In-depth analysis of DEX track leader dYdX development status, economic model and industry competitive advantages

First class

dYdXIt was the first decentralized futures to launch usable productsexchange, is the order book typeDEX, traders conduct point-to-point transactions between market makers and long-short traders in a three-way game. DYdX inThe etheric fangStarkEx transaction engine is adopted in Starkware, which implements decentralized self-management of assets. DYdX offers a trading experience close to that of a centralized exchange and operates on a similar model to CEX. It now ranks first in the derivatives DEX, driven by trading mining. In conclusion, the project deserves attention.

investmentThe profile

Futures DEX track will be further developed. With the further improvement of product experience and innovation of product situation, the total trading data will continue to expand, and it is expected to gradually accept the trading volume originally existing in the centralized derivatives exchange in the next few years. As the current track leader, dYdX will undoubtedly develop further in data. It will be interesting to see if other projects can get the same volume of transactions with more decentralized product structures and operations.

DYdX holds the promise of explosive growth in the futures DEX and even the entire decentralized derivatives market. In its first trading mining cycle in August, "mining" traders generated $9.8 billion in trading.

From the perspective of transaction organization, it adopts the order book style, with professional market makers making markets and LP providing part of the market making funds.

DYdX product experience is good, using the transaction engine StarkEx developed by Ethereum's two-layer network project Starkware, to achieve decentralized asset self-hosting (users transfer funds fromThe walletGo to theIntelligent contractAnd achieve low Gas and high transaction speed.

DYdX are introduced through several liquidity providers as investor, the design of its C round of financing way to dig and liquidity provider award rules such as business, attracting a large number of liquidity, and after the transaction is launched quickly created a lot of volume, volume to billions of dollars a week, the average daily trading volume in the more than $300 million. In the six months between February, when it tested online and whitelist restrictions were lifted, and early August, when it started trading, its product was consistent with the dYdX experience after trading began, but the daily trading volume was only ten million dollars.

The underlying technical architecture of dYdX is decentralized, and its operation mode is closer to a centralized exchange than other DEX. It is to be expected that if dYdX is to become a long-term leader in decentralized derivative DEX, after a wave of rapid growth in data, it will need to move towards a more decentralized operation and product model -- changing the whole model, not just handing over power to the foundation as a corporate entity. Clearly, the implementation of decentralization should not rely on deep binding between project parties and liquid market makers.

Since funders and teams currently have the largest amount of voteable tokens (funders account for 27.7% of the total tokens and 15% of the team's tokens are locked but can vote), the team and funders can basically decide the direction of the project at this stage. DYdX's plan for 2022 is also to continue to decentralize the project, which can be closely watched.

The ownership of dYdX's transaction costs is not yet clear. The official website information vaguely points out that this part belongs to the project party, whose token dYdX may not capture the value of this part, but this problem may be solved through the community proposal.

In summary, dYdX is worth watching and will issue tokens on September 8.

Basic situation

Project introduction

DYdX, the order book futures DEX and the current leader of the futures DEX circuit, launched in February this year as a perpetual contract product on the second tier network, after launching three leveraged trading products on the main ethereum network. The product was officially launched in early August.

The basic information

The project,

team

DYdX has received a lot of famous capital funding and support since its inception, due to its team is largelyCoinbaseFormer employees of well-known enterprises, etc. According to & have spent Linkedin display. Currently, the dYdX team has at least 23 people, eight of whom are software engineers.

Antonio Juliano, founder of dYdX, graduated from Princeton University in 2015 with a BACHELOR of Science degree in computer science. Prior to graduation, he interned at MongoDB and started his career as a software engineer at Coinbase. One year later, I joined Uber and continued to work as a software engineer. In 2017, I founded a search component in a decentralized network called Weipoint, and in August 2017, I founded dYdX.

Brendan Chou Brendan Chou is a software engineer and designer. He graduated from Princeton in 2015 with a BACHELOR of Science degree in Computer Science. He first worked as a software engineer at Bloomberg and then worked as an engineer at Google.

Achal Srinivasan, product designer, graduated from Rice University in 2020 with a degree in computer science, interned at Coinbase and freelancing (design engineer) for several years before joining dYdX in 2020.

Vijay Chetty, Business Development Director, graduated from Princeton University with a degree in Economics. He worked as an analyst and investment associate at Hanergy Group and Blackstone Capital from 2010 to 2015, and worked in business development/corporate partnerships at Ripple from 2015 to 2018. He joined dYdX in 2020.

DYdX's founders have software development experience and blockchain industry experience, as well as founding decentralized projects; The development strength of dYdX project is strong enough to support its development as a technology-based project. Although I haven't seen enough information about the operational team members, dYdX has done well operationally based on its past performance. DYdX has a team that can support its projects.

money

Public information & NBSP; DYdX has raised at least four rounds of funding.

Table 2-1 Financing situation of dYdX

$87 million in four rounds and a roster that included Paradigm, Polychain Capital, Andreessen Horowitz(A16Z), Three Arrows Capital, Wintermute, one of the largest liquidity providers on dYdX, and more. Each round has the support of well-known investors in the industry, with a strong lineup of investors and sufficient funds for project development. According to its token allocation scheme, 27.73% of the tokens, namely 277 million tokens, are owned by the investors, with an average valuation of about $300 million. The average cost of dYdX of the investors is $0.31. Considering the valuation difference between the previous and subsequent rounds, the cost of the last round of $65 million investment may be higher than $0.31. Part of the attention dYdX has received is due to its strong investor background, as well as its current status as a track leader.

In addition, dYdX not only has part of the team come from Coinbase, but Coinbase has also provided significant support for dYdX at two key points: seed rounds and liquidity injections into lending products.

code

Figure 2-1 Code submissions for dYdX from May 2017 to the end of August 2021

Code submission; The peak period is the middle of 2018, the middle of 2019 and the beginning of 2021, and the launch time of the two rounds of new products is July 2019 and February 2021 respectively. The code submission is basically consistent with the launch of new products. It should be noted that when the project side announced the official launch of the product in early August and the trading and mining started, the original product in February was continued instead of the new product in terms of code and experience.

Figure 2-2 Number of contributors to dYdX from May 2017 to the end of August 2021

The number of contributors on Github matches the trend in the number of submitted code.

product

DYdX currently offers five products: perpetual contracts, margin trading, leveraged trading, spot trading and lending.

Among them, the V2 version of perpetual contract is a new product installed on the layer 2 network. Margin trading, leveraged trading, spot trading and lending are the three products described in the white paper, which are installed on Layer1, or ethereum main network.

