What is dYdX?
dYdX is a cryptocurrency exchange from USA. It has been in operation since April 2019.
We think it's fair to say that dYdX is primarily a derivatives exchange, meaning that they focus on derivatives trading. A derivative is an instrument priced based on the value of another asset (normally stocks, bonds, commodities etc). In the cryptocurrency world, derivatives accordingly derive its values from the prices of specific cryptocurrencies. You can engage in derivatives trading connected to the following cryptos here: Bitcoin, Ethereum, Dai and USD Coin.
Borrow & Lend
With the platform, you can not only trade and manage your trades, but you can also borrow and lend cryptocurrency. As for trading and managing, we feel that it would be quite weird if you could trade but not manage your positions. One sort of requires the other. But we still love the graphics of this platform and feel that we want to include the below picture:
Why do so many exchanges not allow US citizens to open accounts with them? The answer has only three letters. S, E and C (the Securities Exchange Commission). The reason the SEC is so scary is because the US does not allow foreign companies to solicit US investors, unless those foreign companies are also registered in the US (with the SEC). If foreign companies solicit US investors anyway, the SEC can sue them. There are many examples of when the SEC has sued crypto exchanges, one of which being when they sued EtherDelta for operating an unregistered exchange. Another example was when they sued Bitfinex and claimed that the stablecoin Tether (USDT) was misleading investors. It is very likely that more cases will follow.
So dYdX is from the US and permits US investors. However, if you are a US citizen, you must comply with all of the following three obligations in order to use the platform:
- you must physically settle all trades you make using dydx;
- you must fully close and physically settle all margin positions you open within 28 days; and
- you must not access or trade any advanced features including Bitcoin trading and perpetual contracts on dydx, including via use of a Virtual Private Network (VPN) to modify your internet protocol address or otherwise circumvent or attempt to circumvent this prohibition.
Why Trade with dYdX?
The platform lists a number of different reasons to why should do your trading here and not anywhere else. To begin with, it is "trustless", meaning that you don't have any counterparty risks. We are not entirely sure how this differs from any other exchange and we have not managed to find any information on the platform as to what they mean either. Second, it is liquid, meaning that they aggregate spot and lending liquidity across multiple exchanges. This is a powerful trait and we strongly support that this trait is becoming more and more usual among exchanges. Bravo. Third and fourth, it is powerful and accessible. The latter meaning that you don't need to signup to start trading. Impressive!
dYdX also offers leveraged trading to its users. As far as we can tell, they only offer perpetuals (i.e. futures without expiry dates). The maximum leverage level for their perpetuals is 10x (i.e. ten times the relevant amount).
A word of caution might be useful for someone contemplating leveraged trading. Leveraged trading can lead to massive returns but – on the contrary – also to equally massive losses.
For instance, let’s say that you have 100 USD in your trading account and you bet this amount on BTC going long (i.e., going up in value). If BTC then increases in value with 10%, you would have earned 10 USD. If you had used 100x leverage, your initial 100 USD position becomes a 10,000 USD position so you instead earn an extra 1,000 USD (990 USD more than if you had not leveraged your deal). However, the more leverage you use, the smaller the distance to your liquidation price becomes. This means that if the price of BTC moves in the opposite direction (goes down for this example), then it only needs to go down a very small percentage for you to lose the entire 100 USD you started with. Again, the more leverage you use, the smaller the opposite price movement needs to be for you to lose your investment. So, as you might imagine, the balance between risk and reward in leveraged deals is quite fine-tuned (there are no risk free profits).
dYdX Trading View
Every trading platform has a trading view. The trading view is the part of the exchange’s website where you can see the price chart of a certain cryptocurrency and what its current price is. There are normally also buy and sell boxes, where you can place orders with respect to the relevant crypto, and, at most platforms, you will also be able to see the order history (i.e., previous transactions involving the relevant crypto). Everything in the same view on your desktop. There are of course also variations to what we have now described. This is the trading view at dYdX:
It is up to you – and only you – to decide if the above trading view is suitable to you. Finally, there are usually many different ways in which you can change the settings to tailor the trading view after your very own preferences.
dYdX Trading fees
Every trade occurs between two parties: the maker, whose order exists on the order book prior to the trade, and the taker, who places the order that matches (or “takes”) the maker’s order. We call makers for “makers” as their orders make the liquidity in a market. Takers are the ones who “take” this liquidity by matching makers’ orders with their own.
At dYdX, takers are charged 0.10% and makers pay 0.05%. According to the latest empirical study on the subject, the industry average contract taker fees were 0.065% and the industry average contract maker fees were 0.024%. Consequently, dYdX's fees are substantially above the industry average contract trading fees.
You can receive trading fee discounts by reaching a certain trading volume during the most recent 30 days, as set out in the below table. The lowest level of fees you can have is 0.06% for takers and 0.00% (i.e., nothing) for makers. These fees are quite competitive, but they do require you to achieve a trading volume during the preceding 30 days of more than USD 200 million, so that fee level is surely not available for most traders.
dYdX Withdrawal fees
To our understanding, dYdX does not charge any fees of their own when you withdraw crypto from your account at the platform. Accordingly, the only fee you have to think about when withdrawing are the network fees. The network fees are fees paid to the miners of the relevant crypto/blockchain, and not fees paid to the exchange itself. Network fees vary from day to day depending on the network pressure. In general though, only paying the network fees should be considered as below global industry average when it comes to fee levels for crypto withdrawals.
In order to trade here, you must have cryptocurrency to begin with. The only asset class you can deposit to dYdX is cryptocurrency. However, if you really like dYdX but you don’t have any crypto yet, you can easily start an account with an exchange that has “fiat on-ramps” (an exchange where you can deposit regular cash), buy crypto there, and then transfer it from such exchange to this exchange.
Use our Exchange Filters to easily see which platforms that allow wire transfer or credit card deposits.
Finally, we would like to say a few words on security. dYdX is powered by Ethereum, and has never been hacked. According to information on its website, security is their biggest priority and their Smart Contracts have been audited by a company called "Open Zeppelin". On the date of first writing this review (26 August 2020), transactions worth USD 1.5 billion in aggregate had taken place on the platform. Impressive.