dYdX is a decentralized derivatives trading protocol deployed on the Ethereum network as a layer2 rollup and powered by ZK StarkEx, founded by Antoni Juliano in August 2017. dYdX's core team consists of software engineers from well-known cryptocurrency companies such as Coinbase. As for now, dYdX's trading products are primarily perpetual contracts.
dYdX adopts the order book mechanism familiar to traditional market makers to execute trades, providing traders with a wide variety of orders and ample liquidity during trades. Traders are counterparties to each other, and the protocol itself only provides functions as a platform. However, it is definitely not enough to rely on ordinary users to provide liquidity. Therefore, dYdX has designated several institutional market makers to provide liquidity since its launch. dYdX also reserves a certain percentage of $DYDX as an incentive for these designated market makers.
dYdX hosts its trading and matching engine through Amazon Web Services (AWS). Notably, dYdX is not strictly a fully decentralized derivatives exchange, as its orderbook and trading matching engine are still centralized.
In addition to its well-known order book trading mechanism, dYdX chooses the scalability engine from the Layer2 solution company, Starkware to increase its trading throughput and reduce gas fees and transaction fees. However, the order book mechanism of dYdX and the reliance on the external trading engine somewhat increase the centralization of dYdX. According to dYdX's disclosed v4 development plan, dYdX plans to transition from Starkware to its native Cosmos-based appchain, dYdX Chain, to create a fully decentralized derivatives exchange.
$DYDX is dYdX's native governance token. In addition to governance voting, holders of $DYDX can receive discounts on trading fees based on the size of their holding positions. Moreover, $DYDX holders can stake their tokens to the security pool to receive rewards.
Due to the orderbook mechanism, dYdX uses the Maker-Taker price model to determine transaction fees. Depending on the volume traded in the previous 30 days, Maker is charged 0-2bps, while Taker is charged 2-5bps. It is worth noting that no transaction fee will be charged when the transaction volume in the past 30 days is less than $100,000. This is to encourage individual investors to participate in the transaction, and the fee will only be charged for orders that have been filled. Additionally, depending on the amount of DYDX and $stkDYDX tokens held by users, there will also be discounts of up to 50% on transaction fees. Unlike other protocols, all fees collected belong to the dYdX Foundation and will not be distributed to token holders.
dYdX decides whether to liquidate based on account value and margin requirements: when the account value is less than the maintenance margin requirement, the account will be liquidated using different formulas depending on the position. Profits and losses resulting from liquidation will enter the insurance fund, and if the insurance fund is exhausted, a deleveraging mechanism is used as a last resort to protect the system: the underwater accounts are offset by reducing the positions of the high-profit and high-leverage accounts, thereby maintaining the stability of the system.