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Crypto derivatives exchange builder dYdX has raised $ 65 million from Paradigm and a handful of market makers after seeing its improved exchange protocol catch fire among users.
The Series C funding round has been joined by CMS Holdings, CMT Digital, Electric Capital, HashKey Capital and StarkWare Industries, a software company that supports the low-cost dYdX platform.
The San Francisco-based exchange builder said it would use the new capital to dramatically improve liquidity during volatile trading times. In addition, funds will go towards decentralization of protocols, expansion of perpetual swaps, a mobile app and back office hires.
The Reinforced War Vault makes the idea of decentralized exchanges significantly challenging the world’s Coinbases a little more concrete. Notably, Paradigm founder Fred Ehrsam was one of Coinbase’s early executives.
The exchange aims to be a decentralized hub for Ethereum-based crypto derivatives. Its biggest volume comes from the perpetual cross-margin swap market, which has seen $ 2.2 billion in transactions since a February technology improvement that significantly reduced user costs by bypassing expensive Ethereum transaction fees.
Perpetual swaps are comparable to bitcoin and ether futures contracts with no expiration date. Cross-margins mean traders can use the same pool of assets as collateral in multiple markets, instead of having to post collateral in each market separately. This means more risk for the trader, but also a higher potential reward. Founder Antonio Juliano said it was more capital efficient.
We’re making about $ 40-50 million in volume every day on perpetual layer two exchanges, said Juliano, referring to the protocol upgrade, a collaboration with new backer StarkWare.
Almost 30% of dYdX’s perpetual transaction volume still passes through the margin product on the trade chain; Juliano attributed this activity to a handful of whales. He said his team is dedicated to Layer 2.
We think it’s a better product and has a lot more potential for growth, he said.
Long term, Juliano said he is positioning dYdX as one of the largest crypto exchanges in the world by dealing in derivatives, which he says is the largest crypto market.
And the most important thing that has happened, I think, in the crypto markets over the past year is that the volume of derivatives, really driven by perpetual contracts, has become larger. in terms of trading volume than everything else in crypto, he said.
Additionally, his team is betting that decentralized exchanges (DEX) will eventually trump their centralized counterparts because of their potential to offer censorship resistance, transparency and security to traders.
The thing we’re really thinking about is the next big thing will be derivatives on DEXs, Juliano said.
This bet seems to be paying off for dYdX at least in the short term. Juliano, who said his trade was in the red as recently as October or November, is now hugely profitable.
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