dYdX is a powerful open trading platform, which mainly has the following three functions:

• margin trading

• loan

• margin trading

In the first article of this series, we mainly introduced how to connect your wallet to dYdX, and how to earn interest by depositing assets. In this article, we'll explore how to borrow on dYdX and dive into two important concepts related to how dYdX works: the global lending pool and collateralization.

Global Lending Pool

On dYdX, both borrowers and lenders interact with global lending pools, one for each asset, all managed by smart contracts. When you deposit assets on dYdX, your assets are deposited into corresponding lending pools, where borrowers can borrow the same assets. This model allows borrowers and lenders on dYdX to deposit and withdraw assets at any time.

As lenders and lenders interact with the lending pool, the supply and demand for each asset changes, affecting the utilization rate (loan amount/supply amount) of each asset. dYdX's interest rate is based on these utilization rates. You’ll notice that there are two interest rates for each asset on dYdX: the rate that lenders earn to lend their asset (the lending rate) and the rate that borrowers pay to lend their asset (the borrowing rate). The borrowing rate will always be higher than the lending rate, because the lender only earns the interest paid by the lender, and the interest is distributed among all lenders.

pledge

pledge

Staking is a concept you come across a lot on dYdX. Your collateralization ratio determines how much you can borrow and when you will be liquidated. To calculate the collateralization ratio, simply take the ratio of (collateral/debt). On dYdX, this ratio is calculated using the dollar value of each asset.

For example, suppose:

ETH = $ 100

USDC = 1 US dollar

Let's assume a user has the following account balance at dYdX:

2.5ETH

-200 USDC

For this user, we can calculate collateral (positive balance) and debt (negative balance) like this:

Collateral: 2.5 ETH * $100 = $250

Debt: $200 * $1 = $200

Therefore, the stake rate for this user will be 250 / 200 = 1.25 or 125%

On dYdX, you can borrow assets until your collateralization ratio reaches 1.25 or 125%. Once you reach this ratio, dYdX will not allow you to borrow any more assets until you deposit more collateral or pay off some of your debt.

Now, suppose one day the price of ETH drops to $90. The pledge rate of this user is now:

Collateral: 2.5 ETH * $90 = $225

Debt: $200 * $1 = $200

225 / 200 = 1.125 or 112.5%

On dYdX, as long as an account is below the "liquidation threshold", any existing borrowing in that account is considered too risky. To protect lenders, accounts will be "liquidated": collateral will be sold until all negative balances are zero. On dYdX, the liquidation threshold is 1.15 or 115%, and in this case, the user’s account pledge rate is 112.5%, which is just below the liquidation threshold. The account will be liquidated and must pay a liquidation fee of 5%, and the balance after the final liquidation will be kept in the account:

~ 0.264ETH

0 USDC

When borrowing and opening positions on dYdX, understanding staking and how it affects your account is essential to managing risk. Mastering these concepts is helpful for borrowing and other related operations on dYdX.

Learn about borrowing pages

All borrowing management on dYdX can be easily started from the borrowing page. You can access this page by clicking on the "Borrowing" link in the header:

Click on the "Borrowing" tab at the top to enter the borrowing page.

In the "Outstanding Borrowings" section, you'll see a list of all your current borrowings; any negative balance is considered a borrowing. When executing a buy or sell transaction, your balance will become negative, so the negative balance generated by the buy and sell transactions will also be displayed here.

You'll notice that under "Outstanding Borrowings" there is a "Date Due" column. Direct borrowing on dYdX does not have any maturity period, so you are free to borrow assets and pay them back at any time as long as your collateral stays above the liquidation minimum. However, if your balance goes negative because of a buy or sell transaction, this is no longer considered a direct borrowing, but a transaction. We'll discuss expiration dates and buy and sell transactions in later parts of this series. As long as there is no trading transaction, there is no expiration problem here. If a buy or sell transaction is made, you may see an expired reminder pop up under the "Expiration Date" column.

All borrowings will appear in the "Outstanding Borrowings" column.

Borrowing on dYdX

To borrow an asset, simply click on the asset you want to borrow under "Borrowing Assets" on the Borrowing page. After selecting the asset, just enter the quantity in the input field in the loan mode. When deciding how much you want to borrow, there are two most important pieces of information to look out for: the "interest rate (APR)" and the "account collateral."

Make sure you understand your interest rate (APR) and account collateral when borrowing. "Account pledge" represents your pledge rate. In the initial stages, it shows ∞ when you have no debt. However, once you enter a loan amount in the "Amount" column, you will see your pledge rate updated in the "Account Pledge" column. The decision of the pledge rate is up to the user, however, dYdX does not allow borrowing with a pledge rate below 125%, and any account with a pledge rate below 115% will be liquidated. If you borrow ETH or use ETH as a pledge, the collateral and debt may change in value when determining the pledge rate.

Enter the amount you want to borrow under the "Amount" field at the top, once entered, several other fields on the screen change, reflecting the state of your account and wallet after the loan is complete. You can see updated account and wallet balances and account staking in the left column. Your wallet balance will change after borrowing because when borrowing, the borrowed assets are withdrawn from dYdX to your wallet.

If you have completed the borrow, dYdX will display your new balance and collateralization ratio.

Just above the "Account Staking" section, you'll see a field labeled "Deposit". This optional field allows you to deposit different assets while borrowing, allowing you to easily increase the pledge rate without multiple operations. Convenience aside, if you enter a borrow amount that would put you below dYdX's 125% pledge threshold, you'll see the Deposit column pre-filled with a required deposit amount to successfully fulfill your borrow and put your pledge rate remained above 125%.

If this user borrows 50 USDC, his pledge rate will be lower than 125%, so the system requires him to deposit 0.1374 ETH.

After filling in the loan, click the borrow button, and if you see the transaction confirmation, the whole operation is complete! You can see your new loan appear under "Outstanding Borrowings." You can also see the borrowed assets in your wallet and the corresponding negative balance under "Account Balance", reflecting the amount borrowed.

You can repay your loan at any time, just find "Outstanding Loans", select the loan you want to repay and click the "Repay" button, you can repay part or all of the loan.

Hover over your borrowed assets to see the "Repay" button.

If you have other questions or need help, you can always check the official website help center or call customer service. Both links can be found under dYdX's Help menu.

Click on the official website link for more detailshttps://trade.dydx.exchange/

You can also always ask for help on the dYdX telegram group.

Now that we have a better understanding of staking and borrowing, we will take a closer look at how to trade in an upcoming article in the series. Please stay tuned!

The above information is for reference only and is not investment advice. Seek investment advice from a duly licensed professional.