A Fintech start-up dYdX is planning to offer a new Ethereum derivatives product soon. The open-source platform is built on top of a decentralized exchange (DEX) protocol Ox. It uses smart contracts to facilitate investors to trade Ethereum for tokens. These tokens function as options contracts tied to the price of ETH.
Bearish traders on Ethereum can buy short tokens that rise in value when the price of Ethereum falls. Bullish investors, on the other hand, can purchase leveraged tokens that multiply profits when the Ethereum price goes up. These options tokens are supported by ether locked in smart contracts by lenders. The lenders earn interest in lieu of depositing their ETH as collateral for the DEX.
A couple of crypto exchanges already offer derivatives for altcoins. However, they predominantly need users to deposit funds into exchange-controlled wallets. This creates a central point of failure and provides hackers with high-value targets. In the case of dYdX, it is governed by a code which means that it is secure.
Antonio Juliano, the dYdX founder, sees a huge opportunity that’s lined up for a derivatives market that’s built using a DEX instead of a centralized order book. He further added that the main usage of cryptocurrency so far has been buying and holding. However, he said that is not how sophisticated financial institutions trade.
As stated in the CCN report, the derivatives market is usually an order of magnitude larger than the buy/sell market or spot trading. He added that dYdX intends to roll out options tokens for virtually all ERC-20 tokens in the near future. He said that he thinks of them as mature financial products.
The company, however, chose not to hold an initial coin offering (ICO). It instead raised $2 million through a seed round that was led by Andreessen Horowitz. It also attracted investments from Coinbase co-founders Fred Ehrsam and Brain Armstrong and Polychain Capital. The dYdX protocol is currently in the final stages of testing. It is scheduled to go live in less than two months.[The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and/or the official policy of the website. ]