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A little about dYdX
dYdX gives users the ability to borrow, lend, and margin trade across any supported asset. dYdX is powered by smart contracts on Ethereum eliminating the need to trust a centralized exchange to custody your assets while trading.
The growth of dYdX has been incredible. Despite only launching in May 2019, dYdX has now originated more DeFi loans than any other money protocol ( >$1 billion USD) and processed over $550M+ in total trading volume across ETH, DAI, and USDC markets in the last 7 months.
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Trading crypto on margin or perpetuals in dYdX allow you to amplify gains or losses on your trades, including access to short exposure on investments.
These products are considered much riskier than normal trading and may not be suitable for everyone because the crypto markets typically experience high levels of volatility. Read more here
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On April 23 2020, we hosted our first live AMA Spotlight with CryptoCat, prop trader and market maker who accounts for more than 2% of DEX trading volume and one of dYdX’s most active traders.
In these AMA spotlights, our goal is to bring you the best insights and commentary from professional crypto traders, market makers, leading industry experts, and more!
Below is a recap of the AMA with CryptoCat:
Q: To get started, we’d love to hear a quick background about you and how you got started with trading in crypto.
I have returned to the crypto space in 2017, after leaving it following the MtGox hack, and being a noob who kept his funds there.Bought the top like many others, and then went on trying out most dApps on Ethereum before settling in DeFi.
Becoming a power user and market maker over the last two years. Currently, I spend my time market making, market taking, OTC, and providing feedback to new products.
I’m also part of the Israeli crypto community, where I try to bring new people into ETH and DeFi. And memes, lots of memes.
Q: First off, want to congratulate you again on winning Ms. Israel in 2005. What a tremendous feat, and well-deserved too. I’m curious why you trade DeFi vs. CeFi and what you see the most promising areas of growth for DeFi are in the next year.
You’d be surprised how many people took that comment seriously. I was surprised it was more than 0.
I could go about not your keys, not your money, or the trust issues I have with CeFi since losing a couple BTC on MtGox.
But there is another factor which is speed of execution. Especially in times of network congestion. A deterministic execution has a lot of value for me. And I don’t like when withdrawing funds from an exchange that is unknown.
Q: What do you think are the top market making opportunities in DeFi right now and what kinds of returns can you make?
It is a highly competitive field. It depends on how active you want to be in the process. There is a lot of room for AMM growth given the success of Uniswap, Balancer, and Curve. All returns are public so you can check them out!
Q: What other financial products do you trade or have you traded in the past? Do you work from home?
I’m actually quite a risk averse investor, Had a chat with my accountant this year, and she asked if I had done any stock trading this year. “No, stocks are volatile and risky”
The look on her face was priceless ^.^
I have an equivalent of a 401K, which is mostly passive holding market indices.
And yes, mostly home, a cafe, airport lounges. I can work from anywhere.
Q: How important is community trust in Oracles and do you welcome the new implementation that Coinbase announced today? … and for the traders in the chat, how do you think this might affect LINK?
Oracle trust can be worth about $136B!!
If you have an oracle with a long enough track record, you don’t need chain bridges, or atomic swaps. I think we are not there yet though. There can be no substitute for a long enough oracle track record to build that needed trust.
Coinbase going into the oracle game is a big deal in my opinion. They have a well established security record, and I don’t expect them to pull off any funny business.
LINK is RIP. jk, don’t kill me 😀
Q: What do you think about oracles – does it bother you that projects rely on off-chain price sources for pairs like ETH/DAI?
I think off-chain sources are a needed intermediary step until we can get a DEX market that is deep enough to handle millions of $ on-chain.
Q: What are your thoughts on Gas wars during liquidation periods, where sometimes up to 100% of liquidation incentives go to miners? What could DEXes like dYdX do to alleviate this and avoid getting liquidation penalties for traders going to miners?
It is thought that the liquidation game has a profit margin that will be going to zero in the long run as it becomes more competitive. I don’t think we are there yet.
As for the solution, you could put a hard cap on gas price per liquidation. It makes no difference who is the liquidator, or if they pay 50gwei or 500gwei as long as a liquidation is happening in the soonest block.
Q: How do you think about the balance between technical risk and returns – i.e. what does your process look like before trading on a new DeFi venue?
I will throw a bit of ETH into pretty much anything. And that has served me quite well thus far. By a bit of ETH I mean pennies, just to try the system out. Worst case, I lose a couple pennies.
Best case, I’m the first one in and get early experience in the system to have an edge when more users join.
A good rule of thumb would be to wait half a year before putting anything substantial. Half a year from the last incident perhaps
Q: What are your thoughts on DEX aggregators?