Version V2: Perpetual contract trading

Figure 2-3 On the dYdX test networkETHPerpetual contract trading interface

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

• Leverage: dYdX perpetual contracts offer up to 25 times long/short trading with a minimum leverage change of 0.01.

  
  

• Order book /AMM: From the point of view of trade settlement, dYdX perpetual contracts are in order book form and liquidity is provided by market makers (note: this is also the case for dYdX's other products, which will not be described here). In terms of the product interface, it has a market interface similar to that of the centralized futures exchange, which can display the red and green candle chart of prices, but the minimum time unit displayed is hour, that is, 15 minutes /1 minute and time-sharing trading cannot be provided yet.

  
  

• Limit/stop-loss: dYdX perpetual contracts have both limit and stop-loss functions, allowing for limit trades and stop-loss and gain trades.
  
  

Figure 2-4 left: limit order function of perpetuity contract trade, right: stop loss function of perpetuity contract trade

• Positions held: data such as positions held, leverage ratio, realized profit and loss, unrealized profit and loss, strong price can be displayed on the product interface.

  
  

• Margin:BTCWith ETH, the maximum leverage is 25 times, so the initial margin requirement is 4% and the maintenance margin requirement is 3%. Other trades have different margin requirements based on their maximum leverage.

  
  

• Strong flat price/clearing price: the marked price used for clearing is determined byChainlinkThe second price feeds the index price.

  
  

• Deposit/withdrawal: In the upper left corner of Figure 2-3, Account balance is displayed, and there are two buttons: Deposit and Withdraw. Since the product is set up on the layer 2 network StarkWare, the transaction of dYdX sustainable contract product is conducted within the balance range after funds are deposited. The money goes back into the dYdX account and requires a withdrawal to return to the trader's Ethereum wallet.

  
  

• Mobile DAPP version: dYdX has realized mobile DAPP version, which can log in and trade with mobile wallet. The interface basically has the function of computer web side.

  
  

• Fund rate (1 hour Rate) : Like any other perpetuity contract, dYdX Perpetuity contract product has a fund fee designed to be charged every 8 hours, but the fund rate is expressed as a rate of 1 hour and charged every 8 hours (not multiplied by 8 hours rate). The fund rate is calculated as follows:

  
  

Premium = (Max (0, Impact Bit Price- Impact Ask Price) -Max (0, Impact Ask Price))/index Price

• Transaction fees: Maker and Taker fees differ on dYdX and decrease with volume. Maker fees range from 0.05% to 0 and drop to 0 after $10,000,000. Taker rates range from 0.2% to 0.05%, to 0.05% on transactions of $200,000,000.

  
  

• Gas charges: Because it runs on a layer 2 network, Starkware, the transaction does not incur Gas charges, but does incur Gas charges during deposit/withdrawal processes.

  
  

• Settlement speed: The test is very smooth due to the performance advantages of the layer 2 network and the fact that user funds are already hosted on StarkEx.

  
  

Margin trading

Margin trading, the V1 version of the futures product, on the main ethereum network, has a maximum leverage of 10X and can be traded in both long and short directions, with a maximum of 10X long and 10X short as well as limit orders and stop-loss orders.

Figure 2-7 dYdX margin trading interface

Note that all steps take place in a Bundle, which means that either the above steps succeed or fail together. So there will be no margin locked or transferred but not open.

Spot trading

Figure 2-8 Interface of spot trading market

Spot trading on dYdX allows for market and limit trading, as well as stop-loss. The maximum slip point is 0.5%, beyond this slip point can not clinch a deal. Like the margin trading interface, it can display K - line and position status similar to that of a centralized exchange.

borrowing

Figure 2-9 Loan market interface

Lending was one of the earliest products/features dYdX implemented, launched in 2019, so much so that for a long time outsiders even included it in the "lending" track project.

Product details are as follows:

DYdX lending uses the lending pool model, or "point-to-pool" model, where lenders and borrowers interact with the lending pool. Each asset has a lending pool, all managed by smart contracts. When a user deposits an asset on dYdX, the asset is deposited into its corresponding lending pool, from which the borrower can borrow the same asset. Borrowers and lenders on dYdX can access assets at any time.

DYdX has a maximum leverage ratio of 125%, meaning that $200 of assets must be lent with at least $250 of collateral.

technology

Sustainable contract

As the ethereum main network cannot meet the requirements of high performance and low Gas cost, the decentralized futures products on Ethereum are basically online, that is, standard layer 2 network. Currently, dYdX chooses StarkWare in layer 2 network.

Starkware is one of several competing layer 2 networking projects, and the differences between layer 2 networking solutions can be roughly divided into the way transactions and data are stored and the way state transitions are synchronized. Starkware actually has both (StarkNet and StarkEx belong to these two categories respectively). The StarkEx product used by dYdX adopts a no-link solution for data. The mode of synchronization of state transition is divided into fraud proof and validity proof. The fraud proof means "a group of people are encouraged by incentive mechanism to verify", while validity proof means technical verification. At present, the common scheme of each project is to adopt zero-knowledge proof. Starkware uses proof of validity -- this "data is not on the chain + proof of validity" scheme called Validium (different from "data on the chain" type of Rollup scheme, such as another well-known project of Arbitrum).

Validium allows users to independently manage their funds, that is, funds are managed, but not to a centralized institution, but to a decentralized StarkEx, which is called decentralized self-managed funds. The escrow process is as follows: the user transfers the coins from the wallet to StarkEx, in effect transferring them to a Stark Contract. After StarkEx accepts the funds, they can be used on the second layer (below the chain). Trading on dYdX is an off-chain use of funds, and users no longer need to sign their names, which improves the dYdX trading experience.

For a user to transfer funds out of a contract, each transfer requires authorization to send a request down the chain, which is then sent up the chain.

Since the user needs to sign each transfer, the user's funds are relativesecurity.

DYdX is not only built on a layer 2 network, but uses StarkEx, developed by the Starkware project, as the transaction engine for V2 perpetual contract products.

StarkEx: An extensibility engine consisting of multiple components.

Components: Including StarkEx Service (Stark Transaction Service), SHARP, Stark Verifier (Stark Contract), and other Stark contracts.

