is around 110 million U.S. dollars, the total transaction volume exceeds 25 billion U.S. dollars, the agreement income exceeds 25 million U.S. dollars, and there are 2,885 active traders.

The number of active traders on Perp is close to the number of active traders before the start of dYdX transaction mining.

Summary: From the perspective of the current attraction of liquidity providers, transaction volume during trading and mining, and product experience, dYdX is currently the leader, and it mainly focuses on the top varieties. Part of its advantage is Starkware and its own technical capabilities, part is the blessing of the head capital and liquidity provider, and part is the design of the transaction mining mechanism.

Even, partly because it currently operates similarly to centralized exchanges such as Binance and Bybit, making it easier for liquidity providers and professional traders to migrate.

But from a long-term perspective, Perp may establish an advantage in the long-tail market, and its V3 launch may also have new improvements in mechanism and operation. The successive launch of Vega Protocol and other agreements may also bring changes in market share.

Whether dYdX’s current high market share and high transaction volume can continue, and whether other agreements and projects can explode in the exponential growth of futures DEX’s entire track in the future, it still needs to continue to be observed.

Is the quasi-centralized operating model the best long-term model? This problem will be verified in the continued development of the futures DEX circuit.


  1. Security and failure risks: Due to the dark forest properties of the Defi world and the properties of the software itself, dYdX itself and the second-tier network it builds may have security and failure risks, including but not limited to: the risk of loss of custody funds, exchanges or second-tier The risk of network StarkEx being attacked, and the risk of transaction loss caused by the failure of the second-tier network, the security risk and failure risk of the dYdX product protocol itself, such as pins, bugs, front-end crashes, etc.
  2. Risks of underdevelopment: The futures DEX track is developing rapidly, with many competing products, and its leading position may be challenged; due to the hot trading and mining activities before the launch of dYdX, its project is extremely popular. After the launch, there may be project data that is less than expected. Risks (for example, if the dYdX currency price pulls back, it will in turn affect the popularity of transaction mining).
  3. dYdX token value capture ability risk: the attribution of transaction costs is not determined, and there may be a risk that the agreement cannot capture transaction costs.
  4. Similar centralization risk: dYdX’s operations are partial to centralization, and there may be related similar centralization risks in operation. First of all, market makers are mainly centralized market makers, and many market makers are investors of the project party. During the market making process, if the market makers cannot return the loans from the liquid pledge pool in time, it may lead to liquid pledgers (LP) Loss, and it is possible to manipulate market prices, liquidate positions at fixed points, and other common risk of evil by market makers on centralized exchanges. Secondly, at present, the distribution of dYdX tokens is determined by the project party centrally to determine which are “wash transactions” and cancel transaction mining rewards, which may result in loss of mining costs for traders. And so on, there may also be other unexposed types of centralization risks.

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Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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