Investment Research Report

01 Brief description of the project

dYdX is a decentralized cryptocurrency derivatives trading platform that supports spot trading, margin trading and perpetual contract trading, using an order book model similar to the CEX experience. dYdX is also a decentralized lending platform. Currently, dYdX has not yet issued a coin, and the ecological governance is mainly based on team decisions.

Official Website | https://dydx.exchange

Twitter | https://twitter.com/dydxprotocol

Documentation | https://docs.dydx.exchange

Blog | https://medium.com/dydxderivatives

Code | https://github.com/dydxprotocol

02 Project Explanation

dYdX was launched in May 2019 and currently has two functional sections: lending and trading.

2.1 Borrowing and Lending The dYdX system supports the borrowing and lending of ETH, USDC and DAI assets.

Users need to make a deposit to dYdX before they can perform any operation on dYdX. dYdX can directly deposit ETH, while USDC and DAI need to be enabled and then deposited, i.e., two on-chain operations and two Gas payments are required to deposit the latter two assets. dYdX is equivalent to a loan pool, which automatically generates interest on the deposit and can be withdrawn at any time.

Users can make loans on dYdX for ETH, USDC and DAI, which require collateral, such as pledging ETH for DAI or DAI for USDC. dYdX uses an overcollateralization rate of 125% (the value of the collateral must be greater than 125% of the loan value at the time of the loan), and the liquidation line is 115%, and if subsequent price fluctuations cause the liquidation line to be hit If subsequent price fluctuations cause the liquidation line to be hit, the loan will be automatically liquidated, less an additional 5% liquidation fee.

In lending, USDC and DAI have higher interest rates, while ETH has a very low interest rate. The current USDC deposit/loan estimated APY is 11.9%/12.31%; DAI deposit/loan estimated APY is 13.84%/15.14%; ETH deposit/loan estimated APY is 0%/0.18%.

2.2 Trading dYdX currently supports spot trading, margin trading and perpetual contract trading, and adopts the order thinning mode of off-chain aggregation + on-chain settlement. The operation experience is closer to the traditional CEX, and can realize limit trading, stop-loss and other operations.

Before trading, you need to make a deposit into dYdX, which is equivalent to depositing funds into your dYdX account, and then when trading (buying, selling, opening and closing positions), you only need to sign and no longer consume Gas. dYdX account system is divided into spot account, margin account and perpetual contract account, and each account is separate from each other.

At present, spot trading and margin trading support ETH/DAI, ETH/USDC and DAI/USDC pairs. Spot trading and margin trading are equivalent to spot leverage, supporting up to 5 times leverage and position-by-position and full position modes. Permanent contract trading currently supports BTC/USD, ETH/USD and LINK/USD, with price information from CEX such as Coinan, Bitfinex and Coinbase, and supports up to 10 times leverage, where ETH contracts can be traded with ETH, and BTC and LINK contracts can be traded with USDC and USDT. *** Translated with www.DeepL.com/Translator (free version) ***

2.2 Trading dYdX currently supports spot trading, margin trading and perpetual contract trading, and adopts the order thinning mode of off-chain aggregation + on-chain settlement, which is closer to the traditional CEX in terms of operating experience and can realize limit trading and stop-loss operations.

2.3 Layer 2 In August 2020, dYdX announced a partnership with StarkWare to integrate the company's Layer 2 technology into dYdX to solve the problem of trade congestion and high Gas fees.

In January 2021, dYdX announced that the Layer 2 integration will go live soon, with some pairs potentially supporting 25x leverage, and that dYdX will also go live with 10 new pairs, with a target of 30-50 new pairs in the next few years.

03 Development Status

3.1 Community buzz Currently, dYdX has 5,781 Discord groups and 21,000 Twitter followers. The community is generally enthusiastic, perhaps due to the lack of token issuance and lack of user engagement.

3.2 Market Value Data

3.2.1 Annual Data According to dYdX's official annual data for 2020, dYdX's total cumulative trading volume for spot, margin and perpetual contracts has increased 40 times from $63 million in 2019 to $2.5 billion in 2020. The spot and margin markets have traded more than $1.9 billion, the perpetual market has traded $563 million since its launch in April, and perpetual volume as a percentage of total volume has continued to grow, accounting for 41% in December 2020. In the lending section, dYdX's lending pool has generated more than $17.4 billion in loans.

In terms of user growth, the number of wallets on dYdX's deposit smart contracts grew 4.8x in 2020, from 8,000 to 38,588.

3.2.2 Current Data According to real-time data from dYdX's official website, dYdX currently has 1,025 24-hour users and $38.95 million in total transactions, of which $27.4 million or approximately 70% is in spot and margin transactions and $11.54 million or approximately 30% is in perpetual contracts. The current lending pool has a total supply of $264 million and a total borrowing volume of $77.08 million.

According to CoinGecko's data ranking, dYdX currently ranks 14th in terms of trading volume in the entire DEX market.

04 Team and Endorsement

4.1 Team Information Founder Antonio Julianno worked as a software engineer at Coinbase, Uber, MongoDB, and founded Weipoint, an ethereum search engine, in 2017. Zhuoxun Yin, head of operations, has left and is now working as both a product manager at Coinbase and a consultant at mStable.

4.2 Funding On October 20, 2018, dYdX closed a $10 million Series A round led by a16z and Polychain Capital and followed by Craft Ventures, Bain Ventures, Dragonfly Capital, VY Capital, Abstract Ventures, 1confirmation, and Kindred Ventures.

On January 26, 2021, dYdX closed a $10M Series B round led by Three Arrows Capital and DeFiance Capital and followed by new investors Wintermute, Hashed, GSR, SCP, Scalar Capital, Spartan Group, RockTree Capital and existing investors a16z, Polychain Capital and others.

05 Project Analysis

Derivatives trading occupies a large share of the crypto market, but the track in DeFi has not yet taken off and has the potential to explode in the future. At present, dYdX is in the top position in the derivatives trading track of DeFi, and it has received investment from many institutions, and has nearly two years of technical and user deposits, and the data such as trading volume is relatively excellent. At the same time, dYdX's order book model is similar to CEX's operating experience, which is more in line with the usage habits of users outside the DeFi market, and is conducive to attracting a large number of potential users to enter the market.

dYdX currently supports not only derivatives trading, but also has an excellent lending section, where users can earn interest by depositing funds, simplifying all kinds of unnecessary operations and fitting seamlessly with dYdX's trading business. The main problems with dYdX are two: the high Gas fee and the small number of trading pairs. However, dYdX has already proposed solutions to these two problems, and will soon launch Layer 2, and will add new pairs and higher leverage perpetual contracts. dYdX has not yet issued a coin, but will likely do so in the future to achieve decentralized governance. As DeFi traditionally does, it may issue airdrops for users during future coin offerings, so consider doing a few lending or trading operations in dYdX, although Gas fees are currently high, with just one deposit to dYdX costing about $50 in Gas, so we recommend proceeding wisely.

coke

Investment Research Report - dYdX

coke