dYdX (DYDX) is a decentralized finance protocol and trading platform built to cash in on perpetual contracts.
A Perpetual Contract is a cryptocurrency futures contract with no expiration date. Hence, a Perpetual Contract is a futures contract that can theoretically last forever. A Perpetual Contract’s value comes from the crypto asset they base it on. For example, a one Ethereum Perpetual Contract is worth one ETH.
To elaborate, a futures contract is an agreement to buy an asset to the future at a specific price. For example, an agreement to buy Binance (BNB) at $200. Hence, a Perpetual Contract is an effort to lock in a purchase price.
What is a Perpetual Contract ?
Speculators buy Perpetual Contracts now with the hope they can sell the asset or the contract at a higher price in the future. For example, if you buy a $200 Binance Perpetual Contract, you can make money by selling the contract if Mr. Market pays $300 for Binance.
Another name for Perpetual Contracts is Perpetual Swaps. A Perpetual Swap is a derivative that allows people to speculate on a crypto asset’s future price.
A derivative, or synthetic asset, is an asset that derives its price from ownership of another asset. For example, a Solana (SOL) Perpetual Contract derives its price from ownership of Solana tokens.
How does dYdX make money?
They claim dYdX (DYDX) allows people to trade Perpetual Contracts with no fees. Users can trade up to $100,000 a month in Perpetual Contracts with no fees through dYdX. Moreover, they claim people can start trading on dDdX with as little as $10.
dYdX makes money by charging people who trade over $100,000 a month a fee. Hence, ordinary people trade free while whales or big-time speculators pay fees.
dYdX settles all contracts in the USD Coin (USDC) stablecoin. The USD Coin is an Ethereum stablecoin that makes payments in US dollars when you spend it.
dYdX Technology
To increase trading volumes and make more. dYdX and StarkWare are building a Layer 2 protocol for cross-margin perpetual contracts. They claim this will lower trading fees and gas costs while allowing smaller trades.
A cross-margin perpetual contract can support multiple trades from a single margin account. They hold all the margin funds in USDC so they can make trades in dollars. dYdX claims this allows for perpetual contracts with 25 times the leverage of normal contracts.
They are moving dYdX to an Ethereum Layer2 because conventional Ethereum can only process around 15 transactions per second (TPS). A Layer2 can free Ethereum’s base layer by executing transactions on another blockchain.
ZK-Rollups and StarkWare
StarkWare builds blockchain scalability solutions that allow on-chain Ethereum solutions, such as dYdX, to access off-chain computers or virtual machines. StarkWare uses zero-knowledge rollups or ZK-Rollups as a scaling soluiton. A ZK-Rollup bundles multiple transactions into a single batch. The Roll-UP allows dYdX to verify transactions by putting proofs on Ethereum.
They claim ZK Rollups offer instant proof of transactions and enable self-custody and privacy. dYdX can process up to 3,000 TPS, allowing for high-volume transactions. They scale Layer2 through the StarkEx scalability engine. StarkEx uses cryptographic proofs to verify a batch transactions. StarkEx supports Ethereum ERC-20, and ERC-721 tokens and can work with any Ethereum Virtual Machine (EVM) compatible blockchain.
Using ZK Rollups allows dYdX to match trades onchain and settle trades off chain. No spot or margin trading is allowed on Layer 2. Instead, Layer 2 is for derivative trading.
They identify dYdX users with StarkKeys. A StarkKey is a public key. Users need an Ethereum address to register a StarkKey. The StarkKey gives the user access to dYdX’s smart contracts. The StarkKey gives a user access to a Stark Contract that processes transactions online and offline.
dYdX uses Cairo, the first production grade platform Stark Proofs for general Computation. Using Cairo allows dYdX to develop new apps faster. The hope is Cairo will allow dYdX to use zero knowledge proofs for all transactions. dYdX uses decentralized price oracles such as Chainlink and MakerDAO.
Users can access dYdX through an App Store app. They are developing an Android app that could be available in 2023.
dYdX Trading
dYdX (DYDX) is continuously developing new Perpetual Contract markets. Each market offers speculators access to perceptual contracts for cryptocurrencies.
Perpetual Contract markets dYdX offers include Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), Dogecoin (DOGE), Polkadot (DOT), Litecoin (LTC), Chainlink (LINK), Uniswap (UNI), Solana (SOL), Polygon (MATIC), Monero (XMR), EOS (EOS), Aave (AAVE), Cosmos (ATOM), Maker (MKR), Compound (COMPI), Avalanche (AVAX), Syhnetix (SNX), SushiSwap (SUSHI), Yearn (YFI), UMA (UMA), Curve (CRV), 1inch (1INCH), Zcash (ZEC), Algorand (ALGO), Ox (XRX), Enjin (ENJ), Stellar (XLM), Ethereum Classic (ETC), Near (NEAR), THORChain (RUNE), Celo (CELO), InternetComputer (ICP), Tron (TRX), and Texos (XTZ).
dXdY reported a 24-Hour Trading Volume of $1.203 billion, 369,264 trades in the last 24 hours, and $302.618 million in Open Interest on 10 January 2023.
What Value does dYdX offer?
Mr. Market has a strong interest in the dYdX (DYDX) token. dYdX was CoinMarketCap’s 12th most trending cryptocurrency on 6 January 2023.
CoinMarketCap gave dYdX its 185th ranked cryptocurrency and gave it a $1.39 Coin Price on 10 January 2023. CoinMarketCap gave dYdX a $90.885 million Market Cap, a $1.386 billion Fully Diluted Market Cap, and a $42.625 million 24-Hour Market Volume on 10 December 2023.
There was also a $49.034 million Centralized Exchange (CEX) Volume and a $599,405 Decentralized Exchange Volume on 10 January 2023. They base those numbers on a Circulating Supply of 65.569 million DYDX and a Total Supply of one billion DYDX.
In contrast, DYDX was CoinGecko’s 147th ranked cryptocurrency, with a $1.39 Coin Price on 10 January 2023. CoinGecko gave dYdX a $199.507 million Market Capitalization, a $61.665 million 24-Hour Trading Volume, a $1.386 billion Fully Diluted Valuation, and a Total Locked Value of $399.515 million. They base those numbers on a Circulating Supply of 143.934 million dYdX and Total and Maximum Supply of one billion dYdX.
What Value could dYdX obtain?
I think dYdX is a cryptocurrency that offers value because there could be a high demand for Perpetual Contracts. I think there could be a demand for Perpetual Contracts because of the size of the global derivatives market.
Industry Research estimates the global derivatives market could grow from $21.98 billion in 2020 to $39.170 billion in 2027. In contrast, the Bank for International Settlements (BIS) estimated the notional outstanding value of Over-the-Counter (OTC) derivatives worldwide at $598.trillion in December 2021.
Hence, the market for derivatives is vast and growing, which shows dYdX could obtain a significant value at some point. Thus, cryptocurrency speculators interested in derivatives need to need investigate dYdX (DYDX).
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