They are useful at bringing better trade execution for the average user. So a 10-100 ETH range trade would benefit from using a DEX aggregator. I do use them, but rarely. As I’m looking for the best trade execution, they cannot deliver that.
DEX aggregators only trade the orders that are on the books at the time of the trade, and have no prediction of the state of liquidity after the trade.
Q: If you could borrow or lend at fixed rates of interest, how long would you like to fix a rate for? a week, a month, a year?
I usually borrow short term. Fixed rates are not that useful for me.
Lending wise, a month would be a unit of time I would benchmark the fixed rate in.
Q: How do you think about trading real world indices like S&P500 on DEXs?
When I had to choose a fund for my 401K equivalent, I went for one that was under-performing, as I am a strong believer in the regression to mean theory in stock markets.
Q: What is important to you from a UI perspective? Is a sleek interface important to you or do you mainly trade via algo?
The most important in a UI is reduction of unforced errors as those tend to be very painful; confuse a buy with a sell, trade stable-coins where one site shows the mirror pair, etc.
I prefer a clean UI, without unnecessary noise.
Q: What are your thoughts on the latest attempts to bring BTC onto DeFi – are you excited? Anxious? Horrified?
I think/hope it will be a good gateway drug. It will give BTC maxis a reason to try out ETH and DeFi.
I haven’t seen any significant innovation in BTC in the last 2 years, and not in the near future. So I am excited, why would you be anxious about it?
Q: What are some features on existing DeFi exchanges that do not exist across the board that you would like to see standardized on all exchanges? Are there any features that have yet to be implemented on exchanges that you would like to see?
Is liquidity a feature? 🙂
I would like to see non-deposit designs on DEXs across the board. I know that might create functionality limitations though.
I quite like the option to interact with a single order, as opposed to the orderbook in on-chain DEXs, so if you have 2 dust orders on top of the orderbook, this would allow you to take the 3rd order, and just that.
I would also like to see tooling that would make things easier when tax season comes, implemented on all DEXs.
I would also like to see a standard for prices on stablecoin/stablecoin pairs, or at least an option to see 1/rate, and ETH/WBTC or WBTC/ETH, dont care which one, as long it is across the board. As for UX i’m not too picky.
Q: Are there any automated tools you use currently with DEX’s that simplifies your processes?
I have created a number of utilities that automate a couple of processes into a push instead of a pull effort. I do like nansen when doing a cold read on an address.
Q: What’s your take on layer 2 dexs like loopring? Will they gain traction?
I think that at the moment, what they are offering is overkill. There isn’t that big of a user demand for trades per second right now. If they can run long enough for the chain to get congested enough, they will have a definite edge!
Q: Have you traded any BTC Products, if so which ones? You mentioned WBTC earlier…
I have traded WBTC here and there, but I rarely hold it for long periods of time as I’m more bullish on ETH than BTC.
Had a look at BTC+++, and did not see the appeal it may have. Looking at the dForce hack, you can also see that their BTC, don’t recall which one it was, could not be sold anywhere other than the exchange that issued it.
Those types of assets I wouldn’t touch.
Q: What do you think needs to happen for DEXs to gain a lot more market share against centralized exchanges? Do you see BTC markets helping here?
That is a very interesting question. A bunch of hacks on centralized exchanges would help for sure 😀
I think more substantial leverage would be a very attractive feature. Along the lines of the dYdX Perpetual Market.
DEXs requires you to learn new things. seed phrases, gas, etherscan… Abstracting that could help bring the users over. Basefee (when it will be implemented), ENS, and the improvement in wallets in the last year are all steps in that direction.
Q: Have you traded Bitcoin Perpetuals on avenues like BitMEX, FTX, etc? If yes, what’s your experience been? What gets you interested about the BTC Perpetual on dYdX?
I have, with mixed results. Didn’t really know what I was doing at the time 🙂
The non-custodial aspect is very important for me coupled with the fact that I know the house is not actively playing against me.
Q: What specific derivative markets would you like to trade on the futures / options side? Asset pairs?
Interesting question. I’d be interested in short time frame options. Like 3-5 mins.
Q: If you had any recommendations for traders that want to get into DEXs, but are primarily used to centralized exchanges, where should they get started?
I think the intermediate step should be to attempt transacting on Ethereum using wallets. That’s the difficult step, once you have that mastered, DEXs become quite intuitive.
Better to start with small amounts and products that do not have an orderbook like Uniswap, then graduate to more feature rich DEXs like dYdX.
Q: Anything else you’d like to add before we wrap up? How can community members stay engaged with you? Any comments on the dYdX BTC Perpetual?
I usually lurk in the dYdX group, or in the DeFi group. Or @CryptoCatVC on Twitter if you want to send me a DM.
I think the BTC Perpetual will have a massive impact, and facilitate the growth and innovation in DeFi.