Original title: Blade Dialogue | dYdX-the new favorite of DeFi derivatives trading platform.
In the DeFi boom, DEX trading volume has continued to rise, and new DEXs are also pouring in. Compared with the new type of DEX, what are the innovations of the old decentralized derivatives exchange dYdX in terms of technology and security? What are the main differences with other DEX platforms? What are the advantages of using StarkWare to implement a layer 2 scalability solution?
On December 3, dYdX founder Antonio Juliano and Amber’s well-known KOL had the same spring
Invited to be a guest at the “Blade Dialogue” AMA hosted by Midu, during the live broadcast session, two guests conducted a series of discussions and sharing on StarkWare’s implementation of Layer 2 scalability solutions, and dYdX’s technological innovation advantages.
The following is the original live broadcast, enjoy.
1. Moderator’s question session:
Daisy: First, let the guests introduce themselves, and briefly introduce what dYdX is and the results achieved since the launch of the platform.
Antonio: Hi everyone. I am Antonio, the founder of dYdX.
I have been engaged in digital currency work for more than 5 years, almost all of my entire career. I started my career as a software engineer at Coinbase. In 2015, Coinbase has many of the best talents in the field of digital currency and is a very good place to work. What really moved me was Ethereum. For the first time, it is possible to create a program that executes on a distributed ledger that does not require permission at all. I suddenly realized that this is a major shift in the computer field. I decided to take the plunge and founded dYdX at the end of 2017.
dYdX is a leading decentralized exchange. The developer’s mission is to build open, safe and powerful financial products. Our DEX provides spot, margin and perpetual contract trading with up to 10 times leverage. Our products enable traders to better manage risk, allocate funds more efficiently, and express complex opinions on prices and volatility.
We at dYdX have received 12 million U.S. dollars in venture capital and supported by companies such as a16z and Polychain Capital. The cumulative transaction volume is 2.1 billion U.S. dollars, and the average daily transaction volume is 10 million U.S. dollars. We launched a perpetual contract in 2020, which now accounts for about 45% of the total amount. Since its launch, our commission income has reached US$2.4 million, a monthly increase of 30%. Last week was our highest trading week in history, with a total weekly trading volume of more than $145 million, but this is just the beginning.
Daisy: In the DeFi boom, DEX trading volume has continued to rise, and new DEXs are also pouring into it. What is the core competitiveness of dYdX as one of them? What are the main differences with other DEX platforms?
Antonio: We believe that we have established one of the most powerful decentralized trading platforms in the world, and our technical capabilities are outstanding. We combine the security and transparency of DEX with the speed and availability of CEX. We think DeFi will replace traditional financial technology, but the premise is that the user experience and design are excellent.
dYdX is an audited smart contract running on Ethereum, allowing our traders to control their assets. Our hybrid DEX infrastructure combines non-custodial, on-chain settlement and off-chain low-latency matching engines and orders. Our off-chain orders make the trading experience very fast.
Unlike AMMs, we provide the DeFi world with institutional-level, liquidity and low slippage trading experience! dYdX understands the importance of liquidity and cooperates with leading market makers. dYdX implements low-latency, high-throughput technology and API docking, providing scalable and programmable access to its market. When a market maker submits a transaction, the transaction is matched, and settlement is deterministic.
Spot traders know how good DEXs like Uniswap are at trading the long tail of crypto assets. We see huge growth in DEXs in leveraged and perpetual contract trading, and we are very focused on becoming a market and technology leader. In addition, we believe that DEXs will continue to gain market share related to CEXs because of less friction, better UI/UX, higher security, and more attractive product transactions. There is too much valuable potential to be developed here.
Tongchun: If dYdX can be as smooth as cex, and at the same time there is no need to pierce the needle like cex, personally, I still feel promising.
Daisy: Please introduce the team and investors of dydx.
Antonio: Our team focuses on providing the best products in decentralized finance, and I am extremely proud of this. We are an efficient team, most of whom are engineers, surpassing the level of peers. We recruited 10 from leading companies in Silicon Valley (Google, Uber, Waymo, Blend), blockchain companies (Coinbase, consensus sys), financial technology companies (Bloomberg, Nerdwallet), Wall, and top universities (Princeton, University of Pennsylvania), etc. Multiple engineers.
We have also invested in the establishment of our growth team, which includes Wall Street, technology and investment professionals who have worked at Ripple, BlockTower Capital, Techstars, The Wharton School and American International Group (AIG).
