Decentralized exchange dYdX is outmaneuvering the rest of the DEX sector so far when it comes to introducing premier derivatives products into DeFi. The latest such offering from the protocol’s team is LINK-USD, a perpetual contract based on the Chainlink price.
Allowing traders to bet on price movements around assets, perpetual contracts are akin to futures contracts that have no expiry. That means these derivatives, which can be margin traded, remain active until traders close their positions or get margin liquidated.
The LINK-USD Perpetual Contract is dYdX’s third such offering after releasing BTC-USD and ETH-USD products earlier this year. Notably, these USDC-settled offerings can be traded using up to 10x leverage. As for why LINK was next up on the non-custodial exchange’s derivatives slate, it’s no real surprise.
“On a daily volume basis, LINK is the most traded token in all of DeFi,” the dYdX team said.
Embracing Chainlink’s LINK Price Feed
The perpetual contract’s rollout notably depends on Chainlink’s oracle-powered LINK-USD Price Feed, dYdX explained:
While demand is unquestionably high for LINK, we are just as excited about the underlying oracle ecosystem that Chainlink has built. As such, we are excited to share we are using Chainlink’s LINK-USD Price Feed as the oracle source for this market. Given that Chainlink’s ecosystem of data providers have proven to be extremely reliable, even in times of high volatility, we are confident that this oracle integration will perform extremely well.
It’s yet another legitimizing embrace for Chainlink this year. And it’s another example of why Chainlink has advanced considerably over the past two years. The crux? For DeFi projects like dYdX, it’s vastly easier to quickly plug into Chainlink’s already-built oracle infrastructure, e.g. the LINK-USD Price Feed, than it is to spin up solutions in-house.
dYdX Leading the L2 Charge
If you want to know what the future of Ethereum looks like, then look at what dYdX is doing today with regard to scaling.
Indeed, in recent weeks Ethereum gas prices — the costs associated with processing Ethereum transactions — have been very high as demand to use the reigning smart contract platform has surged. It’s been a pain point for traders, to say the least.
Layer-two scaling solutions can help here by making transactions extremely affordable and extremely fast. And the bright side is that these L2 solutions are now arriving to save the day.
For example, earlier this month dYdX revealed it was working with Ethereum scaling firm StarkWare to integrate the DEX with StarkEx, an L2 scalability engine powered by zk-Rollups technology. The meld will drastically reduce gas fees and trade times for dYdX traders, and the finished integration is coming soon.
“Our Perpetual Contracts will be powered by StarkEx by the end of this year,” dYdX said at the time.
Accordingly, decentralized derivatives products like the new LINK-USD perp will be that much more attractive to users once the trading experience around them is considerably friction-less. The move to L2 comes after dYdX temporarily instituted a minimum trade size back in March amid acute Ethereum congestion. Now, the StarkEx embrace will allow the exchange to take things in the opposite direction, which means its users soon won’t have to worry about trade sizes ever again.
“Since there [will be] smaller fees per-trade, [we’ll] offer smaller trade sizes, allowing traders to try out dYdX by starting with a smaller amount of capital,” the project’s team said last week. This is good news for the exchange’s stakeholders and also for other DEXes in the space, as dYdX is paving the way for other popular protocols to follow suit toward L2 solutions.
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