Checking Out dYdX, The Protocol for Decentralized Financial Derivatives

dYdX is a protocol for decentralized financial derviatives.

It caught my eye as it’s backed by some notable VC firms including Andreessen Horowitz and Polychain Capital.

Let’s see what it’s all about.

dYdX a set of protocols that allow several types of financial derivatives to be created, issued, and traded for any ERC20 token.

That means with dYdX you can do short sells and options trading.

With short sells you can short assets to profit on the price decrease and earn interest on long positions through trustless loans.

With options you can write, buy, or trade any option on any token. You can also take complex financial positions to increase leverage or reduce risk.

The dYdX protocol uses the Ethereum platform and the 0x Protocol to operate. The financial derivatives are executed with Ethereum smart contracts and the 0x protocol is used for trade execution.

The way the 0x protocol works is that it’s a liquidity protocol with off-chain order relays and on-chain settlement. In other words, orders are handled off-chain and only settled on-chain. dYdX believes this solution will create the most efficient markets.

dYdX also plans to have a decentralized governance and upgrade mechanism so the protocol can be continuously improved.

There doesn’t seem to be much detail yet on if dYdX will have a native token.

This could be a huge opportunity. The estimated size of the derivatives market is $1.2 quadrillion!

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