dYdX: Could Be The Dominator Of Decentralized Derivatives Exchange?
Author: Uksang.BlueNode
2023/11/06 (Mon.)
— 본 글은 체인저의 리서치 파트너로서 작성한 자료입니다. (https://changer.io/research/detail?id=654b7803090c41ad52b96682)
What is dYdX?
dYdX is a decentralized exchange that supports perpetuals, margin and spot trading, as well as lending and borrowing. It was started in 2017 by Antonio Juliano, who worked at Coinbase. It has received a total investment of $87M from investors including Paradigm and Polychain.
Initially, it was a DApp built on the Ethereum mainnet. But to solve user convenience and gas costs, dYdX and StarkWare have built a Layer 2 protocol for cross-margined perpetuals, based on StarkWare’s StarkEx scalability engine and dYdX’s Perpetual smart contracts. This allows users of dYdX to enjoy both the security and transparency of decentralized exchanges and the speed and convenience of centralized exchanges.
In April 2021, when Layer 2 was released, volume on dYdX increased to $552m from $27.8m the previous month, showing a nearly 20x growth. For the same year, the highest monthly volume was $106b in October, which exceeds Uniswap’s highest monthly volume of $86b. Even considering that it’s a derivatives exchange, it showed great trading volume.
But the dYdX team didn’t stop here. They’ve been preparing for the launch of dYdX v4 since June 2022 to provide users with a better trading experience. dYdX mainnet is a Layer1 network based on CosmosSDK, featuring off-chain order book and matching engines that are fully decentralized. The team announced the launch of Mainnet in October 2023 and are currently progressing to migrate from Ethereum Mainnet to dYdX Mainnet.
dYdX Analysis: Successful migration is KEY
Although there are some fluctuations depending on market conditions, it generally has a monthly trading volume of more than $20b, and the fee generated from trading is close to $80m per year. But, Despite still maintaining high volume, the price of the $DYDX token plunged from a high of $27 to a low of $1 and is now around $3. Why?
As mentioned earlier, trading volume on dYdX hit a peak in October 2021. This was largely attributed to the liquidity mining system starting in August 2021, which provides compensation based on fee paid and open interest by users. However, the reward of the event was paid in $DYDX, which led to a drop in the price of the token. This is because it was just a governance token with no real use case.
Furthermore, it is essential to note that a significant portion of the $DYDX token supply, over 70%, remains untapped. This includes tokens held by early investors and the project team. As we progress towards 2026, the complete release of these tokens into the market could potentially exert downward pressure on the price of $DYDX.
Despite these impending challenges, there is optimism regarding the future of the dYdX protocol and its associated token, $DYDX, especially if the migration process proves successful. The migration aims to enhance the protocol’s user-friendliness and provide a tangible use case for $DYDX, which has primarily served as a governance token. By fostering increased demand for the token, its long-term value is anticipated to rise.
This optimism is supported by two key developments outlined in the official dYdX foundation blog:
- Users will have the option to pay transaction fees using the native token, $DYDX.
- Chain validators will play a crucial role through staking.
All protocol fees will be distributed to these validators and stakers. Details can be found at https://www.dydx.foundation/blog/dydx-token-mechanics.
However, a critical concern lies in user loyalty to the dYdX brand. Ethereum’s mainnet boasts an extensive TVL that surpasses other chains, and the convenience of asset movement via bridging solutions adds to its appeal. The successful migration will hinge on retaining users and minimizing their migration to other chains or DApps.