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

Figure 2-6 StarkEx components and processes

How it works: First, the dApp defines its own business logic (such as dYdX's perpetual contract logic) and runs it on StarkEx Service. After the user issues an interactive command, StarkEx Service packages the user's transaction and sends the package to the SHARP component. SHARP generates a proof and sends the proof to Stark Verifier for verification; If the Stark validator proves valid, the Stark validator sends a status update transaction to the Stark contract on the chain (ethereum main network).
Performance of predictor: Because dYdX needs to use index price in calculating capital rate and strong flat price, it needs to feed price of predictor. Prices on StarkWare are fed on tier 2 by Chainlink, which is verified using stark-compatible signatures, allowing prices to be used immediately after signing, rather than waiting for tier 1 transactions to come out of the block. This significantly reduces the price update delay for the Predictor, from a few minutes per quote on the Ethereum tier chain to a fraction of a second on StarkEx.

Through the above components, dYdX V2 realizes the advantages of decentralized order book-style perpetual contract, decentralized asset custody, smooth transaction, and no multiple signature in transaction.

Limit Orders (implementation) : Limit orders are signed by the user authorizing dYdX to make matchmaking on Stark Service, so the security of the process is determined by the StarkEx engine down the chain.

Margin trading, spot trading, lending and borrowing

All three products essentially follow the following "spot leveraged trading" logic and are listed on the dYdX homepage as "leveraged trading".

Leveraged trading logic: a trader borrows an asset, trades (buys/sells) it into another asset, and at the same time starts earning interest. This is called opening a position. Liquidation involves selling the position and returning the borrowed assets to the lender with interest. Both short selling (leveraged short) and leveraged long are part of the above process.
DYdX is an order book transaction, so there is no need to obtain external over-the-counter price or index price, as long as there is a corresponding order can be concluded, there is no need for prophet to quote.

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

• Proxy contract: used to transfer user funds.

  
  

• Margin Contract: Provides the ability to trade on Margin.

  
  

• Vault: Locks funds/tokens into a position.

  
  

The above three contracts cooperate with each other to realize margin trading formed by "borrow/return + buy/sell spot".

In this process, there are three participating roles:

• Traders: margin traders using dYdX;

  
  

• 1. One that lends a token to a trader;

  
  

• Buyer: the counterparty to which a trader borrows coins to buy or sell.

  
  

The opening process is as follows:

Three protocols help traders send orders from lenders to borrow the required currency to exchanges (e.g0x) to trade and obtain the currency the trader wants, such as borrowing ETH from A to sell, and then obtain the correspondingUSDC-- The margin and the proceeds are transferred to the vault by agency agreement and locked up as a holding position.

The unwinding process is similar in that the trader issues an order -- an agency agreement that helps sell the position for the tokens to be returned -- to return the tokens to the lender's address, along with interest.

Spot trading and credit trading products also use some of these three contract technologies.

The margin trading of dYdX is actually spot leverage trading, which is also a form of realization of "futures" contracts. In fact, in the previous round of exploration of decentralized derivatives, "margin + borrowed currency/borrowed capital" was highly expectedA futures contractThe reason is that this mode requires enough LP willing to lend large amount of coins or funds to traders, which has high requirements on liquidity and is very difficult to guide liquidity. However, the current "perpetual contract" is actually a Swap, in which the counterparty plays the role of counterparty and holds the counterparty position in order to earn the fund fee (the fund rate is much higher than the borrowing rate), which greatly reduces the demand for liquidity, especially for specific currency, and the difficulty of guiding liquidity.

Conclusion: dYdX's main V2 version, namely the two-layer continuous contract, has a good use experience, reflecting its technical capabilities since V1 version, and its operation mode and fund organization mode are completely different from AMM-type contract products. With its orderbook-style decentralised peer-to-peer matching, the product explicitly aims to achieve the "silky" trading experience of a centralised exchange, competing for specialist traders who can contribute the bulk of volume and fee revenues. DYdX is indeed a futures DEX with better product experience at present.

The development of

history

Table 3-1 dYdX events

The status quo

Trade Mining (Trade Bonus)

DYdX entered the first round of trading mining on August 3 and closed on August 31. As rewards were allocated based on trading fees + open positions, a large number of liquidity providers and individual investors were involved in trading mining. After the end of the first Epoch, data from the project revealed that

Liquidity provider mining (Market Maker Award)

While introducing a large number of professional market makers and trading mining, dYdX also conducted liquidity provider mining. The time and cycle (Epoch) Settings were the same as trading mining, and each Epoch was awarded 1.15 million coins.

DYdX has both "liquidity offering mining" and "liquidity Pledge Mining". "Liquid Provider Reward" refers to the Reward given to market makers. The threshold of Reward is that a single market maker should reach more than 5% of the trading volume of all market makers. Rewards include uptime, side depth, bid-ask spreads and number of trade pairs supported, among other things. In the first Epoch, a total of five market makers reached the threshold and allocated 1.15 million DYDX pieces according to a formula.

Liquidity pledge mining

Figure 3-1 Liquidity pledge page. The amount of pledge has been stable at about $120 million in the last two weeks

This part of the total allocation of tokens is 25 million, about one-third of the liquidity to provide mining, each Epoch is 380,000.

The rule is that LP (Liquid Provider) pledges USDC to dYdX's liquidity pool and obtains dYdX token reward. This part of the pledged USDC is lent by a professional market Maker approved by the project party for market making on dYdX as a supplement to liquidity in addition to the market Maker.

If the market maker has capital loss when making market with this part of USDC and cannot repay the loan (at this time, the market maker cannot lend more USDC), the liquidity pool (that is, all LP funds) shall jointly bear the loss.

At present, the pledged fund is $124 million. Based on the calculation of 28 days per Epoch and 13 epochs per year, the annual liquidity mining reward is about 4.94 million DYDX. If the mining cost of the current Epoch is about $2.26, The annualized return (APY) that can be obtained is about 9%, and the APY is about 20% based on the price of $5 DYDX, which is far lower than the 100% or even higher annualized rate common in other Defi. It is possible to provide liquidity support for relevant stakeholders.

DYdX also has a pool of "insurance funds" for pledge mining, but has yet to launch.

V2 Operating Data

According to the data disclosed by the project side, the first Epoch was from August 3 to August 31, a total of 28 days, total & NBSP; Trading volume was $9.8 billion. The average daily trading volume was $350m, with the peak on August 30.

DYdX's Perpetual had $255 million in 24-hour trading volume and $300 million in contract interest as of Sept. 6, according to Coingecko. According to the official data kanban provided by dYdX, total transaction volume rose rapidly after August 3, from $3.49 billion on August 2 to $15.7 billion on August 30 in just over three weeks. Before the end of the first Epoch, the daily trading volume continued to rise, and then fell back to around $300 million per day after September 1.

