dYdX: First Look

September 28, 2023

dYdX is a decentralized derivatives exchange for digital assets. Users can permissionlessly trade perpetual futures on 36 different digital assets with low trading fees and access to leverage. 

The decentralized exchange (DEX) has added significant upgrades since its founding as a simple margin trading platform in 2017. Major changes include an internally built orderbook, support for perpetual futures (more on this later), and several changes to the protocol’s architecture. After starting on Ethereum Layer 1, dYdX migrated to a Starkware Layer 2 and is now moving to its own Cosmos app-chain. 

What Problems does dYdx Solve?

dYdX gives digital asset traders access to low-cost derivatives trading and leverage like a centralized exchange would, but with all the benefits that DeFi offers. This lets traders express trade ideas, hedge their portfolios, and make markets in digital asset derivatives without having to rely on a centralized counterparty.

There are many advantages to trading perpetual futures over standard spot trading. Perpetual futures (or ‘perps’) are similar to traditional futures contracts tied to an underlying asset, except they don’t have an expiration date. Many traders prefer using perpetuals to trade because they can easily get leverage, go long or short, and don’t have to worry about the mechanics of the custody/sale/purchase of the underlying asset. 

To enter a perpetuals trade, a trader purchases a contract tied to one side of the price of an underlying crypto-asset, long or short. Perpetuals keep their price close to the underlying spot price through a funding mechanism between the long and short side. When perp price rises above spot price, the short holder pays a funding rate to the long holder, lowering the perp price closer to spot, and vice versa.

Decentralization is one of the core ethos of crypto, but many DEXs are clunky and difficult to use. dYdX is built with user experience as a first principle. For example, dYdX allows credit card purchase and bank transfers to buy USDC and immediately begin trading. In the light of the collapse of centralized exchanges like FTX, reliable and easy-to-use decentralized platforms are more important than ever.

Use Cases

dYdX aims to become one of the leading exchanges in digital assets through a great interface and the benefits of decentralization.

Perpetuals Trading on dYdX

dYdX offers access to a wide array of perpetuals with features and liquidity designed to be on par or better than centralized exchanges.

Decentralized Platform 

Traders don’t have to give up custody of their assets or rely on dYdX’s standing to know their assets are safe. 

dYdX Rewards

dYdX token holders earn rewards from trading fees on the exchange. Rewards are paid out in USDC, making it easier to track performance and payouts.

Gasless Trading 

A blockchain user pays ‘gas’ fees to a blockchain network when they submit a transaction to the chain. These fees help to incentivize network nodes to operate and exist on most chains. They also make trading more expensive for users, however, and their variable nature can make the fee even higher when a network has high demand. dYdX does not charge users gas fees, helping to reduce the cost to trade and removing the unpredictability that arises from gas fee changes. 

Network Tokenomics

The dYdX token launched on Ethereum in September 2021. When the dYdX app-chain launches, users can bridge their tokens to the new Cosmos chain from Ethereum.

Token holders can vote on governance proposals and use their holdings to get discounted trading fees on dYdX. More info on these discounts below.

1,000,000,000 initial dYdX tokens were minted and are scheduled to be released over a 5 year time horizon (2021-2026). After this time, dYdX governance allows for token holders to enact up to a 2% maximum annual inflation rate. All new inflation tokens will flow to the community treasury.

dYdX uses Proof-of-Stake consensus to allow token holders to help secure the network, confirm transactions, and earn rewards from trading fees on the protocol. Validators switch off proposing new blocks in a weighted round-robin fashion. Unique to dYdX’s app-chain, validators are also responsible for storing orderbook data. User trades are submitted off-chain and only go on-chain when they are committed to consensus. 

dYdX Staking Specifics

  • Unbonding period: 30 days
  • Slashing penalties: Downtime and double-signing are both eligible for slashing. When a validator double-signs they are removed from the validator set and are unable to join again.

dYdX / USDC Dynamic

dYdX offers unique incentives for staking the dYdX token, the protocol’s native staking token. The protocol generates USD-denominated trading rewards that are then paid out to stakers in USDC. We’ve laid out some hypothetical staking payouts below. Key assumptions include:

  • $1.97 / dYdX token price.
  • Annual Revenues: Based on annualized prior epoch trading rewards, dYdX would generate about ~$50 M in trading rewards in the next 12 months.


All dYdX token holders can propose and vote on protocol proposals; one token = one vote. The dYdX team has continually pushed for further decentralization. 

In addition to votes for eligible token holders, the dYdX community has formed several committees to help oversee the protocol and its roadmap. 

dYdX Token Holders

dYdX holders can vote to change many parameters of the protocol, including adding/removing markets, deciding how future tokens are distributed, altering fee schedules, and voting on insurance fund usage.

dYdX Foundation

A nonprofit foundation that seeks to grow and support the dYdX protocol ecosystem by enabling communities, developers, and decentralized governance.

dYdX Sub DAOs

dYdX Grants Program: A sub DAO that proposes initiatives to ecosystem participants and offers grants for their completion. The program was created by community governance proposal DIP 6.

dYdX Operations subDAO/Trust (aka DOT): A team also created by a dYdX governance proposal (DIP 23) to ensure seamless operations of key community infrastructure. Namely, the team is responsible for one frontend, one indexer, and one iOS app.

The dYdX Team

dYdX was founded in 2017 by ex-Coinbase software engineer Antonio Juliano. The core team, dYdX Trading, now numbers around 50 and continues to be a contributor to the protocol’s decentralized ecosystem.

Investors include Andreessen Horowitz, Paradigm, and Polychain and angels including Brian Armstrong and Fred Ehrsam. The DEX raised $65 M in their most recent fundraising round, a Series C that closed in June 2021.

Figment Involvement With dYdX 

Figment will support staking on dYdX’s new chain on mainnet launch day. If you are interested in staking dYdX, Figment offers a host of services aimed at delivering safe and reliable staking rewards for your assets. 

Our 250+ institutional clients rely on Figment to provide best-in-class staking services including seamless and easy integrations, detailed rewards reporting, insights, double sign slashing, and downtime penalty coverage. Figment’s team has extensive dYdX knowledge intended to help dive into the specifics such as rewards and staking information. Meet with us to learn more about dYdX staking.

The information herein is being provided to you for general informational purposes only. It is not intended to be, nor should it be relied upon as, legal, business, or investment advice. Figment undertakes no obligation to update the information herein. 


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