What is dYdX?
In essence, dYdX is a decentralized margin trading platform that only requires a wallet, funds, and motivation to use - without any need for verification or other requirements.
It's important to note that dYdX operates on the StarkWare Layer2 blockchain, which drastically lowers transaction fees and eliminates gas fees.
- Why the StarkWare?
StarkWare is necessary because Ethereum has a limited capacity for processing transactions per second. To address this, projects like dYdX use "rollups" that significantly reduce the network load. StarkWare leverages zkSTARKS technology, where all calculations are performed off-chain and then uploaded in one transaction to L1 (Ethereum) along with a validity confirmation of the data (list of off-chain transactions). This approach lowers transaction processing costs, ensures privacy, accessibility, and confirms the validity of transactions (validity proof). Additionally, since SkarkEx doesn't reveal the details of on-chain transactions, it offers maximum privacy. Users only see changes to their balance, and no one can know their trading strategy.
- Liquidity
Ensuring sufficient liquidity is crucial as traders don't want to face significant slippage when trading. To address this, dYdX employs a hybrid infrastructure model that minimizes off-chain latency in the order book. Additionally, the project integrates market makers as liquidity providers who can offer favorable quotes to users.
Now that we've covered some of the technical aspects, let's connect the dots and take a closer look. To connect to dYdX, you'll need to sign a transaction which creates a Stark key (the identifier of your wallet in L2). After that, you can deposit funds to L2 (which supports a wide range of tokens) and start trading. When withdrawing funds, you have the option to choose between a fast transfer, which incurs a 0.1% commission and covers transfer costs for the liquidity provider, or a slow transfer, which requires waiting for the mint of the L2 block (which occurs every 10 hours) and paying the Ethereum network commission.
Let's take a look at the roadmap for dYdX. One of the most exciting developments is the introduction of dYdX Chain, which is the project's very own blockchain built on the Cosmos SDK. By creating their own blockchain, dYdX can move away from relying on third-party solutions like StarkWare, making the platform more decentralized.
- Why did they choose Cosmos? Because it's a flexible framework that allows for customization to suit any blockchain's specific needs. In the case of dYdX, Cosmos will enable validators to maintain their own off-chain order books, which are then synchronized with each other in real-time. Another benefit of Cosmos is the lack of transaction fees, which will make using dYdX even more accessible.
This approach to blockchain development also means that dYdX can completely eliminate centralization, creating a more open and transparent platform. All code will be open-source, and the platform will function entirely online without the direct involvement of dYdX Trading Inc.
A private testnet is scheduled for launch in March, with plans to integrate and launch the solution on the main network by the end of September. This exciting development promises to make dYdX even more efficient and decentralized.
I believe that the rise of decentralized derivative exchanges will play a significant role in the next phase of DeFi summer 2.0 growth.... And the DYDX token is positioning itself to be at the forefront of this narrative.
P.S. I rate exclusively for this category
Source: Roadmap; Twitter; dydx.exchange. Show Less
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