Figure 3-2 dYdX 24-hour trading and open interest data for September 6 as shown by Coingecko

This phenomenon is closely related to trading mining rules: Since each Epoch was awarded 3.8 million DYDX tokens, and the average transaction mining cost of each Epoch was relatively certain two or three days before the end of each Epoch (for example, the final cost of the first Epoch was about $2.26), Therefore, if the expected cost of the market is less than the market price (for example, the first Epoch reflects the market's bet on the DYDX secondary market price being higher than $2.26), for example, if the price of a DYDX token is $4 and the transaction mining cost is about $3, Traders are easy to "brush" to obtain the reward of DYDX token. This behavior will make the trading volume on DYDX easy to show a significant decrease in the early stage of each Epoch (compared with the end of the last Epoch) and a rapid increase in the trading volume near the end of the Epoch. The situation in which the total trading volume at the end of the period and the total trading volume of a single Epoch are related to the market price of DYDX -- when the total DYDX mining cost at the end of the period approaches 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, Mining costs closer to $7 or $8).

Trading volumes from August to early September show this pattern:

Figure 3-1 Official   provided by dYdX; Total trading volume chart, as of September 6, with $245 million trading volume on September 5

In the five weeks starting August 3, weekly volumes were $1.1 billion, $1.5 billion, $2.1 billion, $3.7 billion and $7 billion, respectively.

Figure 3-2 Official weekly trading volume chart provided by dYdX

The number of wallets actually deposited in wallets (quality wallet interactions) increased from 26,000 to 36,000 in the four weeks after August 3, with more than 7,000 wallet interactions in particular during the first week of August, apparently influenced by transaction mining and traceability airdrops.

After August 3rd, the task completion period of mining for trade and tracing airdrop was completed (only after the tracing airdrop winner completed the task by trading hundreds of dollars on dYdX at least from August 3rd to August 31st, he could receive the reward). From the second week, the number of newly added deposit wallets decreased significantly, indicating that a large part of the airdrop addresses completed the task. Subsequent deposits (transactions) are addressed to real traders and trade miners.

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

As shown in Figure 3-4, since August 3, the weekly income of dYdX exceeded $1 million, which was $1.2 million, $1.8 million, $1.7 million and $2.9 million respectively in four weeks, and $5.1 million in the last week of the first Epoch. (This part cannot be captured by dYdX, it belongs to the company behind dYdX)

Figure 3-4 also shows the main revenue structure of dYdX, most of which comes from the brown block, the green block and the newly added blue block in the last week, which are the contract trading pairs of ETH, BTC and newly added COMP respectively, indicating that dYdX really relies on the head trading varieties to obtain revenue.

Figure 3-4 Official weekly inflow chart provided by dYdX

In the future

Trading dig

DYdX has planned a total of 60 Epochs mining activities, which will last for five years.

Fifty-nine cycles will continue after the end of The first Epoch at the end of August. This activity will continue to provide dYdX with trading volume and fee income at least initially, and the subsequent support for trading volume and fee will depend on the natural growth of currency prices, quotations and decentralized derivatives markets, especially the perpetuity contract market.

The latest data: after the end of the first Epoch on August 30, data showed that the trading volume in the fourth week was $10 billion, and the average daily trading volume was $700 million. According to different data website sources, the trading volume of dYdX between August 29 and 30 May exceed $1 billion or even $2 billion. But the last day's data meant little more than a burst of "deal mining" activity.

The total transaction cost of its first Epoch was about 8.6 million DOLLARS (the actual total transaction amount was 11.6 million dollars, and the team judged 80 addresses to be cleaning transactions, that is, brushing, 8.6 million dollars after excluding this part of transaction volume), and the number of DYDX reward tokens to be issued was 3.8 million. DYDX token acquisition costs $2.26.

As of August 31, the top 10 traders trading scores in the total number of transactions accounted for 24.6%, the first up to 9.88%, the top 5 traders accounted for more than 1%.

Figure 3-5 Ranking of traders on the official website, including address and proportion

Summary: "Trading mining" was first launched in 2018 by Fcoin, a former Domestic exchange, and became very popular. (Fcoin was the first, if not the first, project to make trading mining popular and involved a lot of money.)

This in itself has proved to be a good guide to liquidity.

Take Fcoin for example. After the launch of Fcoin's trading mining, the exchange became the world's largest trading volume in a very short time, surpassing Coinbase and the "big three" in China at that time.

But since Fcoin doesn't have a cap for each short period of mining rewards (just a hard top for the total amount of mining rewards), instead it has "a fixed percentage of transaction feesFlat tAs a result, the larger the trading volume is, the more Taiwan dollars will be returned, the higher the selling pressure is, the unsustainable mode will collapse, and Fcoin itself will fail.

The trading and mining rules of dYdX are set with several differences: 1) dYdX itself is the track leader, gathering the expectations of the whole track and voting by capital from multiple leading investors, so the project itself has strong expectations; 2) The amount of financing reached 87 million USD, and the average token cost (DYDX acquisition cost) was about 0.3 USD, and it needed to be released linearly 18 months after the token was launched. A large number of users went to brush transaction to obtain DYDX token, and the "brush" mining cost was only 2.26 USD (calculated according to the total cost). The acquisition cost is not high, and it can be claimed and traded on September 8, which is a kind of IXO-like "INITIAL coin offering" activity -- this is the essence of the dYdX deal mining round, where the initial coin is acquired by entering the market and paying fees before the official launch of dYdX. The average price of $2.26 paid by the market is similar to an auction price, reflecting the expectation of "investors" on DYDX price under certain risk. As the token goes online, DYDX moves from the illiquid primary market to the highly liquid secondary market. Trading mining "investors" expect that they will receive a liquidity premium. 3) Since the tokens of real investment institutions, teams and consultants will be locked up for 18 months, the initial amount of tokens released is mainly the community part that is not locked up, which is actually the part of "air drop + transaction mining" (see "4 Economic Model" for details). Therefore, the selling pressure is not large (the first phase is at most 75 million airdrop + 3.8 million transaction mining +1 million liquidity provider rewards, about 80 million. According to the disclosure of the project side, only 8.11% tokens flowed on September 8, which is 81.1 million). According to the calculation of 3 DOLLARS, the current market value is only 240 million dollars, and according to the calculation of 10 dollars, it is 810 million dollars.

