Read our full guide on what DYDX is, how it works, and what lies behind its popularity.
In the entire crypto market, only a few exchanges offer both perpetual and margin trading. Here’s where the DYDX exchange comes into play.
The main goal of this platform is to enable investors to perform perpetual, spot, and margin trades. DYDX recently moved from Layer 1 to Layer 2 solution to speed up transactions and reduce gas fees, which increased its value on the crypto market.
Learn in This Article
What Is DYDX?
DYDX is a decentralized exchange that offers trading with 34 popular cryptocurrencies. Due to its decentralized nature, users can trade directly with each other without the need for intermediaries. DYDX is also ideal for experienced traders. Why? Because it offers advanced trading options, such as margin, perpetual, and leverage trading.
DYDX was launched in 2019 and has gone through two development phases so far. On that note, DYDX first ran on the Layer 1 solution after which it transitioned to a Layer 2 solution.
The platform also runs on the ETH blockchain. However, according to its developers, DYDX will get its mainnet that will run on Cosmos SDK by September 2024. What makes the Cosmos blockchain unique? Unlike ETH, which focuses on its ecosystem, Cosmos focuses on the interoperability of different blockchains.
How Does DYDX Work?
DYDX enables its users to open leveraged trading positions by borrowing funds from a decentralized liquidity pool funded by other investors. Traders can also use leverage by creating perpetual futures contracts. This means that they’ll be able to create buying and selling agreements without setting a specific date. This makes these contracts perpetual.
The maximum leverage on perpetual contracts is 20x for BTC and ETH and 10x for other markets. Furthermore, the collateral in all perpetual contracts is held in USDC, while digital assets are held without custody — DYDX users will have full control over their assets and private keys.
Although the order books of perpetual contracts are centralized, they are also audited by PeckShield. PeckShield is an independent blockchain security company that performs regular checks.
Trading on DYDX is straightforward. To conduct perpetual trades, users will have to:
- Create a perpetual account
- Connect their crypto wallet to their account
- Make a deposit (only USDC can be used as collateral)
- Select their preferred type of trade
- Open a position and select the limit of their leverage
- Monitor their statement and add additional funds if needed to avoid liquidation
That said, DYDX trades take place via Layer 1 and Layer 2 solutions.
DYDX Layer 1 vs DYDX Layer 2
The DYDX crypto exchange first used a Layer 1 solution for margin and spot trading. The maximum leverage limit was 5x on BTC and ETH. The Layer 1 solution also ran on the ETH blockchain, which means that users needed to cover the gas fees.
Furthermore, the platform was asset-based and it didn’t provide cross-margining. However, after November 1, 2021, DYDX switched to a Layer 2 blockchain. This means that users can no longer place orders and conduct trades on the Layer 1 blockchain. Instead, they will have to use a Layer 2 blockchain called StarkEx.
The role of StarkEx is to take multiple transactions, group them, and send them off-chain to be validated. Transactions are then sent back to the ETH blockchain to be verified via the StarkEx smart contract.
The base of this technology is zk-STARKs. This zero-knowledge-proof system enables data sharing without third-party interference — only one party will have to verify that the data is valid. The Layer 2 blockchain will also periodically publish proof that all transactions are valid. Moreover, the DYDX Layer 2 solution offers faster withdrawals and real-time trading.
In short, StarkEx improves the speed and lowers the cost of transactions while protecting the privacy of users off-chain.
How Is the DYDX Token Used?
DYDX has a native token called $DYDX. This governance token has several use cases. It allows its owners to vote on the changes within the DYDX ecosystem. They’ll also get to set the risk parameters, vote on new token listings, govern contracts, and market makers to be added to the liquidity staking pool.
Likewise, users can use DYDX tokens to get between 3% and 50% off their transaction fees.
The DYDX coin has a total supply of one billion, and it can be earned in the following ways:
- By participating in liquidity staking pools: 2.5% of the total supply token goes towards staking rewards.
- By trading on the platform: Everyone who conducts trades on DYDX will receive a reward in the form of DYDX tokens.
The DYDX platform has two types of staking pools — safety and liquidity. The former ensures that all platform users who stake their tokens receive rewards. The latter provides network liquidity. To reward LPs, liquidity staking pools give DYDX tokens to all users who deposit USDC into the pool.
The amount of received tokens will depend on the amount of staked tokens. Keep in mind that all tokens will be unstaked after 14 days.
What Is the DYDX Price?
At the time of writing, the price of the DYDX token stands at $2.94, while its market cap is $909,260,682. If we take into account its historical price movements, by 2025, the value of the DYDX token could vary between $2.55 and $6.83.
Why Is DYDX So Popular?
The DYDX platform is popular among crypto traders because it enables perpetual trading options. As such, it doesn’t have a lot of competitors, since most crypto exchanges do not offer this option. Moreover, it offers P2P lending and derivatives trading.
As a decentralized platform, it also reduces front-running, wash trading, and price manipulation. The DYDX trading options also include cross-margin and isolated-margin trading.
The DYDX platform also offers an NFT collection called Hedgies. Owners of Hedgies can receive special benefits, such as trading fee discounts.
What Is the DYDX Controversy?
The DYDX platform has had several controversies related to its way of working.
They once asked their users to authenticate their identification via webcam to claim a $25 bonus. Another controversy was related to the blocking and unblocking of accounts due to the Tornado Cash.
Some DYDX users were automatically blocked without getting any explanation. This is why many users started questioning its decentralized nature. However, DYDX developers claimed that all user data was under their control and that it wasn’t shared with third parties.
Conclusion
So, what is DYDX?
It’s one of the few platforms that offer perpetual and margin trading, which is why it is very popular among crypto traders. Besides enabling users to trade 34 cryptocurrencies on a Layer 2 blockchain, DYDX also offers cross-margin and isolated-margin trading.
This platform has its native governance token that can be obtained as a reward for staking. Moreover, everyone who conducts trades on the platform will be rewarded with DYDX tokens. The DYDX platform uses safety and liquidity pools to ensure that all users receive staking rewards.
FAQs
Can US citizens trade on DYDX?
Has DYDX been hacked?