The decentralized exchange dYdX debuts with Ether Perpetual Swaps

Decentralized exchange dYdX debuts with Ether Perpetual Swaps - ethereum price black chart white 696x392 1Perpetual swaps linked to the price of ether (quotation ETH) are also coming to dYdX, the company announced this week.

Perpetual swap

“The main reason people like to trade these contracts is because they can trade them with quite high leverage,” said dYdX founder Antonio Juliano.

The decentralized finance company (DeFi) was founded three years ago. It all started with enabling margin trading on Ethereum and has now expanded to providing synthetic assets that allow traders to place riskier bets.

All of this follows the launch of the perpetual bitcoin swaps in April. “Basically [perpetual swaps] help people to express more complex views on prices and this really serves to stabilize the underlying markets,” Juliano explained.

For example, if investors see something on the market that they consider very unhealthy for the price of ETH, they can go to dYdX and take a 10x short position against the ETH price, to earn $ 10 for every $ 1 drop in ETH. , forever.

This is a very dangerous game, because if the ETH price goes up, you lose $ 10 for every $ 1 increase. Such a position can very quickly consume all the guarantees of the trader.

However, for this very reason, such a position sends a strong signal to the market. If a trader takes that type of position, others will start wondering if they should be afraid too.

So theoretically, as the derivatives market becomes larger and more sophisticated, ETH should become less volatile, as warnings come earlier and sound stronger.

How it works

A leveraged derivative allows traders to zoom in on profits and losses on an asset without owning the asset. Having become popular on the centralized exchange BitMEX, perpetual swaps are unique in the cryptocurrency market.

They create a synthetic asset that, when functioning correctly, roughly follows the price of the underlying asset while allowing for greater leverage. A user's losses are limited by the guarantee provided to support his bet.

Juliano argued that dYdX's product allows for greater leverage more easily than other DeFi alternatives, such as Instadapp to take out multiple loans at the same time on Compound.

Furthermore, its users will not pay maintenance fees but only trading fees. Juliano said trades on dYdX are among the largest for decentralized exchanges (DEX), averaging around $ 10.000.

In the traditional market, perpetual positions do not exist. Derivatives usually come with an expiration date. Juliano said he believes this is due to the fact that there are many traders who want to be able to oversize their bets with a more or less simple product to trade as an underlying asset.