If you were in New York last week for the Mainnet conference and asked anyone you met to name the most admired companies in the cryptocurrency category, they’d likely mention an exchange. If you took a 10-minute cab ride to Wall Street and asked the same question about traditional finance, the answer would probably be a bank.
Galen Moore is the content lead at Axelar, which is providing technology for dYdX.
One of the curiosities of cryptocurrencies is that centralized exchanges are at the apex on almost any dimension: profits, use, stature and (yes) innovation (e.g., perpetual swaps, a type of derivative pioneered in crypto). DEXs, their decentralized counterparts, have contributed innovations like automated market makers (AMMs).
But so far DEX volume is a sliver of CEX volume — they are less-known, used by fewer and profits are nearly nonexistent: most protocols pay out in rewards more than they generate in fees.
The perpetual-swap exchange dYdX is an exception on that last point (profits). And yet, it hasn’t added a market pair since 2022 and its liquidity and listings are far behind the largest centralized derivatives exchanges. In the world of Web3 and decentralized finance (DeFi), product-market fit is hard to find. How does dYdX do it?
Recently, dYdX announced a partnership with Axelar (where I have a role on the core team): it is rolling out version four (v4) of the exchange on a dedicated blockchain they are building with Cosmos SDK and Axelar is providing cross-chain infrastructure to onboard users and collateral deposits from other chains. That rollout is expected within the next month or two.
Learning more about dYdX gave me a fresh appreciation for what it’s delivered to users. I asked dYdX founder Antonio Juliano and spoke with multiple dYdX users to learn about the product decisions that have driven user adoption. Here’s what I found.
Background: Perp-swaps and dYdX v3
The perpetual swap (aka “perp-swap,” or just “perp”) is a derivative invented by the cryptocurrency exchange BitMEX. It’s like a futures contract, but instead of a maturity date it pays out funding rates periodically, usually every eight hours. Its popularity drove BitMEX’s rise starting in 2017 and ushered in a new class of professional cryptocurrency traders. (The rise of perps…
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