Our investors think what we do is very important. We are supported by leading venture capital funds, including a16z Crypto, Polychain Capital, Bain Capital Ventures, Dragonfly Capital, Abstract Ventures, Vy Capital, and Craft. We also thank those incredible angel investors for their support, including Brian Armstrong and Fred Ehrsam (Co-founders of Coinbase), Elad Gil, Linda Xie and Naval Ravikant.
Daisy: I understand that the dYdX team is using StarkWare to implement a layer 2 scalability solution. What are the features and advantages of this solution?
Antonio: Our goal is to become one of the world’s largest and most technologically advanced exchanges. In order to do this, we are working with StarkWare to establish a ZK Rollup Layer 2 system for perpetual transactions across margins, which will allow larger and scalable transactions. Our technical team is working on a scalability solution based on StarkWare’s StarkEx scalability engine and dYdX’s perpetual contract. The second layer solution significantly improves the scalability of the blockchain by allowing any type of calculation to be transferred off-chain, while using Ethereum as the public immutable information submission layer. StarkWare’s dYdX integration combines rigorous proof of data integrity and on-chain data availability to ensure a complete non-custodial agreement.
Our upgraded perpetual contract will be ready in a few weeks, and the goal is to have an alpha release in January 2021, and a full range of products will be released shortly thereafter. Focus on providing the best user experience, providing our traders with lower gas fees, thereby reducing transaction fees. We will also quickly launch more trading pairs and accelerate the speed of new pairings so that traders can trade the tokens they want to trade at any time.
In addition, traders and market makers will be able to trade perpetual contracts from a single guarantee pool that supports cross-margin, thereby releasing significant guarantee efficiency and high turnover transactions. Other benefits of moving to the second tier include: instant transaction settlement and more performance price orders (allowing higher leverage and lower clearing penalties).
Once dYdX’s Layer 2 solution is launched, the DEX trading experience will be very similar to the experience of trading on CEX, while still providing all the benefits of DeFi.
Daisy: dYdX has been building and iterating products. For example, in 2018, it built a P2P lending agreement + expo; in 2019, it built a lending agreement with a capital pool + dYdX exchange + local order book/liquidity. In addition, what innovative products has dYdX launched? What are the innovations in technology and security?
Antonio: The goal of dYdX was to provide trustless access to financial instruments that are more complex than existing DEXs. The first product developed by dYdX is called Expo, which was launched in October 2018 and supports leveraged long or short Ethereum positions. What replaces Expo is the upgraded Solo protocol. Currently, our spot and leveraged trading platform supports three assets, ETH, DAI and USDC, with a leverage ratio of up to 5 times. All assets on the platform automatically earn interest and there is no lock-up period.
We have also launched a lending pool similar to Compound, where funds are borrowed into a smart contract and can be withdrawn at any time. Users can borrow money as long as they use 125% of the borrowed assets as collateral and maintain a mortgage rate of 115%. Interest rates are floating and vary non-linearly according to the ratio of deposits and loans. In the third quarter of 2020 alone, we issued a loan of US$4.6 billion.
In 2020, we launched a decentralized perpetual contract. We currently support three trading pairs, BTC-USD, ETH-USD and LINK-USD, with leverage up to 10 times. After our Layer 2 is released, we will add more trading pairs, settle with stablecoins and pay margin. We believe that decentralized perpetual contracts are a big step forward and fit naturally with DeFi. Smart contracts exist to solve the problems of integrity and lack of transparency. These problems exist in centralized perpetual contracts, because users do not understand the clearing mechanism, insurance funds, and social losses. Perpetual contracts open up other trading possibilities not currently available in the DeFi world. Now, any assets, not just those based on Ethereum, can be traded on DeFi. Derivatives trading is an exciting application case of blockchain technology, and we are very happy to be able to build the core components of the DeFi system.
Daisy: Recently, DEX trading volume has declined to a certain extent. Some analysts believe that this is because DEX has failed to launch a new model recognized by the market, and funds have begun to flow out. When do you think DeFi will attract larger market makers and institutions? Is it possible for ETH 2.0 to solve DeFi’s scalability requirements? What do you think of Defi 2.0?
Tongchun: Defi2.0, at present, it depends on whether Ethereum 2.0 can solve the scalability. Individuals are also concerned about the progress of 2.0.
Regarding the question of when DeFi can attract larger market makers and institutions to enter the market, the literal meaning of DeFi is to do decentralized finance. Since it is finance, it should be benchmarked against traditional finance. Amber people once said that DeFi is a chain On P2P (Internet loan intermediary). How to expand channels to obtain lower-cost funds and better assets, whether it is a common problem faced by P2P or DeFi; 3 years ago, Yide is actually an early uniswap. Amber does not lack assets, but high-quality products. Bigger requires better technological iteration.
