dYdX has recently been working on a leveraged BTC product (aka Perpetual). We talked to Antonio to find out what the new BTC product is all about, what sets them apart, and how to be one of its first users.
This interview was done with a safe social distancing distance of multiple thousand kilometers of pacific ocean. Get early access to dYdX’s BTC Perpetual here.
Antonio is the founder of dYdX. dYdX is the leading decentralized platform for advanced financial products including margin trading and derivatives.
dYdX users can borrow, lend, and margin trade across any supported asset. dYdX is powered by smart contracts on the Ethereum Blockchain, which eliminates the need to trust a central exchange while trading.
Despite only launching in May 2019, dYdX originated the largest amount of loans in DeFi (>$1 billion USD) and processed over $530M+ in total trading volume across ETH, DAI, and USDC markets in the last 7 months.
Let’s jump into our conversation:
Hi Antonio, appreciate you following our invitation to chat!
The obvious question: How did you get into crypto?
I initially got into crypto in 2015 by joining Coinbase as a software engineer after finishing my CS major at Princeton University. At Coinbase, I worked side-by-side with many of the most forward thinkers in the industry, and had a front row seat to the most exciting new developments in the industry. Working with leaders like Olaf Carlson-Wee, Fred Ehrsam, and Brian Armstrong combined with the opportunity to meet amazing guests like Vitalik Buterin, Joey Krug, and Ben Horowitz was hugely influential on me to start dYdX, and solidified my belief in the future of crypto and decentralized finance.
How did dYdX start? And whose idea was that cool name?
After Coinbase, I was convinced that there would be interesting, world-changing products to build on top of Ethereum. To me, Ethereum represented an entirely new paradigm of computing, where for the first time programs could be verifiably executed deterministically. It seemed inevitable that there would be important products built on this new computing platform.
So in 2017, I started working on dYdX. After coding some early versions of the protocol and releasing the original whitepaper, dYdX raised a $2M seed round led by Andreessen Horowitz & Polychain Capital. Soon after, I was joined by Brendan Chou, Zhuoxun Yin, and a number of other amazing early dYdX employees. Since then we’ve raised an additional $10M and now have a team of 8, including 7 engineers, with experience from Google, Bloomberg, Bain, Coinbase, Uber, and other top companies & universities.
I will say the name was my idea, probably my largest contribution to the company to date :D
dYdX has originated over a billion dollars in loans over the last year. Sounds quite impressive. Have you been satisfied with your growth so far?
Seeing the growth of dYdX, especially over the past few months, has been amazing. dYdX is now both the #1 decentralized exchange by trading volume, as well as the #1 decentralized borrowing platform by loans originated. We’re also super excited about how the new BTC-USDC perpetual can supercharge this growth.
While the growth so far has been awesome, we have ambitious goals for ourselves about how we want to grow moving forwards. By the end of 2020, our goal for dYdX is to average over $10M a day in trading volume. In the next few years we want to build dYdX into a leading exchange not just in DeFi, but for the entire cryptocurrency market.
How do you plan to set dYdX apart from the rest of DeFi?
dYdX sets itself apart from the rest of DeFi by offering the widest array of advanced financial products: spot trading, margin trading, borrowing, lending, and now perpetual contract markets.
Our team has extensive experience building world class products at places like Coinbase, Google, Bloomberg, Uber, and other top tech companies. We’ve used this product & engineering experience to build professional and reliable trading products to DeFi.
What is leveraged trading really?
Leverage allows traders to multiply gains and losses, as well as gain short exposure. Leverage is critical to markets as it dramatically improves capital efficiency, allowing traders to take on positions with less capital.
The amount of leverage taken indicates the multiplier of the gains or losses relative to the change in the price of the underlying asset. For example, with a 5x leveraged position, you would make 5 times the profits if the price goes up, as well as lose money 5 times faster if the price goes down. Because of this multiplier effect, leverage increases the risk of trading, and should be used with caution.
There are many ways to take leveraged positions. Margin trading achieves leverage by utilizing borrowed funds to allow traders to trade with more capital. Derivatives, such as the new dYdX BTC Perpetual Contract, can also natively offer leverage.
You are adding a new product: A BTC Perpetual Contract. Could you tell us more about that?
Just announced earlier this week, we’ve launched the first ever product for decentralized perpetual markets. The first perpetual market we’re launching is BTC-USDC. We’re really excited about this launch for a few reasons:
- Perpetual markets are by far the most popular way to trade crypto, and we think are a natural fit for trading on DeFi
- Users will be able to trade BTC on dYdX for the first time! BTC is obviously the most widely traded asset in crypto, but still has not been able to be traded liquidly in DeFi up until now
- Perpetual markets allow us to offer higher leverage, better liquidation ratios, and more liquid trading
We’ve built an entirely new protocol to power our perpetual markets. The price of each perpetual is tethered to the price of the underlying asset by a funding rate that is paid between longs and shorts. The dYdX perpetual protocol is now open source, and has been audited by OpenZeppelin.
We’ve built perpetual trading into the current dYdX product. Users can trade on the BTC-USDC perpetual market with up to 10x leverage. Perpetual market trading on dYdX is only available to non-US users.
A decentralized, leveraged trading product, right? What does ‘decentralized’ really mean in your case?
One major feature of decentralized financial products on dYdX is that they are non-custodial. This means users are in full control of their funds while trading on dYdX, as opposed to centralized exchanges where users must trust the exchange to securely custody funds on their behalf.
dYdX is also transparent and auditable. All mechanisms that power our products, such as liquidations and trading, are written into our open source smart contracts, so traders have full visibility into the operation of the system. Traders do not have to blindly trust the exchange is operating fairly, they can look at our code and audit reports and know exactly how the exchange works. All trades, liquidations, and deleverages are fully auditable on-chain as opposed to centralized exchanges where these are mostly a black box.
So, your Bitcoin Perpetual is aimed towards active traders whereas let’s say our own imBTC product suits the long-term hodler. Sounds right?
Sounds about right! The dYdX BTC-USDC Perpetual Contract is targeted at active and sophisticated traders. It will have much better liquidity and leverage options than existing DeFi BTC alternatives, but is a generally more complex product.
(Note: 1 imBTC is always backed by 1 Bitcoin while dYdX’s BTC Perpetual is created with a small amount of collateral)
dYdX also offers other products including: margin trading, spot trading, borrowing, and lending. Lending is a great fit for long term holders as they can earn passive income on the funds they’re already holding.
How is your Bitcoin Perpetual different from the centralized exchanges such as BitMEX?
The major difference between perpetuals on dYdX versus perpetuals on centralized exchanges is that dYdX is non-custodial, transparent, and auditable. On dYdX, users can come with their existing wallets, such as imToken, and start trading immediately - no email signups, passwords, 2FA, KYC, etc.
What will we see from dYdX in the next 3, 6, 12 months?
In the coming months, we will continue to make rapid product improvements to our existing products. We plan to add Perpetual Contracts for additional assets such as ETH, DAI, and others, as well as more assets to our spot / margin markets. We also are interested in exploring additional types of products such as options, but don’t have any solid plans here yet.
What do you expect from collaborations such as with imToken? Do you have any plans for China? Our users would be curious to know!
Definitely! dYdX is available in China, and we are adding Chinese translations to the product very soon. We’re very excited to work with leading wallets like imToken to expand the usage of decentralized financial products.
Can users access the BTC Perpetual yet? When are you planning to launch?
The dYdX BTC Perpetual entered private alpha on Monday 4/20. We’re planning to continuously expand the private alpha to additional users, before ultimately launching to the public in a few weeks. Sign up for early access here!