dYdX Review

dYdX is a decentralized trading platform built on the Ethereum protocol. The project was first proposed to the public in September of 2017, with formal updates being made to the official whitepaper as of August 2018.

DYDX Lending Rates

BAT
BAT
0.15%0.15%
DAI
DAI
6.19%5.67%
ETH
ETH
0.05%0.05%
REP
REP
0.01%0.02%
USDC
USDC
4.7%4.54%
WBTC
WBTC
1.05%0.93%
ZRX
ZRX
0.14%0.18%

dYdX aims to create a set of protocols that allow several types of financial products to be created, issued, and traded for any pair of underlying ERC20 tokens. As of writing, dYdX currently supports lending, borrowing and margin trading (both long and short) for ETH, USDC and DAI. In total, there are $30M worth of assets being pooled via the protocol today.

It’s worth noting that unlike other projects supporting with similar goals, dYdX is inherently decentralized, meaning that all funds are managed by smart contracts, rather than by a third party or intermediary.

How Does dYdX Work?

The process for utilizing any of the three supported services start out in the same manner. First and foremost, you must have a small amount of ether ($ETH) to cover transaction fees in a supported web 3.0 wallet, which in the case of dYdX, is either Metamask or Coinbase Wallet. By connecting your wallet, you are then able to utilize any of the services below as follows:

dYdX Lending

Once you’ve connected your wallet, head on over to the “Balances” tab at the top of the page to start lending our your assets via dYdX.

From here, you’ll be able to see an overview of the different rates being offered for each of the supported assets. You’ll see that each asset has a different interest rate, and will find that these interest rates are dynamic. This means as the supply and demand for each asset change, the interest rate changes as well.

You can always check the current interest rate you would earn on an asset on the markets page under “Supply APR”. As it stands today, users can earn 0.03% APR when lending ETH, 4.91% when lending DAI and 4.98% when lending USDC.

When clicking “Deposit”, a new window will open encouraging you to select the amount you wish to lend along with the expected APR.

Once the transaction has successfully been processed, your assets will begin accruing interest automatically! You can check accrued interest via the “Balances” tab at any time. Interest is paid continuously, meaning you can close a position or withdraw funds at any time without worrying about a lock-up period.

 

dYdX Borrowing

The process for borrowing assets is just as simple. Simply head over the “Borrow” tab and select the asset which you wish to borrow.

When selecting an asset, dYdX will display the APR you will have to pay for taking out a loan.

At the time of writing, users must pay an APR of 0.53% when borrowing ETH, 7.23% when borrowing DAI and 7.29% when borrowing USDC.

Please note that in order to borrow through dYdX (and virtually all other lending platforms), you will need to deposit collateral first. As with most other platforms, you will be required to overcollateralize your borrowing position, meaning that you must put up more than 100% of collateral for whatever you intend to borrow.

Interestingly enough, collateralization on dYdX is slightly lower than competitors, often starting at 1.25x collateralization with a minimum margin requirement of 1.15x (most industry competitors require 1.5x collateralization).

When you wish to close a position, utilize the “Outstanding” button to pay back the borrowed assets plus whatever interest was accrued. At this point, your collateral is free to be withdrawn back to your original wallet.

Margin and Leverage

Outside of lending and borrowing, perhaps the most unique aspect of dYdX is it’s novel approach to margin trading via isolated and cross margin strategies. For those unfamiliar with margin trading, these services allow you to take on increased exposure beyond the amount of assets you currently have at your disposal.

Margin is the collateral amount being deposited by the trader. Borrowed funds are usually collateralized by other assets and must be repaid with interest.

Leverage is created by using margin — it is the increased buying power available to place a higher value trade than a trader otherwise could. Leverage increases the potential reward for a trader, but also increases the risk.

Isolated Margin

Isolated margin trading is when you ‘isolate’ a certain amount of funds as part of a trade, at a specific leverage. Leverage determines how much margin deposit is required, and if liquidation occurs, losses are capped by the size of the isolated position. In practice, you can think of this as leveraging each specific asset on a case by case basis.

Cross Margin

Unlike isolated margin, cross margin utilizes all of the assets in your dYdX account balance as collateral. Seeing as account balances can always be positive (meaning that you are earning interest) or negative (meaning that you are paying interest), unique positions can be taken to further leverage your interest in a particular trading strategy.

In practice, cross margin would allow you to convert ETH deposited in the dYdX smart contracts into DAI to earn a higher interest rate on your lending. Alternatively, cross margin can be used to increase your long on ETH by “borrowing” USDC or DAI. This means that while you have an enhanced ETH balance (say 2x of what you actually own), you will owe an equivalent amount in DAI or USDC back to the protocol (displayed as a negative DAI or USDC balance).

dYdX Core Team

dYdX was founded in mid-late 2017 by Antonia Juliano. With one of the most seasoned teams in DeFi and blockchain as a whole, it’s evident that the project has been the accumulation of knowledge from many different facets of professional work to date. The company features a strong development core, with the five current software developers bringing experience from tech giants including but not limited to Google, Uber, Bloomberg, Coinbase and NerdWallet to the table. Supplemented by strong operations and recruitment/community management members, this nimble team of seven is on pace to exceed expectations yet again.

Summary

While dYdX continues to improve on their existing feature sets, it should come as no surprise that this is only the beginning for the protocol. While there are currently only 3 different assets supported on the platform (2 of which are stablecoins), it’s likely that the platform will soon start supporting more volatile Ethereum-based assets for sophisticated traders to take advantage of.

In the meantime, dYdX offers a unique alternative to lending via Compound or Nuo specifically for the actions that can be taken beyond lending and borrowing. As highlighted in the margin trading section, dYdX currently offers a one-stop shop for earning interest on leveraged positions all in a trustless fashion.

Over the coming months, we’re eager to see how the existing interest rates align with the values of other competitors. For now, be sure to stay up to date with all the latest updates from the blog via their official blog here.

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