#dYdX Advanced Player Guide: On-chain Perpetual Contract, a battlefield where leeks turn into sickles?

Old Leek digs his heart out: When it comes to contracts, choosing the right platform is more important than anything else. dYdX is considered the “elite club” in DEX. You can make a lot of money by playing casually, but novices should not rush in! It is recommended to use regular centralized exchange (CEX) as a training ground first, safety first, and protect the principal first.

What exactly is dYdX? Why are all the veterans in the industry focusing on it?

To put it bluntly, dYdX is a decentralized exchange (DEX) specially built for hardcore trading. It doesn't let you just swap it twice like Uniswap, but it moves all CEX's perpetual contracts and margin trading to the chain.

Think about it, on a decentralized site, you can use leverage to go long or short, and the assets are completely in your own hands - this is what dYdX does. As of the end of 2023, its cumulative trading volume has exceeded 1 trillion US dollars, which is definitely the top level among derivatives DEX.

It started from Ethereum in 2017, but in October 2023, it made a big change: it migrated directly to its own independent dYdX Chain (based on Cosmos SDK). With this move, the transaction speed is so fast, the handling fees are also reduced a lot, and the ambition is clear to compete with CEX.

How does dYdX work? How is it different from ordinary DEX?

Most DEXs (such as Uniswap) use AMM (Automated Market Maker). The price is calculated by a formula. You basically have no control, and the transaction price is random.

dYdX is different. It uses the Order Book model of a traditional exchange. You can place a limit order and accurately set the buying and selling prices. For traders who play with contracts and engage in strategies, they will have a full sense of control.

Now, dYdX runs on its own dYdX Chain. This is a Layer-1 chain (although it is often called L2) specifically designed for high-frequency, low-cost transactions. Using the Tendermint consensus, blocks can be generated very quickly, so you can experience the smoothness close to CEX, but the assets are in your own wallet, non-custodial, and you feel much more at ease.

Extra Easter Eggs:

Staking: In the v4 version, you can pledge DYDX tokens to participate in governance and earn some rewards, which is similar to depositing money and earning interest.
Hedgies NFT: The digital collectibles created by the platform can be regarded as a status symbol of the community. They may have special rights in the future, so just hoard them first.

What are the ways to play on dYdX? (High-energy warning: The risks are extreme!)

This is not a place for novices to play with cash, the core is just two words: derivatives.

Perpetual Contract: The fighter in the core. There is no expiry date, and you can use leverage to bet on the rise or fall of a certain coin (long/short). Income may be doubled, and losses can also make you return to zero instantly.
Margin Trading: Borrow money to enlarge your principal to open a position. It is also a double-edged sword. If you use it well, it will be the icing on the cake. If you use it incorrectly, it will accelerate the liquidation of the position and leave no pants left.
Coin-to-coin trading: There is also one, but this is not its home page. The function is relatively simple, so just use it as an add-on.

Advanced Toolkit:

Stop Loss Order: A life-saving tool that must be set up! Conditions trigger automatic closing of positions to prevent losses from expanding indefinitely. Don’t regret it after inserting the pin.
Limit Order: The basis of strategic trading, rely on it if you want to buy the bottom and escape the top.
Thanks to the low latency of dYdX Chain, short-term trading and high-frequency strategies can be more effective here, which is suitable for veterans who love to toss.

Expenses: The transaction rate is about 0.01% to 0.05%, which is cheaper than many CEXs, but you have to pay network gas fees for on-chain operations, so don’t forget it.

**⚠️ Blood and tears reminder: ** dYdX is prepared for veterans who have figured out contracts and leverage. If you are a novice, don’t be reckless with large amounts of money! First go to a regular CEX and use simulated trading or small funds to understand the concepts. Contract trading can make you lose all your principal in minutes. This is not to scare you.

How to start working on dYdX? (Step-by-step tutorial with step-by-step instructions)

Since you are determined to give it a try, here is a serious step-by-step guide:

Step 1: Get your wallet and ammunition ready

Get an Ethereum compatible wallet, such as MetaMask or Coinbase Wallet. Do not use Pheasant Wallet.
Visit the dYdX official website and connect with your wallet.
Follow the instructions to complete the identity verification (KYC), and don’t skip the necessary steps.
Deposit ETH, USDC or USDT from your wallet into the dYdX platform and get ready to go.

