One of the fastest growing dapps in the Ethereum ecosystem is dYdX
It was recently announced dYdX had generated over $1 billion in loans and over $500 million in trading value. It also ranks within the top 5 dapps in terms of daily activity and daily volumes on DappRadar’s DeFi chart.
It’s a non-custodial platform (i.e. it doesn’t have access to your private keys) for crypto-based savings and loans, more complex margin trading, and (just announced) perpetual contracts too.
In terms of how dYdX works, on the savings and loan side, users can deposit ETH or the USDC and DAI stablecoins, earning interest on their balances. Interest is paid out continuously and you can withdraw your tokens at any time.
Similarly, users can borrow ETH, USDC, or DAI, paying an interest rate on the loan. In order to take a loan, users first have to deposit tokens as collateral.
The initial collateralization ratio for getting a loan is at least 125%. The minimum collateralization ratio once a loan is live is 115%. If the ratio falls below 115%, the loan is automatically closed (or liquidated) and the collateral sold to pay back the loan, and a 5% liquidation fee is taken. The remainder of the collateral is paid back to the user.
In this regard, dYdX’s savings and loan features are broadly similar to those from other DeFi dapps. What is different, however, is dYdX’s margin trading.
Offering up to 5x margin, this means users can trade token pairs with 5 times the amount of tokens that they actually own.
For example, you could deposit 1 ETH into your account, but trade 5 ETH. Effectively by paying a small amount to borrow the 4 ETH margin from other dYdX users. This is a very powerful option as it enables users to make up to five times more profit. Although of course, the flip side is because you’re borrowing tokens to trade, you can also lose all the tokens you’re trading with.
Of course, for these reasons, margin trading should only be undertaken by experienced traders. Even then, only with tokens you’re prepared to lose entirely. More generally, all DeFi dapps come with risk. So never spend/trade or lock-in significant amounts of value with fully researching them.