The daily trading volume of dYdX exceeds 10 million US dollars. How big is the leveraged trading market on the chain?
Editor's Note: This article is from:DeBankView (ID: DeBankView)Editor's Note: This article is from:
DeBankView (ID: DeBankView)
DeBankView (ID: DeBankView)
, Author: XUY, reprinted by Odaily with authorization.
As the digital currency trading market enters the stock game, exchanges have launched related derivatives trading varieties. Binance has recently launched futures contract trading, and OKEx will soon launch bitcoin options.
The derivatives market on Ethereum is also constantly developing and innovating, such as leveraged transactions on the chain.
After dYdX went live, the transaction volume increased steadily
Mortgage lending is a typical DeFi (open finance) application on Ethereum. Users can mortgage ETH or other ERC20 tokens to lend USD stablecoins. The largest of these is MakerDAO, with a mortgaged ETH market value of nearly $200 million.
Below is the detailed data for each application.
Among them, dYdX is quite special. It not only provides the function of mortgage lending, but also allows users to increase leverage conveniently.
Because many users mortgage loans to increase leverage to do more ETH. Before dYdX, users need to mortgage ETH on the lending application to lend stablecoins, then buy the stablecoins into ETH at the exchange, and finally mortgage to the lending application. Leverage is completed in such a cycle, and the experience is relatively poor.
dYdX has added trading functions on the basis of lending, and users can complete the need for leverage in one operation. Since its launch in April this year, the transaction volume has been rising steadily, with an average daily transaction volume reaching 3 million US dollars.
It is worth mentioning that the daily transaction volume exceeded 10 million US dollars for the first time during the sharp drop of Ethereum on November 22. Due to the large number of users who increased leverage to do long positions, the positions liquidated that day exceeded 9 million US dollars. This figure is not small even on centralized exchanges, which shows the activity of leveraged transactions on the chain.
Take advantage of DeFi's openness and composability
The design of leveraged trading products generally includes three modules: loan fund pool, spot trading and liquidation. Since DeFi applications can call each other through smart contracts, it is entirely possible to build a new leveraged trading product based on third-party applications, such as Compound for fund pools, Uniswap or eth2dai for spot transactions. This greatly reduces the cost for the project party to realize leveraged transactions on the chain.
Due to the openness of DeFi, the capital flow efficiency on the chain is high, which provides leveraged users with low interest rate borrowing funds. At present, the average annualized interest rate of DeFi lending is less than 10%, OKEx leveraged lending is 22%, and Huobi is as high as 35%. The cost of capital on the chain is far lower than that of centralized exchanges.
In addition to low interest rates, on-chain leveraged lending also has the advantages of transparency, security, and KYC-free.
Disadvantages compared to centralized exchanges
The first is that the lack of transaction depth leads to large transaction slippage. The transaction slippage of leading exchanges is generally within 0.1%, while the decentralized exchanges on the chain may exceed 0.5%, which is at least several times different.
Since the liquidity on the chain is much worse than that of centralized exchanges, in order to reduce the occurrence of liquidation (the value of users’ assets is less than their debts), a higher maintenance margin rate will be required, making it easier for users to liquidate their positions.
