dYdX is a decentralized exchange that offers complex financial instruments to its users such as perpetuals, margin and spot trading, as well as lending and borrowing. It uses off-chain order books with on-chain settlement and enables traders to short-sell tokens, increase exposure by longing with leverage, or earn interest on their deposited tokens.
dYdX was founded by Antonio Juliano in 2017 to provide trustless access to complex financial instruments without the need for a centralized exchange. By avoiding the use of a central clearinghouse, the protocol aims to incorporate the benefits of these financial instruments into the crypto space in a decentralized and non-custodial way. Shortly after the establishment and the seed round that followed, dYdX launched their base Margin Trading Protocol on Kovan testnet. This version of the protocol enabled short-selling, leveraged longing, and margin loans. When deploying to the mainnet a few months later, dYdX also introduced their first product "Expo" which was developed to let traders interact with the protocol seamlessly and was based on dYdX's now-abandoned margin token mechanisms. dYdX spent a couple of months collecting feedback from traders and developing the technology. In May 2019, this iteration process resulted in the introduction of a brand new trading protocol, Solo, whose smart contracts were written from scratch and rebuilt according to the needs of traders.
In 2020, the protocol strengthened the funding of the project by completing a Series A investment worth $10,000,000 and took an important step by launching their perpetual protocol. The introduction of this financial instrument was a significant breakthrough for dYdX and crypto in general. The transparency of a decentralized exchange bypassed certain obscurities of perpetual protocols such as liquidation mechanisms and insurance funds that are not fully disclosed in their centralized counterparts. To boost this effect further, dYdX developed a Layer-2 in collaboration with Starkware in order to increase the trade settlement capacity for the cross-margined perpetuals. The protocol uses Starkware's StarkEX scaling engine and its ZK rollup technology to settle the perpetual contracts with decreased gas and trading fees and lowered minimum order sizes. As of 2020, with the introduction of perpetuals, traders are able to trade spot, margin up to 5x leverage, and perpetuals up to 25x leverage on dYdX's decentralized exchange while utilizing several functionalities that are mostly seen in centralized exchanges such as order books and limit orders. Meanwhile, daily users are able to fund the margin loans and earn interest fees by lending their assets. With a total of $75,000,000 investment they received in their Series B and Series C rounds in 2021, dYdX aims to pursue growth in strategic geographies, introduce new assets and features to its perpetual services, and launch a mobile app for dYdX exchange.