Due to the strong nature of initial coin issuance, the transaction volume of the first phase of mining is 2 billion USD in 24 hours and 10 billion USD in 14 days, which can only reflect the strong confidence of the primary market and its strong ability to guide liquidity, but cannot represent its real huge transaction volume.

However, the subsequent 59 sessions of trade mining, continuous liquidity rewards and token unlocking, and market changes, will always make the volume and trade mining from "brush" and Maker support to the support of real traders. The real appeal of this process to both individual and institutional traders will gradually become apparent.

For exchanges with weaker fundamentals, trading mining is a kind of capital tradingThe gameFor dYdX, which has good product, capital and liquidity provider support, it is an activity of investment + strong publicity + strong liquidity attraction, and also a strong subsidy for the market during the market growth period.

The rule itself is positive, but its future data development needs to be closely watched because of the deal mining frenzy.

In addition, in the current operation of DEX, the trading mining projects also include dFuture, ZKSwap and other projects, but there is no phenomenon that the average daily trading volume soared from 300 million DOLLARS to 2 billion dollars in two weeks.

In early September, dYdX's plan for 2022 was to decentralize the project, but no specific plans have been announced.

Economic models

supply

DYDX is the token of DYDX project, which has not been online yet. It can be collected and circulated from September 8th.

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 coins.

The total number of DYDX is 1 billion. DYDX will be distributed within 5 years. After 5 years, the maximum annual inflation of 2% will be initiated through the governance mechanism, which must be implemented through the governance proposal. Starting July 14, 2026, community governance can determine the DYDX foundry ceiling and the maximum annual inflation rate.

The team states in the document that while the token allocation rules are fixed, DYDX mints can change the rules through a community governance mechanism (proposal-vote).

The DYDX distribution ratio is as follows:

Table 4-1 Allocation ratio of DYDX

DYDX locks tokens that will be allocated to investors, existing teams and future employees, and advisors, and will be unlocked according to the schedule, as detailed in Table 1-2. However, during the lock-up period, the holder can use the locked token to vote in the proposal, proxy or vote.

DYDX's unlock schedule for investors and teams and advisors is as follows:

Table 4-2 dYdX investor and team unlock schedule

DYDX token will start circulating on September 8, 2021 after the end of Epoch 0, and its token supply within 5 years is shown in Figure 1-3.

5 years of DYDX flow diagram: after 18 months of release (March 2023), there will be a mass unlock, then smooth unlock until 5 years after release.

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

The non-reward portion of the community is not locked up, but based on the data that only 8.11% was in circulation as of Sept. 8 and the usage rules shown on the official website, the 50 million coins in the community vault will not be in circulation immediately.

In early September, the project disclosed that only 55 million of the 75 million airdrops were actually eligible (20,000 addresses), and another 20 million were not eligible (not received), which will go to the community coffers.

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

demand

The main in-project demand for DYDX after its launch came from transaction fee discounts and community governance votes.

Transaction cost discount

DYDX holders can get a fee discount, as shown in the figure below:

Figure 4-2 Fee discount rule, traders holding more than 100 DYDX can get a fee discount of 3%-50%

Transaction fee income

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

Community governance Vote

According to the governance rules published by the project side, the Epoch cycle times of transaction mining and liquidity mining can be modified by the community to a certain extent, and other token allocation rules can also be modified. Approval of a proposal requires a vote, which requires holding coins. At the same time, although the DYDX of the lock-up part cannot be circulated, it can be used for voting, that is, the coins of both the team and the capital can be used for voting at present, and the rules can be easily modified.

competition

industry

An overview of the

DYdX belongs to the futures exchange (futures DEX) in the Defi- Derivatives circuit, and it belongs to the order book futures DEX. Currently, order-book projects in decentralized futures exchanges include dYdX,DerivaDEX(Not online),InjectiveProtocol: offline, Vega Protocol: offline. AMM futures DEX includes & NBSP;Perpetual Protocol, McDEX (just launched Aug. 31), dFuture, and more.

As Perpetual Protocol is the only project with a long online life and strong comparative value in terms of product mechanism and operational data, this paper focuses on dYdX and Perp.

The status quo

Currently, encryptioncurrencyFutures have surpassed spot trading to become a huge market. According to statistics from Tokeninsight, in 2020, the turnover of 43 futures exchanges was $12.31 trillion (an average of 34 billion per day), up 402% from 2019. At the end of the year, the total market contract position was $17.03 billion, up 485% for the whole year.

Figure 5-1 2019Q4-2020Q4 total futures volume, source: TokenInsight

However, the main trading volume of cryptocurrency futures is still in the centralized futures exchanges, mainlyCurrency,,FTX, Bybit and BitMex,OKExThe latter two used to be the main battleground for futures trading, but that changed with regulatory issues and the huge growth of the former two in 2020, but these and other centralized exchanges still account for more than 90% of futures trading.

But one trend is clear: In the next few years, traders will continue to migrate from the centralized exchanges with centralized risks to the decentralized exchanges, driven by the continuous improvement of the product experience of the decentralized exchanges and the wealth effect of all kinds of underlying assets. Or a combination of use drivers for Defi protocols (such as having to put money in a wallet to be mined or otherwise airdropped), and event drivers for centralized exchanges (security, regulation, etc.).

Meanwhile, "perpetual contracts" have been pioneered in the crypto market by cryptocurrency exchange Bitmex, although the form is traditionalfinancialThere are a few of them around the world, but they're not mainstream, and in the crypto market, perpetual contracts are.

At present, the decentralized futures exchange circuit, there have been several seeds, but has not been large-scale development, large-scale development refers to the entire track day turnover continuously break through the $1 billion level and continue to grow at a faster pace), is the largest project volume dYdX, August the last two weeks of trading at around $700 million, However, it is currently in the period of transaction mining (refer to the previous part of "Transaction Mining"), and it needs to wait for the crazy period of high profits of transaction mining to stabilize its data volume before it has reference value.

But it is clear that dYdX's mining boom has served to channel liquidity and catch the eye of the industry, as well as strengthen the trust of truly professional traders in the safety of decentralised derivatives exchanges.

The development of decentralized futures exchanges can refer to the development process of spot DEX, such as  Uniswap,Sushiswap,BancorWait for the exchange.

The mainstream spot DEX experienced a long time (months to one or two years) in the product polishing period and online period, and then realized the trading volume boom. After less than a year of large-scale trading volume development, it now accounts for a fraction of the trading volume of the centralized exchange. At the peak of this year, Uniswap also surpassed the Top3 centralized exchanges in daily trading volume.

