dYdX Exchange: How does it Work?
dYdX is a decentralized cryptocurrency trading platform that allows the users to gain access to advanced cryptocurrency trading tools. It has been claimed that this is one of the best platforms for professional cryptocurrency traders, because it offers some advanced features that are not obtained on some other trading platforms.
As a Decentralized Exchange (DEX), dYdX makes it easier for trades to be between the traders and the market, thereby, cutting off intermediary influence. The decentralized architecture is bolstered by the use of a Starkware Layer 2 scaling protocol, as well as the Ethereum blockchain.
dYdX also doubles as a hybrid cryptocurrency exchange; an operational model that opens up the platform for use by anyone that vas access to the Internet. You can access and perform trades on the platform via several instruments, such as leverage trading, crypto-asset borrowing, margin trading, and lending crypto assets.
Perpetual Trading on dYdX: Everything You Need to Know
Contract for Differences (CFDs) are financial instruments offered by a financial trading platform (cryptocurrency exchange or brokerage). The contract is designed to allow the traders to open futuristic contracts on different asset classes.
On the dYdX decentralized exchange, the conditions are a bit different. Unlike some of the traditional futures contracts, the ones offered here are different.
dYdX only offers Perpetual Contracts, which are contracts tradable on the exchange. By this design, traders wouldn’t be struggling to fulfill the conditions of the contract in the shortest time possible, because it is not a time-based or fixed contract.
Instead, trading Perpetual Contracts on dYdX can be likened to trading on the Spot interface. Also, the contract can only be closed either in profits or by liquidation, when either of the parties (the exchange or the trader) agrees to end it. The settlement for the contract is done via the base cryptocurrency.
The Perpetual Contract offered by dYdX is offered via the StarkWare Layer 2 Solution and can be as high as 25x in leverage of synthetic assets.
Here are the important things you need to know about the Perpetual Contracts trading on dYdX:
- Supported Trading Pairs
Trading pairs are the assets that can be traded for the main asset. For example, you can trade Bitcoin for Tether USD (USDT) by using the BTC/USDT pair.
These are some of the supported trading pairs on dYdX:
- - BTC/USD
- - ETH/USD
- - SOL/USD
- - FIL/USD
- - AVAX/USD
- - YFI/USD
- - DOT/USD
- - COMP/USD
- - MKR/USD
- - ZRX/USD
- - ATOM/USD
- - FIL/USD
- - SNX/USD
- - AAVE/USD
- - UNI/USD
- - LINK/USD
- - UMA/USD
- - DOGE/USD
- - 1INCH/USD
- - EOS/USD
- - CRV/USD
- - ZEC/USD
- Types of Fees
Trading Perpetual Contracts on dYdX comes with additional fees. These are the fees for the Maker and the Taker. You are to pay the Maker fees if your orders do not fill immediately you place them. The Taker fees are charged when your orders cross the Maker orders and deplete the liquidity in the order book.
- The Layer 2 Solution Used by dYdX
The Layer 2 blockchain technology simply refers to the establishment of a platform atop an existing network, such as a blockchain protocol. This is what the dYdX Decentralized Exchange (DEX) uses to scale transactions for the underlying Ethereum blockchain. Most Layer 2 solutions do this by aggregating or collating the transactions onto a smart contract that is already functioning in the underlying protocol.
The StarkWare Layer 2 Solution used by dYdX is designed to enable faster transactions for the cross-margin Perpetual Contracts offered by the exchange. To that end, the traders on the exchange can be confident of enjoying lower trade sizes, lower gas costs and affordable trading lows.
The validity of the transactions is assured by the Zero-Knowledge Proofs, while the Layer 2 network oversees the settlement of the contracts within the network.
dYdX also has an upper hand by offering some features that are not so popular on other exchanges. Notable among these features are periodic submission of proof of transactions, order book maintenance via a low-latency off-chain system. It also handles trades, transfers, liquidations, oracle updates and deleverages trades.
- Perpetual Contract Trading Orders
dYdX offers 4 different types of orders. These are:
- - Market Order: This type of order allows you to open a Perpetual Contract at the current market price of the cryptocurrency.
- - Trailing Stop Loss: This is a modified variant of Stop Loss. It allows you to closely follow the price of the cryptocurrency and adjust your stop loss accordingly.
- - Limit Order: You can use this type of Perpetual Contract order to place an order to buy a cryptocurrency below the current market price or sell it above the current market price. The order will be triggered when it gets to the price you set.
- - Take Profit Limit Order: This order is activated when your Profit price has been achieved.
- - Stop Limit Order: Use this type of order when you want to specify the amount or percentage you are willing to lose if the contract doesn’t execute as expected.
- Powered by the dYdX Token
Just like other cryptocurrency exchanges, dYdX has a dedicated token called the dYdX Token. It doubles as the native token used for settling fees, as well as for governance purposes. It is an ERC20-compliant Ethereum token.
Only about 57 million out of the 1 billion supply of the token is circulating. You can earn the dYdX Token by either earning it as a rebate or staking USDC to a pool to earn the token.
Can dYdX be Trusted?
The dYdX exchange locks funds in smart contracts, thereby, cutting off intermediaries. The reliability of its security architecture has also been vetted by independent security firms, such as Zeppelin Solutions and Peck Shield.
At the time of writing, no negative reports have been filed as regards the reliability of the security architecture. Besides, the users get to control their Private Keys, thereby, exercising complete control over their funds.
dYdX has been living up to expectations. The focus on decentralizing the trading system will go a long way to lend credence to the relevance of Decentralized Finance (DeFi).
For more information on dYdX and verification, look them up on the following socials
Authored By MavOpk