What Is dYdX? Understanding the Decentralized Crypto Exchange

The DEX was designed specifically for perpetual swaps and works differently than other DEXs such as Uniswap.

AccessTimeIconDec 9, 2022 at 9:28 p.m. UTC
Updated Apr 10, 2024 at 2:30 a.m. UTC

The continued maturity of the crypto market has led to a positive feedback loop between the market and its participants. As new participants enter the market, the market has matured, leading to new crypto platforms and products to invest with.

No other sector in crypto has experienced this positive feedback loop like decentralized finance (DeFi). Increased adoption from both retail and institutional investors has led to a robust financial ecosystem with new, more advanced methods of DeFi trading.

If you are looking for a platform for more advanced DeFi trading methods, then you’ve probably come across dYdX. The decentralized platform for perpetuals trading was founded by ex-Coinbase and Uber developer Antonio Juliano and has been backed by industry leaders including a16z, Polychain Capital, Hashed, Spartan Group and others. For a brief moment, the popularity of dYdX even gave the platform more trading volume than Coinbase.

In this article, we’ll take a look at what dYdX is and how to get started on the platform.

What is dYdX?

DYdX is a decentralized exchange (DEX), currently based on the Ethereum layer 2 system StarkWare. The platform utilizes StarkWare’s zero-knowledge proofs (ZK) to create a more secure, decentralized and privacy-focused platform.

In June 2022, dYdX announced plans to leave Ethereum, replacing its StarkWare-based platform in favor of its own Cosmos-based blockchain. DYdX’s founder stated that the move to the Cosmos ecosystem will provide a better user experience through customizable fee structures and transaction fees. The dYdX chain is set to feature a decentralized, off-chain order book capable of scaling alongside the platform’s continued growth.

While dYdX offers a DEX similar to Uniswap or SushiSwap, dYdX was designed to trade a specific type of asset: perpetuals. Short for perpetual swap trading contract, perpetuals are essentially a derivative, or financial instrument that derives its value from an underlying asset. Like futures or options, perpetuals provide an opportunity for traders to speculate on the future value of an asset. Unlike futures or options, perpetual swaps do not have expiration dates, hence the “perpetual” nature of the contracts.

Unlike Uniswap or other DEXs, dYdX does not rely on an automated market maker (AMM) to facilitate trading. Instead, the platform utilizes a traditional orderbook + matching model to meet the requirements and expectations of institutional traders. Despite the niche trading style of dYdX, the platform’s acceptance of institutional and retail traders has made it one of the more popular exchanges on the market. At the time of writing, dYdX has nearly $450 million in total value locked (TVL).

Getting started with dYdX

Before diving into how to get going on dYdX, it’s important to note that perpetual trading isn’t available for everyone. Specifically, trading perpetuals are not available for anyone who is a resident or currently located in the United States. For more information on whether you can access the dYdX platform, make sure to check out the terms of service.

With that in mind, to get started on dYdX you’ll first need to find the right DeFi wallet for you. MetaMask is the most popular wallet dYdX supports but you can also use Coinbase Wallet, a hardware wallet like Ledger or Trezor, or any wallet that uses WalletConnect such as Trust Wallet.

Once you’ve finished setting up your preferred wallet, you’ll need to fund it with ether (ETH) if you don’t hold any, in order to pay gas fees for transactions.

Now that your wallet is ready to go, you can access the dYdX platform. To trade perpetuals and interact with dYdX’s decentralized application (dapp) you can either connect your wallet to the desktop application or through the dYdX iOS app.

Finally, while not a requirement to use the platform, if you’re interested in being a part of the governance and evolution of the exchange you can buy dYdX’s token, also called dYdX. In late 2021, dYdX held a token airdrop for its native token. Holders of the dYdX token can vote on governance proposals and reduce trading and market making fees based on token holdings.

This article was originally published on Dec 9, 2022 at 9:28 p.m. UTC


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Griffin Mcshane

Griffin McShane is a freelance writer for CoinDesk, currently living in Brooklyn, NY. Griffin has also written the Inside Crypto newsletter for Jason Calacanis' Inside.com and is a member of the International Association of Privacy Professionals (IAPP).

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