This article is Coindesk’s report on dYdX, please refer to the original link:
https://www.coindesk.com/decentralized-exchange-dydx-debuts-ether-perpetual-swaps
dYdX announces support for ETH perpetual contract
Antonio Juliano, the founder of dYdX, told CoinDesk on the phone: “The main reason people like this type of contract trading is that they can be traded at a high leverage.”
dYdX is a decentralized finance (DeFi) company that has been established for three years and is committed to promoting the trading of financial products on sale in the crypto industry. The company was the first to engage in ETH margin trading. Following the launch of Bitcoin perpetual contract trading in April, its business has now expanded to provide synthetic assets so that both parties can increase their bargaining chips.
Learn more: Popular Bitcoin derivatives launched on the decentralized financial exchange dYdX
Juliano further explained, “Derivatives traders are actually institutions or some mature retail traders, which can basically help people express more in-depth opinions on prices and indeed help stabilize the underlying market.”
For example, after contract trading, if people in the market think that the price of ETH is very unhealthy, they can choose 10 times the leverage of the short position to sell ETH on dYdX. In this way, for every $1 drop in the ETH price, they can make a profit of $10 . This game is very dangerous, because once the price goes up, for every dollar that goes up, they will lose $10.
Such a position can quickly swallow all the collateral of the trader.
But because of this, it also sends a strong signal to the market. If a trader holds such a position, other traders will start to observe whether they will also be at risk. Obviously, if someone sells their own ETH, they will also send a signal to the market, but it is not as strong as the signal for leveraged shorting.
Therefore, theoretically, the continuous expansion and gradual complexity of the derivatives market should help reduce the volatility of ETH, because the early warning will appear earlier and more significant.
“We haven’t reached this point yet,” Juliano reminded. “The rise of more derivative products should help.”
Principle of action
Leveraged derivatives allow traders to amplify the profit and loss of an asset without requiring any relevant personnel to hold the asset.
The unique perpetual contract trading in the encrypted market is popularized on the centralized exchange BitMEX. Perpetual contracts will produce a synthetic asset that can roughly track the price changes of the underlying asset under normal circumstances, while exerting greater leverage. The market maker in the system makes it easier for traders to find buyers for their positions.
Users can control their losses by increasing their mortgage to support their chips. Therefore, if a user uses leverage to bet on the price of ETH, and the price of ETH rises, once the loss begins to approach its total mortgage amount, it will be liquidated. Therefore, assuming that the collateral is 300 USD ETH, when the loss is close to 300 USD ETH, the collateral will be sold to make up for the loss.
Juliano believes that dYdX’s products are easier to strengthen leverage than other DeFi alternatives, such as using Instadapp to withdraw multiple loans on Compound at one time. Users need to pay transaction fees, but no handling fees.
Juliano stated that dYdX’s transaction size is among the best in decentralized exchanges (DEX), with a per capita transaction volume of approximately $10,000.
In traditional markets, any derivatives market can always dwarf the underlying market it tracks. Juliano pointed out that in the past year, we have found that this has also happened in cryptocurrencies, with the derivatives market overtaking the spot market for the first time. But in traditional finance, a perpetual market does not exist. Derivative products usually have expiration dates.
Juliano believes that this is because too many traders want to use a product that can be easily traded like the underlying asset to increase their bargaining chips.
He said: “In terms of transaction volume, the crypto market is dominated by retail traders, especially international cryptocurrency traders.”
