Intermediate
How does dYdX work? Complete guide to understand the platform
dYdX is a decentralized platform for trading derivatives, specialized mainly in perpetual contracts. It allows users to trader crypto assets while retaining custody of their funds. dYdX is positioned as an alternative to traditional centralized exchanges, offering better autonomy, low trading costs and non-custodial experience.
Table of contents
How does dYdX work: on which technologies does it rest?
The platform is based today on several key technological pillars:
An independent blockchain thanks to Cosmos SDK
dYdX has built its own blockchain using Cosmos SDK, a tool that allows you to easily create custom blockchains. This means that dYdX is not dependent onEthereum or another blockchain: it manages its own rules and its functioning in a completely independent manner.
A Proof of Stake security system
To secure the network, dYdX uses a system called Proof of Stake. Concretely, validators take care of checking the transactions. Users can support these validators by entrusting them (by "delegating") their tokens DYDX. In exchange, they receive awards in DYDX.
Communication with other blockchains thanks to the IBC
dYdX can exchange information and assets with other Blockchains of the Cosmos network thanks to technology called Inter-BlockChain Communication (IBC). This allows dYdX to be interoperable, that is to say to dialogue with other projects and to expand its possibilities.
A quick and efficient order book
On dYdX, purchase and sale orders are organized in a order book which is managed outside the blockchain (off-chain). This allows very fast exchanges. Once a transaction is carried out, the transfer of money is recorded directly on the blockchain (on-chain), to guarantee security and transparency.
The role of smart contractin trading on dYdX
Even if the order book is managed out of the blockchain, the dYdX contracts are smart contract to ensure that each transaction is made reliably and transparent.
When you place an order on dYdX -whether it is a simple purchase/sale order or a more complex order such as a Loss Stop or a Take Profit -this order is first recorded in the Off-Chain system. This matching engine seeks to associate your order with that of another user.
Once an agreement is reached, the on-chain process starts:
- The smart contract checks that your wallet contains the funds necessary to cover the order, taking into account the lever used if you trade in the open position (example: 5x your bet).
- It locks the corresponding funds to ensure that you cannot withdraw them until the order is fenced.
- If you have confused a STOP Loss (price level where you agree to limit your losses) or a Take Profit (level where you secure your earnings), these instructions are also automatically taken into account in the Off-Chain system. As soon as the price reaches one of these levels, the off-chain engine triggers the execution of your order via the smart contract contracts .
- To the effective execution of the order (whether by market, limit, stop loss or take profit ), the smart contract transfers the corresponding assets between your portfolio and that of the other part, in a completely decentralized manner.
This hybrid operation therefore allows:
- An ultra-fast execution of complex orders as on a centralized exchange.
- Decentralized security of the execution and financial regulations thanks to the smart contract S on the blockchain.
In summary, on dYdX , you can use advanced trading tools such as lever stop and Take Profit orders , while keeping control of your funds in a non-custodial , unlike centralized platforms that hold your cryptocurrencies.
How does dYdX trading work concretely?
On dYdX, users can:
- Trader perpetual contracts on several crypto pairs ( BTC , ETH, Sol , etc.). Over 200 pairs are available.
- Use the lever effect to X50 depending on the assets and risk levels.
- Remove guarantees (collateral) in the form of a stablecoin s like the USDC to open positions.
- Place Limit, Market, Stop Loss, Take profit, etc.
- Participate in the governance of the protocol via the token DYDX staking .
The system is therefore very similar to that of a centralized exchange on features, but with the advantage of keeping direct property of its assets.
A hybrid model for better performance
dYdX uses a hybrid model between Off-Chain and On-Chain. This allows:
- Ultra-rapid transactions thanks to the outsourcing of the OrderBook.
- A 100 % secure final regulations on the blockchain built via Cosmos.
- Very reduced costs because only critical transactions require Gas on-chain.
How dYdX : the main advantages for users
The specific operation of dYdX offers many advantages for traders:
- Very low trading costs , with a volume -based reduction model and discounts for makers.
