DeFi Milestone: Decentralized exchange "dYdX" to Launch Bitcoin Perpetual Contracts

The decentralized exchange dYdX, built on Ethereum, is set to launch a Bitcoin perpetual contract "BTC-USDC." Currently in the first phase of alpha internal testing, after resolving any issues and receiving feedback, the launch date will be announced soon.

dYdX

dYdX officially launched in May last year and received a strategic investment of $10 million from prominent venture capital firms such as a16z and Polychain Capital in October 2018. In September 2019, Coinbase also invested $1 million USDC in dYdX.

According to the official Blog of its founder, Antonio Juliano, the contract product offers leverage of up to 10x and is currently open for testing. The testing page also revealed the perpetual contract products to be launched in the future: "ETH-USDC" and "DAI-USDC."

This is the first time dYdX has supported non-Ethereum assets and the first time a decentralized trading platform has provided perpetual contracts. Its features include:

• Perpetual trading and margin trading are conducted in separate accounts. The "margin" for BTC-USDC perpetual contracts is calculated separately from dYdX's existing margin trading.
• Trading can be done through the existing interface or integrated via API.

Contract specifications summary:

• Margin/Settlement Asset: USDC
• Maximum Leverage: 10x
• Initial Margin: 10%
• Maintenance Margin: 7.5%
• Fees: Maker (-0.025%), Taker 0.075%
• Contract Liquidation Mechanism: Insurance Fund (funded by dYdX's liquidation fees), with deleveraging if funds are insufficient. All activities can be verified and audited on-chain.

dYdX founder Antonio Juliano stated:

Bitcoin is the starting point for everything, with the highest market value and trading volume. It is the asset traded by the vast majority of professional institutions and the entry point for many entering the cryptocurrency industry. Lack of credibility and transparency are the two biggest issues with current perpetual contracts, as users cannot understand the liquidation mechanism and insurance funds.

Liquidation Mechanism Controversy

Perpetual contracts were first introduced by BitMEX in 2014. With Binance, Huobi, and OKEx entering the futures market, BitMEX's dominance in the Bitcoin futures market has gradually declined.

BitMEX has long had issues with system overload and faced significant criticism for platform outages during the Bitcoin price crash on March 12th and 13th. There were concerns about the "liquidation mechanism malfunctioning" and the "insurance fund increasing instead of decreasing" at that time. The lack of transparency has also sparked criticism.

Decentralization = Solution to All Problems?

dYdX's Chief Strategy Officer Zhuoxun Yin believes that similar to dYdX's existing margin trading operation, the liquidation of perpetual contracts is also handled by other market participants. Additionally, its insurance fund account and trading activities will be publicly audited, and in the event of deleveraging, it will be transparently disclosed and audited on-chain.

Co-founder of prominent crypto hedge fund Three Arrows Capital, Su Zhu, commented: "I am cautiously optimistic and it will be interesting to see if there is enough liquidity for trading."

Zhuoxun Yin explained that liquidity will be a key focus for dYdX in the initial stages. In the coming weeks, core strategic partners and market makers will trade on the platform, with a goal to launch publicly in mid-May.

From an objective perspective on trading volume, dYdX has performed well compared to other non-custodial exchanges. The average daily trading volume for spot (margin) trading in March was approximately $6.5 million.

Users should be aware that the DeFi sector is still far from mature and is currently in the exploratory stage. Recently, the lending protocol Lendf.Me was exploited by hackers, resulting in the theft of assets from Lendf.Me totaling approximately $25 million. However, according to the latest on-chain data, the hacker has returned all stolen funds to Lendf.Me. While the outcome is positive, it highlights the high risks still present in the DeFi sector.