Figure 5-2 & have spent The DEX transaction volume chart, which shows the changes in transaction volume from January 2019 to the present, has clearly exploded since May 2020

It can be seen that the decentralized contract exchange has great development potential, and it is possible to develop from the current daily trading volume of hundreds of millions of dollars to the daily trading volume of billions of dollars (that is, to the annual trading volume of 3.6 trillion dollars), which is close to a certain proportion of the trading volume of the central futures exchange (say, 10%-20%).

Summary of competing goods

Perpetual Protocol

Perpetual Protocol is an AMM-type futures DEX offering Perpetual contract products. It continues to develop vAMM pricing in the FORM of AMM. In the V1 version, Perp separates pricing and settlement. In addition, the role of market maker (i.e. liquidity provider and LP in AMM) has been removed to realize the simple market structure of game between long and short parties. By August 25, the daily average trading volume within 7 days was $110 million, which ranked second in terms of data volume.

In the V2 version announced at the end of June, Perp will be coupled to Uniswap V3, Perp V2 will be directly on top of Uniswap V3, introducing the role of Maker, using a converged liquidity approach to market making, Uniswap V3 style. With the "default market making strategy" to reduce the market making threshold of ordinary LP. In addition, V2 will implement the "create market without permission" mechanism, which is Uniswap's classic free currency mechanism. At the same time, Perp will also set up V2 version in the second layer network Arbitrum.

Compare the project

Core business logic

DYdX: Using Starkware's StarkEx engine matching and chain settlement to achieve self-custody of assets, the transaction organization is point-to-point matching, mainly made by professional market makers to provide liquidity. Decentralized asset self-custody can be achieved by using StarkEx transaction engine (depositing/charging on StarkWare, a two-layer network). According to StarkWare and dYdX, self-hosting is secure. This business logic is similar to a centralized exchange in that it is a technical way to achieve a decentralized version of a centralized peer-to-peer exchange.

It should be mentioned in particular that the entity behind dYdX is a company whose business model is similar to Binance's in that they make money by charging transaction fees. In other words, the transaction fees paid by the traders in the transaction (excluding the capital fee of the perpetual contract) may be owned by the entity and may not be distributed in the community. (Usually the agreement only receives a portion of the fee, and a portion is distributed to the holder. Community).

Perp: The V2 version trades through a vAMM coupled to Uniswap V3, with liquidity provided by LP, similar to Uniswap V3 converged liquidity market making, and most LP is expected to remain passive market making due to the introduction of the default market making strategy (access to other protocols), A few large LP will be large market makers, still in the category of "active market-making AMM" futures DEX. At the end of August, Perp announced it would launch a campaign in the communityDAOWay to organize free market creation (simply put, the transaction is right "on the currency"). Due to the use of Uniswap as the foundation of erection, so Perp V2 on Arbitrum.

From the perspective of the security of user funds, it mainly refers to whether the security of user funds is guaranteed after "custody", which mainly refers to the security of the layer 2 network scheme. DYdX uses StarkEx and Perp V1 uses StarkExxDai, V2 uses Arbitrum, the scheme of the three is as follows:

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

As can be seen from Table 5-1, StarkEx adopts zero-knowledge proof in validity proof. It only needs calculation and does not rely on the goodwill of the majority of people. The problem is that it may need a lot of computing resources. The proof of stake of POS has a small probability of evil problem; The fraud certificate of Arbitrum is considered to be an incentive mechanism that can effectively avoid evil problems. From this comparison, Perp V1 capital security is slightly weaker.

StarkEx and Arbitrum security from the setting have high security, but can not be said to be "very safe", they need to continue to accept the test of the market and time, to see whether can in the long term performance security, in a variety of attacks and extreme market can not occur failures and accidents.

DYdX is equivalent to the centralized exchange to achieve self-custody of assets, avoiding the risk of centralization after the exchange runs away, the exchange manipulates the market with users' assets, the exchange embezzles assets and other funds transferred to Cex. At the same time, the idea is to use StarkEx's high performance and quality products to simulate similar to the centralized trading experience. And at present, the main force is in the head varieties such as BTC, ETH and so on. Therefore, there is no open and free creation market, and professional market makers are mainly engaged in market making. Its founders also say they want to compete for customers, especially "professional" ones (typically high-volume professional traders and institutional traders), just as centralised exchanges such as Binance and FTX do.

In terms of transaction variety and transaction concept positioning, Perp is more oriented towards long tail currency transactions, its coupling to Uniswap also points to this, and Perp's use of DAO to "coin", etc., is more oriented towards crypto native players. DYdX has sidestepped the competition in some ways by saying it will not consider the "free currency" until next year and will focus on the head varieties.

After the fact that "community operation is very important" became the consensus of several derivative DEX, it was actually acknowledged that the futures DEX is more dependent on operation than the spot DEX like Uniswap. Judging from the current total track trading volume of around 1 billion, Until the track grows to at least 5 to 10 billion transactions, community operations and operational strategy will be an important factor, so the track's development can continue to be watched.

The following comparison and analysis will partly expand the above summary.

Pricing/liquidity attraction

Due to the tight coupling between pricing and liquidity attraction, they are compared together.

Pricing method:

• Perp: V1 is vAMM (virtual AMM), V2 is pooled liquidity AMM which is very similar to Uniswap. (See Perpetual Protocol Research)

  
  

• DYdX: Order book trading, market game, market makers to order, market makers have certain pricing power in the short term.

  
  

The ultimate market-wide pricing power depends on which exchange has the deepest trading depth, the ability to attract liquidity, and could be either a centralised futures exchange (Cex) or a decentralized futures exchange (DEX).

Liquidity attraction:

• Perp V1: there is no liquidity provision in the precise sense. Everyone trades with the pool. Arbitrage robots provide automatic arbitrage to wipe out the price difference.

  
  

• Perp V2: Similar to Uniswap V3, this Staking will be done in an unspecified manner, perhaps otherwise.

  
  

• DYdX: Trading mining generated $2 billion in trading volume in a single day on August 30, but it should be noted that dYdX adopted the strategy of a typical centralized exchange, bringing in as many as eight liquidity providers in its Series C round. Including QCP Capital, CMS Holdings, CMT Digital, Finlink Capital, Sixtant, Menai Financial Group, MGNR, Kronos Research, etc., DYdX has received an investment from Wintermute, one of the largest liquidity providers in the market today, in a Series B financing round.

