Fast Takes: DYDX Review

Dydx is the Ethereum-based on chain crypto derivatives platform that’s been in development for some time now. As they just launched to the public today, I thought I would do a quick review. Quick caveat–I’m approaching this as a first-time user and didn’t do any research into what their upcoming plans are. Also, I haven’t followed their development roadmap.

1) What is the value prop/who might use this?

From what I can see, the value prop would be for those who want to trade ETH on leverage but don’t want to have to trust their margin collateral with a centralized exchange such as Bitmex, Deribit, etc. The main user should be someone who closes their CDP at 16.5% rate, wipes their DAI, and reopens a leveraged long on dydx. As for more active crypto traders using ETH collateral, they’re probably better off taking the exchange risk on Deribit in return for a much better trading experience.

2) What is missing to realize that vision?

Liquidity, UX, leverage.

Assuming they can build liquidity and also a proper funding market that doesn’t have a bid/ask so wide you can drive a truck through it, I might use this. Low leverage is fine w/ me, and the fact that it works seamlessly with Metamask is nice. For now, I don’t see any reason to open a trade here. Has sort of a product-market fit problem in the sense that I tend to think small traders prefer much higher leverage than this and much better trading tools, while large traders require much larger liquidity.

3) How can a new exchange build liquidity?

Incentivize MMs, affiliate programs, memes. This is hard work and exchanges, even decentralized ones, require network effects and product differentiation. You are not just competing on cost but also on natural liquidity which is incredibly hard to attract.

Onward to some screenshots of my initial experience:

1 – Metamask shows a nice green “Connected” text which feels nice.

2 – As a trader, the first thing I notice is the liquidity is absolutely abysmal. Bid is 162.25 and ask is 163.40 which is 0.70% wide. This is 10x wider than Deribit, Bitmex, and others. Any reason MMs cannot quote tighter here? Is it fee-related, latency, or both? Moreover, the depth of book is seriously lacking. A 100k USD order would be impossible to fill.

3 – How are these borrow / depo rates getting generated and why are they so wide? On Bitfinex there is a populated central limit order book for funding, and on Bitmex these rates are simply implied by the premium in a p2p manner. Are these non-P2P rates?

4 – What is utilization? Who is paying the borrow/depo rates when the supplied amounts are not being used? Who is setting these rates? I see no place to enter bids / asks for funding.

5 – This max leverage is low which I guess is prudent given the low liquidity. For comparison, centralized exchanges are 50x – 100x on the equivalent product.

6 – Chart is complete amateur mode. They have 1D, 1W, and 1M on a low-res line chart. Probably should just white-label Tradingview to be honest.

7 – Where is the time & sales blotter (ledger of all trades that occurred)?

Have you tried DYDX? Let me know your thoughts in the comments below.