Will dYdX be the engine of the next outbreak of DeFi?

DeFi has experienced a spurt of development for more than a year.

From the stable currency plates Maker, to borrow plate Compound, Aave, then DEX (single-finger spot trading) sector in the  Uniswap , since the rise of the concept of decentralized finance, leading projects are often used as an engine of growth, and promote appropriate The sector, and even the entire market, is rising steadily.


According to data from DeFi Llama, on September 6, DeFi’s entire network locked-up funds (TVL) reached US$178.21 billion, a record high. However, although the data volume has achieved a new breakthrough, if you observe the dynamic curve, you can see that the growth of DeFi TVL has not shown a linear upward trend of nearly 90 degrees like last year, instead it has slowly climbed stepwise.

Of course, there are factors affecting the post-519 market adjustment, but the more important reason is that the driving force for the continued development of DeFi seems to be somewhat insufficient. After a year or two of involuntary competition, the market structure of basic sectors such as stablecoins, lending, and DEX has been highly stable, and it is difficult to produce enough disruptive ideas or projects in a short period of time; on the other hand, derivatives, insurance, etc. Emerging sectors, due to their relatively late start time and relatively small business volume, have not seen any leading projects that can take over Uniswap and other agreements in these sectors for a long time…until   the emergence of dYdX .

On August 3, the decentralized derivatives trading protocol dYdX announced the launch of the governance token DYDX, which will airdrop 7.5% of the total supply of DYDX tokens to old users who have interacted with the protocol. According to the estimates given by the data analysis agency TokenInsight after comparing the transaction volume and lock-up volume of similar projects, the price of DYDX may be between 6.22-12.08 US dollars, which means that most old users can get it. At least thousands of dollars, even tens of thousands of dollars in airdrop proceeds.

Such a large airdrop can not help but remind people of the grand occasion when Uniswap was issued in September last year. As the leading project with the most anticipated comprehensive strength in the derivatives sector, dYdX carries the high expectations of all parties in the market. So, can dYdX relay Aave and Uniswap as everyone wants and become the engine that drives the entire DeFi market to explode again?

Will derivatives become the next core growth point of DeFi?

Discussing this issue may need to be analyzed in turn from two levels. The first level is: Will derivatives be the next core growth point of DeFi at the product level?

The establishment of a decentralized financial system is bottom-up. As the underlying financial infrastructure, stablecoins, lending, and DEX in turn meet the basic needs of users for asset preservation, financing, and asset transactions. With the development of DeFi Lego Stacking high, the next step will naturally be aimed at higher-level user needs.

Derivatives trading is born out of spot trading. Compared with spot trading, derivatives trading has more abundant application scenarios, which can help users flexibly respond to different market trends, amplify profits, hedge risks, hedging, optimize resource allocation… to meet users’ more diverse and complex Financial needs. At a time when the growth rate of DeFi users is slowing down, derivatives trading is expected to bring new incremental users, introduce more live water to the market, and lay the foundation for the outbreak of DeFi again.


From the perspective of the potential growth space of the market, whether it is the traditional financial world or the cryptocurrency market based on the centralized exchange (CEX), the volume of derivatives trading is much higher than the volume of spot trading. According to CryptoRank data, as of 16:00 on September 6, the futures trading volume in the cryptocurrency market in the past 24 hours was as high as 125.955 billion US dollars. In contrast, the spot trading volume was only 72.726 billion US dollars, and the trading volume of the former was the latter. 1.7 times.


On the other hand, in the DeFi field, based on CoinMarketCap data, among the ten decentralized exchanges with the largest daily trading volume, spot DEX occupies as many as nine seats. The only one that can match these spot DEX in terms of transaction volume is dYdX. As shown in the figure below, during the Epoch 0 transaction and mining stage, the peak daily transaction volume of dYdX reached 2 billion U.S. dollars, which once surpassed Uniswap, the absolute leader in the DEX field.


After all, it is difficult to pay for a single tree. Although dYdX can provide transaction data that is not inferior to that of spot DEX, from the perspective of overall transaction volume, the total amount of spot transactions in the current DeFi field is still much higher than the total amount of derivatives transactions, and the amount within CEX The situation went upside down. The data comparison gives the most intuitive conclusion that there is still a lot of room for growth in decentralized derivatives transactions on the chain in the future.

Of course, there are voices of doubt in the market regarding such a direct analogy. Some views believe that DeFi derivatives are difficult to replicate the successful trajectory of DEX, because compared to CEX, DEX has found a simpler and more efficient way to build a market by improving the market-making mechanism, bypassing liquidity concerns This is particularly evident in the service to long-tail assets. However, this advantage is not useful in the derivatives market that requires higher asset liquidity. Regardless of whether it is decentralized or not, derivatives exchanges need to select the online currency, and in these limited currency ranges Internally, CEX has formed a sufficiently large trading depth advantage through years of accumulation, which may become a major obstacle to the outbreak of DeFi derivatives.

This question has also puzzled us for a long time. It was only when we communicated with an investor in the industry recently that we were able to solve the puzzle. In the investor’s opinion, if the timeline is lengthened, what the market really needs is not a platform with better transaction depth, but a safe and credible transaction interface. This is the essential difference between DeFi and CeFi. This is true whether it is a spot product or a derivative product, and other large and small differences are just branches. This has been well reflected in the basic sector of DeFi. DEX has derived a variety of combinatorial gameplay, opening up new market space, and the future of derivatives is the same, but at this stage, most of them People haven’t seen it clearly yet.

Compared with CEX, decentralized derivatives exchanges such as dYdX have obvious advantages in asset custody and transparency, which can avoid some common concerns of users about centralized platforms, such as asset misappropriation, extreme market asset payment, The two key attributes of “safety” and “trustworthiness” have been upgraded from the bottom structure, such as running off the roll, drawing lines and clearing, and reaping.