  
  

DYdX matches buyers' and sellers' orders in the way of market making and trading engine matching. Strictly speaking, there is no "pricing". The real-time price is generated by market game and the price difference between dYdX and other exchanges is smoothed by the market maker.

The comparison in this section actually includes two completely different pricing models and liquidity attraction models. In fact, it is a comparison between the quasi-centralized exchange operation logic and the decentralized exchange operation logic.

The operating logic, pricing and liquidity attraction of quasi-centralized exchanges 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 the actual trading volume created by traders. At the current stage, DYdX already through early accept liquidity provider of investment, and starting from the V1 version of cooperation with dealers, to establish the size of the very considerable marketmakers, although marketmakers and liquidity in theory there is no loyalty, because robot is always automatically choose the best profit plan, but the binding with project management liquidity providers will vary obviously.

The operating logic of a decentralized exchange, as described in "Core Business Logic" above, is that Perp is priced through vAMM (in the manner of Uniswap V3), while McDEX and dFuture are "processed" by formula to adjust the price based on the index price fed by an external predictor to form a quote. It should be added that Perp V1 needs to use index price when calculating fund rate, and index price when calculating clearing price when floor price fluctuates violently.

Another important point is that the "floor price" formed by vAMM has certain independent pricing ability. After the trading volume is settled in the exchange, it can obtain a certain degree of floor "pricing power". Judging from the current competition pattern, it is possible to achieve certain pricing power in the long tail currency trading.

As can be seen from the above analysis, the pricing mechanism of various AMMs is in fact similar to that of order book-style dYdX, and who has pricing power between the two does not depend on the mechanism, but on which exchange has the maximum trading depth of the market for a particular currency. In the spot case, there are some currencies with the maximum depth in Uniswap and some in Sushiswap, where Uniswap and Sushiswap have pricing power respectively.

One operating mechanism: active market making VS passive market making

DYdX: Professional market makers take the initiative to make markets, and in some cases, large market makers can achieve dominance. According to public reports, market maker WinterMute once accounted for 40% of its trading volume [21], which is the DEX closest to the centralized futures exchange in terms of experience and business mechanism.

Perp: Active market-making can be carried out on Perp V2, or the default market-making strategy (protocol) introduced by the project owner from outside can be adopted, that is, both passive LP and active market-making can be adopted. According to the ratio of 7 to passive market-making on Uniswap V3 [20], In the future, Perp V2 is expected to be mostly passive market-making LP with the default strategy, plus a small number of large-scale professional market makers.

In this respect, we mainly compare the designs of different companies in the aspects of capital demand, capital utilization and capital risk:

LP (Liquidity provider) Earnings:There is a liquidity provider in dYdX similar to that in AMM. The liquidity provider USDC is pledged, and the income is 1 million dYdX tokens that can be allocated for each Epoch (28 days), which needs to bear the risk of loss (analysis below). DYdX is paid proportionally to LP, that is, if you provide the same amount of liquidity but the overall liquidity increases, you get less dYdX, which is consistent with most LP awards in AMM. This liquidity is used to make markets for the market makers (mostly central market makers) as a supplement to the liquidity -- the market makers obviously need to use a lot of money to make markets themselves, and the market makers can only use the USDC of these LP to make markets but cannot transfer it. Note that this part of the rule design is somewhat centralized.

LP in Perp V2 earns fees (specific details have not been announced yet), while THERE is no LP in V1. Arbitragers can earn profits from arbitrage. Since arbitragers are a group of people who drive project robots or write their own strategies to carry out arbitrage, they are likely to become makers in V2. So you can say that the arbitrageurs in V1 are going to switch from taking arbitrage profits to taking fees.

Impermanence loss:If any loss occurs in the USDC pledged by LP in dYdX during the market-making process, the loss will be borne by the liquidity pool (LP), which cannot be regarded as "impermanent" loss, just like the usual market-maker loss, except that the market-maker (the central market-maker screened by dYdX) makes the market here, while LP provides the capital. Potential capital losses are subsidized by dYdX project side and secondary market (reward dYdX). As of August 31, the liquidity of this part of LP was $140 million, which does not pose too much moral hazard. However, if the amount is extremely large in the future, we need to consider the moral hazard of market makers or other financial risks.

Perp V2 will suffer a similar uncompensated loss as V3 because it is market-making in Uniswap V3 pool.

LP market making method:LP in dYdX does not actively make markets, so it can be said to be a kind of "inert liquidity" and "inert LP". However, "inert" generally means that LP relies on certain codes or rules to make markets, such as AMM, while dYdX relies on professional market makers.

The LP of Perp V2 is active market making, and like the LP on Uniswap V2, it is highly likely to make market by strategy -- non-professional LP will probably make market by some market making tool project, otherwise it will suffer a large loss, as the strategic market making agreement that Perp project parties will cooperate has not been determined. It is too early to say whether active or passive rebalancing strategies will be used to make markets on the Perp.

From this perspective, both of them are basically professional market makers with professional strategies. Ordinary non-professional LP still earns the income of "providing funds" without active operation ability. The difference is that they rely on different sources of professional market making ability: professional market makers and decentralized products of market making.

The centralization degree of the two is obviously different at this point, but may have little effect on small LP in the early stage.

Fund utilization rate and slip point problem:Since dYdX adopts professional market makers to make markets, the actual utilization rate of market-making funds can be expected to be higher. However, since this part is to compare "the utilization rate of LP funds", the utilization rate of LP funds is only related to several indicators: The first is "how much money all LP provides", and the second is "what dYdX price is". The former determines how much dYdX can be earned per $10,000 LP deposit, and the latter determines how much dYdX reward is worth USDC, independent of the actual market capital utilization.

In slippage problem, which is a professional market makers to concern, different sliding point determines the market makers need to use what kind of strategy to carry on the market, also determines which exchange market is more profitable, they go to the decision professional marketmakers liquidity, but this is not a decisive in dYdX, here is not carried out.

Thanks to Uniswap V2's high capital efficiency design, the sliding point of Perp V2 for converging liquidity market making will obviously be significantly lower than that of V1. The sliding point of V1 is due to the fact that its sliding point depends on K value. Once a large order has a large impact on market price, its opening/closing process is prone to sliding point. In V2, the liquidity will be concentrated near the price, and the slip point will be significantly reduced when the liquidity is relatively sufficient.

Due to dYdX's similar centralized exchange setting in market making, capital utilization rate and slip point have little influence on LP. At most, whether the actual rate of return provided by dYdX can outperform the annual rate of return (APY) of other Defi.