- Decentralized trading without risk of censorship or gel of funds through an intermediary.
- Possibility of using a lever effect while remaining the owner of its private keys.
- Access without KYC compulsory in most countries (subject to complying with local regulations).
- Token DYDX Staking to secure the network and receive passive rewards.
- Interoperability with other COSMOS projects via IBC.
dYdX works : trading costs, an ultra-competitive model
The costs on dYdX follow an decreased model based on your trading volume over 30 days:
- For a volume less than $ 1M: 5 BPS TAKER / 1 BPS MAKER .
- From $ 125M of monthly volume: rebates (negative makers).
For comparison, on Binance USDT future contracts charge 0.02 % Maker and 0.04 % Taker without counting withdrawal fees and other additional costs. This makes dYdX extremely competitive, especially for large volumes.
dYdX works : how to start trading, practical guide
Here are the main steps:
1. Connect with a compatible wallet
You can use a portfolio, preferably compatible with the dYdX channel like Keplr (otherwise you will need to go through the platform bridge to pass your dYdX on the dYdXchannel).
2. Place funds
- SendUSDC directly to your dYdXaddress.
dYdX works : open a trading position step by step
The dYdX interface is designed for traders who wish to access a powerful order book with advanced features.
Here is everything you need to know to pass a position:
1. Choose the position of the position
At the top right of the trading panel, you have two buttons:
- Buy | Long : to buy and bet on the increase in the price of the assets.
- SELL | Short : to sell uncovered and bet on the drop in price.
2. Select the margin mode
Just below, you can choose between:
- Cross : all of your balance is used to maintain your position. This reduces the risks of immediate liquidation, but engages all your funds.
- Isolated : Only a specific part of your balance is used for this position. You limit potential losses to this position only.
3. Choose the type of order
You can select between several types of orders in the just right section:
- Limit : you define a precise input price. The order will only be executed if the market reaches this price.
- Market : The order is immediately executed at the best price available on the market.
- Stop : you define a trigger price to protect your position or enter at the right time (useful for stop-loss or Breakout Trades).
4. Define the amount of the position
In the Amount , indicate the amount you wish to engage (in USD).
5. Choose the lever effect
Use the cursor or predefined buttons (10 %, 25 %, 50 %, 75 %, 100 %) to adjust the lever . This allows you to open a position larger than your capital. Example: with a 5x lever, you control $ 5,000 with only $ 1,000 in capital.
6. Check the advanced parameters
receip panel shows you in real time:
- Expected Price : Estimation of the entry price according to the liquidity of the market.
- Liquidation Price : the price at which your position would be liquidated.
- Margin position and Leveling position : details on your actual exposure.
- Fee : Applied trading costs (depending on your volume level).
- ESTIMATED REWARDS dYdX points program ).
7.
When everything is ready, click on Entil Ament and finalize your order. Once confirmed, your position will appear in the positions at the bottom of the screen.
dYdX works : points of attention
- No direct access to the spot trading: dYdX is designed only for perpetual trading . To buy cryptos directly, you will need to go through a centralized or decentralized exchange.
- No integrated fiat on-ramp: you must arrive with stablecoin or use an external bridge.
- Risks linked to the leverage: as with all derivatives, poor risk management can cause rapid liquidations.
How does dYdX : why dYdX rather than a centralized platform?
dYdX offers a solid alternative if you are looking for:
- Sovereignty over your assets , without risk of account frost.
- Ultra-competitive trading costs for perpetual contracts.
- The possibility of actively contributing to the network via staking and governance.
- Global access , without the restrictions that certain centralized platforms can impose ( Binance inaccessible from Europe, the USA, Singapore, etc.).
Conclusion on Coment works dYdX
dYdX is a solid, scalable and well anchored project in the Cosmos ecosystem. Its decentralized model, its competitive costs and its effective operation make it a solution of choice for advanced traders wishing to maximize their independence while accessing high -performance derivatives.
For any user ready to learn to navigate between wallets, collaboration and liquidation risks, dYdX offers a professional level trading experience, with a radically different approach from CEX .
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
