The dYdX (DYDX) platform, which has been on the market agenda with its giant airdrop event, has distributed thousands of dollars worth of tokens. Also, the altcoin was listed on Binance 3 days ago and its price has risen strongly. So what is dYdX that attracts the attention of investors? Cryptocoin. com
As , we have compiled this crypto money project for you…
What is dYdX (DYDX)?
dYdX is a decentralized borrowing and lending platform based on Ethereum. It offers borrowing, lending and staking tools for crypto users. dYdX is a decentralized margin trading platform based on Ethereum. dYdX allows users to borrow and bet on future prices of popular cryptocurrencies.
dYdX wants to bring trading tools normally found in fiat markets to the world of Blockchain. On the surface, dYdX looks like just another lending protocol on Ethereum, but when you dig a little deeper, you’ll find a protocol that attempts to take Decentralized Finance (DeFi) to the next level. Below we explore who invented it, how it works, and what makes it so special.
The reason for the exit of the altcoin project
Margin trading, options and derivatives are common tools for traditional traders and investors, but in crypto these features were limited to centralized exchanges such as Kraken, Huobi and Binance. For the first time, these standard trading features are created in a reliable and decentralized way.
What is dYdX and what does it do?
Decentralized borrowing and lending is already available on DeFi through popular platforms such as MakerDAO and Compound. However, dYdX has focused on building more advanced trading tools from the Ethereum Blockchain. As with other DeFi products, the dYdX protocol is available for anyone to use and build on: users’ assets are managed by smart contracts instead of humans.
Margin trading basics
Before we dive deeper into this margin trading protocol, let’s quickly review some of the basic concepts of margin trading.
What is margin trading?
Margin trading is essentially borrowing money to make larger bets. Crypto traders bet that the price of a coin will move up or down as they predict. Margin trading allows them to increase their profits if they are right, but also increases their potential losses if they are wrong.
Margin trading creates leverage, and the more leverage used, the greater the risk (or reward) of gain or loss. For example, using 2x leverage doubles an investor’s potential gain or loss.
What is collateral?
Since identity solutions and reliable credit checks are not widely available on Blockchain, nearly all decentralized borrowing uses collateral. Collateral is the minimum deposit required to get and repay a loan. The more collateral you put in, the more you can borrow.
What are liquidations?
When the value of your collateral drops below a certain point, this collateral is automatically sold to repay the loan. This is a process called purging. Loans are at high risk of liquidation when there is too much debt and too little collateral. In more volatile markets such as crypto, liquidation risks increase significantly. dYdX users can now trade between ETH, DAI and USDC with up to 5x leverage. Centralized exchanges like BitMex offer leverage of up to 100x for margin traders, meaning a small move in price in the wrong direction can get you liquidated!
Who invented dYdX?
The dYdX protocol was founded in 2017 by Antonio Juliano, a former Coinbase and Uber engineer.
What makes this cryptocurrency project special?
As a pure trading platform, dYdX is quite limited, but as a completely open, reliable and no-custodial financial protocol, it is one of the most advanced. The platform’s features are currently limited to listed coins, lending assets to collect interest, and two types of margin trading: isolated margin trading and cross margin trading. While these are simple tools for seasoned traders, they are a big step forward for the beginner DeFi ecosystem.
A Coinbase mutual fund for DeFi products called the “USDC Bootstrap Fund” invested 1 million USDC in dYdX to increase liquidity on the platform and increase adoption of Coinbase’s stablecoin.
What else is different?
Unlike margin trading, lending to dYdX is considered low risk and passive. With dYdX, lenders automatically earn interest each time a new block is mined. Any funds deposited on the platform will earn interest continuously on every block and can be withdrawn at any time with no minimum requirements. Since all loans are collateral and are threatened with liquidation, the lender will always get their money back.
How does dYdX work?
Instead of individual borrowers and lenders making and accepting loan offers, everyone interacts in one “global lending pool.” Each asset has its own lending pool managed by smart contracts. This is why withdrawals, borrowing and lending can happen at any time without the need to wait for matches or sufficient capital. The interaction between borrowers and lenders—demand and supply—determines the interest rates for each asset.
How is the future of dYdX (DYDX)?
dYdX’s plan has always been to offer leading margin trading products with increasingly advanced trading features such as options and derivatives. Recently, the project added “stop loss” options to allow investors to limit their potential losses. The team also plans to expand beyond the cryptocurrencies currently available on the platform. According to experts, dYdX also adds to the complexity of the broader DeFi ecosystem, which is a sign of a maturing market.