Perp V2 sets the rules of active market making. The advantages can be obtained naturally are smaller slippage points and market making with a high capital efficiency, while the disadvantages are that it needs to bear certain free losses and use strategies to actively make the market.

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

DYdX: The dYdX project is currently adding trading pairs, and the community votes to add a trading pair every two weeks, and the founder said that the free creation of the market will not be considered until next year (2022), which is relatively close to the centralized exchange "coin listing" method.

Perp: V2 From the perspective of market/trading pair creation, Perp is the self-built pool and trading pair of the project party first, and also allows the community to create the market without permission. The market creation method is relatively simple, theoretically placing liquidity, similar to creating the pool on Uniswap (the actual details need to wait for more documents of V2 version or product launch). Basically, you just need to meet the project side's limit on the maximum K value. This setting does not require much from the pool creator, but it also does not allow for complex parameter Settings. V2 will use DAO to create the market. Although the proposal has not been approved yet, it is highly likely to be approved according to the first-class position.

DYdX set is not free, but if the strategy is to focus on the head of varieties of trading - head varieties could be focused most of liquidity, it is not too much to its short-term development block, you can continue to watch for a long time, really "technical partial centralized on superposition of decentralized operation" is a good solution?

From the point of view of creating a market for Perp, Perp is more like a market for large holders or even traders with large capital. From a traditional point of view, and even from a security point of view, setting up markets is of course the job of professionals, not a game for amateurs -- a similar argument appliesUMA,SynthetixThe logic behind these synthetic asset projects is that professional technical teams create the infrastructure and professional market operators create the market. But Uniswap V1 has succeeded by breaking that stereotype -- by providing a very easy place to create a market. However, the pros and cons of these two Settings (specialization/thresholding) should be seen in the futures market, since futures are more volatile.

DYdX takes the classic (traditional) approach of a professional market maker and has the same advantages as a centralized exchange, with a better experience in normal times. From the perspective of market creation, it is the same as the above analysis that directly reviewing and adding transaction pairs by the project side is better from the perspective of security and prudence, but from the perspective of de-centralization and freedom, the imitated centralization approach is a little weaker.

This dimension may be competing goods is one of the most important dimension, because in the case of products gradually perfect, operating mechanism and the team's actual operation dimensions of the battle of "operating" may be the next phase, the main points of the emerging closer to mature, the centralized way, experience on obvious better, so continue to track leading dYdX still have larger probability.

Perp is exploring a different path: how to organize the entire futures market in a more decentralized way, whether the mechanisms that apply are different for big currencies and small currencies (in terms of overall market depth and volume), and whether there is a possibility of community-driven free futures markets.

As the decentralized futures market is still in its early days, we can well continue to watch the development of the above projects over the next year and expect a tenfold or hundredfold increase in the number of breakout points across the track.

Operational data

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

Figure 5-3 shows a comparison of The operation data of The perpetual contract product, which is analyzed by The Block website. It is clear that Perp has been significantly ahead of dYdX in transaction volume since The launch of Perp, including after dYdX launched its test network in February (its test network function is almost The same as The current product function, But after dYdX announced the start of trading mining in early August, trading volume on dYdX rocketed and surged.

Details as follows:

DYdX: the recent average daily trading volume is $700 million. On August 30, influenced by the expectation that the first trading mining will end soon and dYdX token will be launched within 10 days, 1 billion /2 billion dollars (different data and market website data vary greatly), the official website shows it is $1.3 billion.

Currently, according to the official website, there are 36, 000 addresses for deposits (deposits mean a trader has money on a second tier, possibly ready to trade or provide liquidity). As shown in Figure 5-4, the number of active trading users fluctuated around 2000 before trading mining began.

Figure 5-4 shows the number of weekly active traders on the official website. After the peak of completing trading tasks in the first two weeks of August, the number of active traders dropped significantly

Perp: Currently around $110 million in daily turnover, over $25 billion in total turnover, over $25 million in agreed revenues, and 2,885 active traders.

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

Conclusion: At present, dYdX is the leader in terms of attracting liquidity providers, trading volume during transaction mining, and product use experience, and it mainly focuses on the head products. Its strengths are partly Starkware and its own technical capabilities, partly the ownership of head capital and liquidity providers, and partly the design of trading mining mechanisms.

Indeed, partly because it now operates as a centralised exchange, similar to Binance and Bybit, making it easier for liquidity providers and specialist traders to migrate.

However, in the long term, Perp may establish an advantage in the long tail market, its V3 launch may also have new improvements in mechanism and operation, and the successive launch of Vega Protocol and other protocols may also bring changes in market share.

It remains to be seen whether dYdX's current high market share and high trading volume can be sustained, and whether other agreements and projects can explode in the next exponential trading volume growth that the whole track of Futures DEX still has.

Is a class-centric business model the best model in the long run? This question will be tested in the future development of the Futures DEX track.

risk

1) Security and failure risk: Due to the dark forest nature of Defi world and the nature of the software itself, both dYdX itself and its layer 2 network may have security and failure risks, including but not limited to: Risk of loss of hosting funds, risk of attack on exchange or Layer 2 network StarkEx, risk of trading loss caused by layer 2 network failure, security risk and failure risk of dYdX product protocol itself, such as pins, bugs, front-end crash, etc.

2) Underdevelopment risk: The futures DEX track is developing rapidly and there are many competing products, so its leading position may be challenged; Before the launch of dYdX, due to the hot trading and mining activities, the project was extremely hot. After the launch of dYdX, there may be a risk that the project data is not as expected (for example, if the price of dYdX currency is adjusted, the transaction and mining heat will be adversely affected).

3) Risk of dYdX token value capture capability: the attribution of transaction costs is not determined, and there may be a risk that the agreement cannot capture transaction costs.

4) Quasi-centralization risk: dYdX's operation is partial centralization, and there may be related similar centralization risk in operation. First, market-makers mainly center makes market makers, and many investors market-makers is project, in the process of market, if marketmakers cannot return flow pool pledge loan, can lead to liquidity pledge (LP) loss, and has the potential to manipulate the market price, such as fixed-point broke in the centralized exchange common risk of marketmakers evildoers. Secondly, at present, dYdX token allocation is centrally determined by the project side to determine which are "cleaning transactions" and cancel the transaction mining reward, which may lead to the loss of mining costs for traders. As such, there may be other unexposed risks of class centralization.

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The resources

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