Step 2: Choose your battlefield

Want to bet on direction? Play with perpetual contracts.
Want to increase capital efficiency? Trade on Margin.
Simply exchange some coins? Use coin-to-coin trading, but to be honest it's not the best option.

Step 3: Calculate the cost account

Transaction fee: The rates for taker/lister orders are different. It depends on your transaction volume and type. Don’t be cheated.
Spread: The difference between the buying price and the selling price is also a hidden cost, especially during large fluctuations.
Network Fee: Gas to be paid when operating on the dYdX Chain, which is indispensable for on-chain activities.

Step 4: Place your first order

Select a trading pair, such as ETH/USDC, and choose a currency you are familiar with.
Select the order type: Limit Order (specify price, suitable for placing orders) or Market Order (immediate transaction, suitable for chasing ups and downs).
Set the leverage multiple carefully (if necessary). Newbies are advised to start with a low multiple and don’t be greedy.
Check it one last time to confirm the transaction and don’t slip.

**Step 5: Risk control! Risk control! Risk control! **

Start small: Use a very small amount of money to experience market fluctuations and platform operations first, and don’t get stuck as soon as you get started.
Stop loss must be set: Place the stop loss order when opening an order. This is your life-saving talisman. Don't take chances.
Continuous Learning: The market is always changing, study more strategies and don’t stop evolving.
Make use of dYdX’s official documents and community resources, information is money.

The evolution of dYdX: from V3 to independent dYdX Chain

October 2023 will be a watershed. dYdX did not simply shut down the old version, but allowed v3 on Ethereum** and the new dYdX Chain (v4) to run in parallel to give users transition time.

October 26, 2023: dYdX Chain mainnet is officially launched, and a new battlefield is opened.
October 30, 2023: Open the cross-chain migration of the governance token ethDYDX on Ethereum to wethDYDX on the dYdX Chain, making it much easier to move tokens.

Now, most of the trading volume and users have moved to the faster and cheaper dYdX Chain. This migration has made its performance soar, giving it the confidence to compete with top CEXs.

dYdX vs. Uniswap: Which one should you choose?

Although both are DEX, they are used by different people. For example: Uniswap is a community store and dYdX is a professional arsenal.

**How to choose? **

You want to play with contracts, use leverage, pursue professional trading experience, and be responsible for your own profits and losses -> Select dYdX.
Do you want to simplely buy and sell tokens, provide liquidity and earn handling fees, or are new to the DeFi circle -> choose Uniswap.

The future of dYdX: Can it be a game changer?

dYdX’s ambitions go beyond being a trading platform. Its future plans revolve around thorough decentralized governance:

Sub-DAO (Decentralized Autonomous Organization) System: Leave operations, product development, market, risk control, finance and even dispute resolution to different sub-DAOs. This posture is to create a true "on-chain investment bank" and decentralize power to the end.
DYDX token value deepening: From a simple governance token, it has expanded to core functions such as staking and maintaining network security, and the utility of the token has been fully expanded.

If this system goes through, dYdX is likely to become the infrastructure benchmark for decentralized financial derivatives in the future and rewrite the industry's gameplay.

Conclusion and Security Chatter

dYdX is undoubtedly a hard-core pearl in the DeFi field, providing high-level traders with a top-level battlefield to display their skills on the chain. Its technological evolution and governance model are at the forefront of the industry and deserve the attention of veterans.

However, I must say one last thing: Derivatives trading is extremely risky, and leverage is a magnifying glass. Before you explore high-end DEXs such as dYdX, it is strongly recommended that you accumulate sufficient experience and risk control awareness in a formal, licensed centralized exchange (CEX). Survive first, make money later.

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**Remember the old leek’s advice: Survive first, then talk about making money. Whether it is CEX or DEX, choosing a formal platform and managing risks well are the foundation for your long-term survival in the currency circle. **