Will dYdX become the absolute king in the derivatives track?

Now take the problem to another level. Within the DeFi derivatives track, can dydx become an absolute king like Uniswap in the spot trading sector?

Objectively speaking, dYdX is now the head project in the DeFi derivatives track, but considering that the overall development stage of the track is still in its early stage, there are still many variables in the future, so this question still needs to be analyzed in conjunction with the advantages of dYdX. On the whole, the advantages of dYdX within the track are reflected in many aspects:

The first advantage is embodied in the development of precipitation. dYdX’s earliest financing can be traced back to December 2017. Over the past four years, it has experienced multiple rounds of bull and bear. For a long period of time, dYdX was the only one that did not issue coins among the top ten DeFi projects in transaction volume, so it would also be jokingly called “the most calming project” by the outside world. With great concentration, we have obtained stable products and high-quality user experience. There has been no downtime under the extreme market conditions of 312 and 519, and its front-end operation experience has also been praised by many users.

The second advantage is reflected in the product model. dYdX adopts the perpetual contract model that is most familiar to users in the trade in derivatives transactions, such as delivery contracts that have problems with liquidity, options for which user acceptance is still to be improved, synthetic assets with low capital utilization efficiency, and other derivatives. Compared with the model, perpetual contracts rely on innate structural advantages and are more hopeful to take the lead in the success of copying the spot on the chain. In addition, in addition to the most important derivatives trading business, dYdX’s product line also covers lending, spot trading, margin trading (spot leverage) and other sectors. These early products complement the current main perpetual contracts and jointly build dYdX itself. The capital circulation system.

The third advantage is reflected in the balance of the three elements of safety, performance, and cost. dYdX is the first batch of derivatives trading projects that integrates the Layer 2 expansion plan. Through cooperation with the top Rollup team StarkWare, dYdX’s Layer 2 products can give users 0 gas cost and 0 Delayed trading experience.

The fourth advantage is reflected in the depth of the transaction. dYdX has the best trading depth in the DeFi derivatives trading platform. Currently, dYdX’s disclosed market maker partners include Wintermute, Kronos, QCP Capital, CMS Holdings, CMT Digital, Bitlink, Sixtant, Menai Financial Group, MGNR, Kronos Research, etc.

The fifth advantage is reflected in data performance. Following the CoinMarketCap data mentioned in the previous article, dYdX is the only decentralized spot or derivatives exchange that has reached the top ten daily trading volume list, and the data is about 300 million US dollars. Looking further down, the only derivatives exchange that can rank slightly closer to dYdX is Perpetual Protocol , but its daily trading volume is only around US$90 million, and other similar products have been further separated.


The sixth advantage is reflected in the management background. In mid-June, dYdX completed a $65 million Series C financing. This round of financing was led by Paradigm, QCP Capital, CMS Holdings, CMT Digital, Finlink Capital, Sixtant, Menai Financial Group, MGNR, Kronos Research, HashKey, Electric Capital , Delphi Digital, and StarkWare participated in the investment. The original investors a16z, Polychain Capital, Three Arrows Capital, and Wintermute continued to participate in the investment. In the increasingly competitive DeFi battlefield, the effect of fighting alone is obviously not as good as  teamwork . This  can be seen in the behavior of the Sushiswap team that they prefer to sell coins at a discount to get more institutional support. With the support of top-level institutions such as Paradigm and a16z, dYdX can get valuable development suggestions and cooperation opportunities for leading projects that are difficult to reach in other projects.

Based on the above advantages, our conclusion is that dYdX is expected to continue to consolidate its leading position with the evolution and iteration of the derivatives track, and even further widen the gap in position. At least, at this stage, dYdX is the most eye-catching player on this track.

The road to decentralization is the journey of dYdX growth

One month has passed since the official minting of the dYdX governance token DYDX (August 3rd), and the transaction mining of the first phase (Epoch 0) has now been successfully concluded. During the Epoch 0 phase, the cumulative transaction volume of the dYdX Layer 2 protocol achieved an increase of 16.8 billion U.S. dollars.

With the launch of Epoch 1, the day (September 8) when the DYDX token officially lifts the transfer restrictions is getting closer. After September 8th, including all airdrop tokens, about 8.11% of DYDX (including DYDX that was withdrawn due to not meeting the airdrop unlocking standards) will officially enter circulation, which can also be regarded as DYDX in popular understanding. The day when the currency is officially issued.

Good things are approaching, and the discussion about dydX in the community has become more and more heated, from inquiring about the use of the agreement, to discussing the airdrop receiving method, to guessing the price of the secondary market, and even studying the status of other similar projects… The voice of users reflects The unique expectations that the market places on dYdX.

While issuing the currency, dYdX has established an independent dYdX foundation in Zug, Switzerland, which is a crypto-friendly jurisdiction, and is responsible for promoting the future development of the protocol before it is fully decentralized. This reminds me of the Maker Foundation that is about to be disbanded. After years of hard work by the foundation, Maker has finally grown into one of the most important cornerstone agreements in the DeFi field. At the current point in time, we also hold on to the dYdX Foundation. Have the same expectation.

With the official circulation of DYDX, dYdX is about to embark on a new journey, gradually transitioning towards becoming a self-sustainable agreement fully managed by the community. For a long period of time in the future, the behavior of development teams, foundations, investors, communities, and various roles will affect the development of dYdX, with advantages or disadvantages, large or small, this journey of decentralization , Is the future growth path of dYdX.


Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/will-dydx-be-the-engine-of-the-next-outbreak-of-defi/
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