Antonio: For dYdX, this means operating with the highest level of technology and structure, the market can be similarly compared with traditional financial products, and given its higher transparency, this may be a successful form of its DEX.
dYdX works closely with external consultants and legal teams of venture capital to help us build products and services. We only support cryptocurrency-to-cryptocurrency transactions. Perpetual contracts do not support U.S. IP addresses. The margin limit is 28 days to comply with CFTC regulations. We are still hiring our general counsel to help us more proactively check possible problems, which are not yet clear in the DeFi industry.
Daisy: Does dYdX have any plans to expand into the Chinese market in the future? Are there any plans to launch platform coins?
Antonio: China is a very important market for dYdX, DeFi and the global cryptocurrency industry. dYdX is committed to achieving long-term success in China and is investing heavily to achieve growth.
We are constantly improving how to better serve the local market. So far, we have translated our front-end trading application and service desk into Mandarin. In addition, we have established partnerships with several leading wallet providers in China, including imToken, Math wallet, TokenPocket and BitPie. Finally, we are recruiting the first employee in China to promote the growth of dYdX in China. If you have someone who is suitable, you are welcome to recommend it to us.
We are also very happy to be a member of the Huobi Global DeFi Alliance, narrow the gap between East and West, and explore new products and cooperation opportunities. We have also joined the Open DeFi Alliance of Conflux Networks to jointly help DeFi participants in the East and the West improve their innovation, risk management and liquidity. After joining the forum of IOSG VC and DODO in Shanghai Blockchain Week, we are also paying attention to more activities.
Currently dYdX does not have its own platform currency. However, our team has been actively researching liquidity mining to guide user growth, and explore different paths to be more decentralized, and give more control to users. It is very possible to increase the tokens used for governance in the future.
Daisy: Some people think that DEX and CEX must have a battle. What do you think of the relationship between the two?
Tongchun: Regarding the relationship between Dex and Cex, the two are different fields. There is no battle. Their two competitors should be traditional finance; the entire blockchain industry is still too small. Amber has been around since the advent of BTC. Just 12 years, or the initial stage, Dex and Cex should complement each other.
2. Free questioning session
Life for you: All DEX platforms must face two problems, namely low liquidity (resulting in excessive spreads between orders) and slippage. Can you tell me how to solve this inherent limitation?
Antonio: dYdX solves these common DEX problems by using a hybrid approach: we focus on order matching, while using smart contracts to execute transactions. This gives traders more experience, similar to what you will find in CEX (it will be better once we launch our new L2 product soon!) We cooperate with multiple market makers to ensure platform liquidity High and small spreads.
Don’t wake me up: How does dydx avoid lightning loan attacks?
Antonio: Due to the price predictions we use, dYdX is not vulnerable to flash loan attacks.
dYdX has some top-level security, established in DeFi-audit by the best security companies and top Silicon Valley engineers. In the past three years, we have never had a hacking or security incident.
Wishful heart: How does dYdX generate profit/revenue to maintain your project, and what is its revenue model? How does it make investors and your project win-win?
Antonio: dYdX charges transaction fees just like you see on ordinary CEX. Our fees are very low, and will be consistent with centralized exchanges, especially after we use Starkware to launch the second layer (due to the 1000x scalability improvement).
Tragic and unforgettable: Can you list 1-3 killer features of dYdX to maintain its leading position in the competition? What is the most confident competitive advantage of your platform?
Antonio Juliano: I think we are the leader in leveraged trading by providing perpetual contracts and margin trading. In CeFi, we see that the scale of leveraged products exceeds the sum of the entire crypto market. I look forward to the same thing happening soon in DeFi, and dYdX takes the lead.
Have you in your life: What is your most important next priority/milestone in your product plan? Does your project have sufficient foundation (funding, community, etc.) to realize these plans?
Antonio: Our next important milestone is the launch of our second-tier scalable solution through Starkware (ZKRollups). In addition to moving to L2, we have also launched a brand new product for perpetual contracts, and plan to launch many new markets next year.
We have raised $12 million from top crypto investors, such as 16z, PolyChain and other companies, and we have already obtained good capital.
Night wind: What is dYdX’s global expansion plan? Are you focusing on product development now? Or focus on building and attracting customers and users? Referring to the problems faced by OKEx before, what is your opinion on the future domestic and foreign regulatory or industry development trends? What security measures does dYdX have to ensure the safety of user funds?
Antonio: We are very excited about the expansion of the international market, especially in the Chinese market. That is to say, dYdX is a team that pays great attention to products and development. We always focus on building the best products and technologies first. You will soon see the results of our new second-tier product released in a few weeks!
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