It was said recently that dFuture will officially launch Layer2 in the arena of DeFi derivatives in early November, becoming another exchange of decentralized perpetual contracts deployed on the Ethereum Mainnet after dYdX. If this is true, dYdX could be having its biggest direct competitor in the same arena — dFuture. The ace in the arena on one hand, and the dark horse on the other. Who will win?
Next, starting from the opportunities and challenges in the whole arena of DeFi, we will explore the development trend of Layer2. Meanwhile, we will make a multi-dimensional and in-depth comparative analysis of dFuture and dYdX, including their products, economic models, business data, mechanisms and other aspects, to help the users gain a clearer picture of the 2 brands.
Section One: A Boom of DEX: Layer 2 Leading DeFi to the Second Half
The past year witnessed a boom of decentralized exchanges (DEX), when a stunning monthly trading volume of nearly $4.5 billion was created. With the continuous increase of DEX trading volume and liquidity, its market share in cryptocurrency is also rising; at the same time, the product structure of DEX is increasingly rich and mature.
As the most popular and fastest growing trading product in DeFi, DEX is surely not going to miss out on the market of the fastest growing derivatives in the cryptocurrency trading market. The “perpetual contract” that is distinctive among the crypto derivatives has naturally become a hotly contested spot in the new battleground of DEX derivatives.
It is worth mentioning that in the first half of 2020 alone, no less than 6 DEX announced the launch of decentralized perpetual contract products, and these DEX specializing in crypto derivatives are supported by many well-known investment institutions, which also brings a new upsurge in DeFi.
In this context, Uniswap, Aave, Synthetix and other top players of DeFi are exploring the feasibility of Layer2 + DeFi at the same time, and the solutions in public blockchains and Layer2 have become the top priority. Many Ethereum-based projects have chosen the integrated Layer 2 technology to solve the current problem of congestion. Even Vitalik Buterin tweeted that “The Layer 2 network could be a trend of DeFi in the second half of the year”. Development in Layer 2 marks the second half of the competition in the DeFi market.
In 2021, the arena of DEX continued the rapid growth in 2020, and in February Perpetual Protocol became a decentralized trading platform for perpetual contracts with a daily trading volume of over 100 million. With the development of ETH Layer 2, dYdX successfully reached the daily trading volume of over 1 billion at the end of August, capturing the attention of the entire industry.
At the same time, new projects are emerging, most notably dFuture. According to the data released by the project, dFuture has created a daily trading volume of more than $600 million, and a TVL of 60 million USDT. Such an excellent performance brought dFuture high attention since its launch. With the launch of Layer2, dFuture will face the biggest competitor in the arena — dYdX. Will dFuture continue to deliver a remarkable result as before?
Section Two: dFuture vs dYdX: Who Will Represent the Future of Decentralized Derivatives?
Project profile: dYdX is a decentralized lending protocol based on Ethereum, and a decentralized trading service platform for digital currency derivatives. Founded in 2017, dYdX has been funded by a16z, Polychain, 1confirmation, Coinbase and other leading venture capital firms from Silicon Valley.
It is worth noting that dYdX is an order book-based DEX, in which traders conduct peer-to-peer trading and the market makers and long-short traders play a trilateral game. dYdX is built on Starkware, an Ethereum Layer 2 network, and uses the StarkEx trading engine to achieve decentralized self-hosting of assets. dYdX offers a trading experience close to that of a centralized exchange and operates on a model similar to that of CEX. Driven by trading mining, its trading volume now leads the derivatives DEX.
The team: dYdX has been funded and backed by a number of prestigious capital firms since its inception, due to the fact that the team is largely composed of former employees of well-known companies such as Coinbase. According to the query results from the platform, there are at least 23 members in the dYdX team, including 8 software engineers.
It’s worth noting that dYdX’s founders have experience in software development and background of the blockchain industry, as well as experience in starting decentralized projects. The R&D capability of the dYdX project is strong enough to support its development as a technology-based project. Although we don’t have enough information about the operational team members, dYdX has good operation in terms of past performance. dYdX has a team that can support the development of its projects.
Mechanism model: dYdX adopts the traditional mode of StarkEx engine matching and on-chain settlement to achieve self-hosting of assets. The trading is organized as peer-to-peer, with professional market makers making the market to provide liquidity. Decentralized asset self-hosting can be achieved by using the StarkEx trading engine (which enables depositing/charging on StarkWare, a Layer2 network). According to the official description of StarkWare and dYdX, its self-hosting has good security. The business logic is similar to that of a centralized exchange in that it is a technology-based decentralized version of a centralized peer-to-peer exchange.
In particular, the entity behind dYdX is a company whose business model is similar to that of Binance in that it makes money by charging trading fees, which means that the trading fees paid by the traders (excluding the capital fee for the perpetual contracts) may go to the entity and may not be distributed to the community. (Usually, the protocol receives only a portion of the fee, with a portion of the fee being distributed to the coin-holders and the community).
Economic model: The total number of Tokens issued by dYdX is 1 billion, which will be distributed to all participants in the dYdX ecology (including community users, investors and the dYdX teams) within five years. After five years, the community can vote to increase the dYdX tokens at an inflation rate, with the current maximum inflation rate set at 2% a year.
50% of the tokens (500,000,000 dYdX) will be distributed to the community as follows:
- 25% (250,000,000 dYdX) to the users of trading mining
- 7.5% (75,000,000 dYdX) to the users of retroactive mining
- 7.5% (75,000,000 dYdX) to the market makers of market-making mining
- 5% (50,000,000 dYdX) as the reserve fund for the community
- 2.5% (25,000,000 dYdX) to the users participating in the liquidity staking-pool
- 2.5% (25,000,000 dYdX) to the users participating in the dYdX staking (insurance pool)
The other 50% of the tokens (500,000,000 dYdX) will be distributed as follows:
- 27.73% (277,295,070 dYdX) to the past investors
- 15.27% (152,704,930 dYdX) to members of dYdX Trading or dYdX Foundation
- 7.00% (70,000,000 dYdX) to future members of dYdX Trading or dYdX Foundation
In addition to the governance function, dYdX currently receives a deduction for trading fees. It is worth noting that holding dYdX does not mean earning the platform’s trading fees, which are currently earned by the dYdX project (though there is the possibility of modifying the fee distribution through governance).
NFT: To date dYdX has not announced plans to release NFT.
Summary: The trading data of dYdX is not uploaded to the chain, which means that the core trading data is not immutable. From this perspective, it seems that its degree of decentralization is questionable. But if we accept dYdX as a “decentralized perpetual contract trading platform”, dYdX is currently the undisputed king in the arena, both in terms of the trading volume, the total market value, or market attention to the arena as a whole.
But in terms of its core trading mechanism, dYdX almost copied that of CEX. On the one hand, this allows seamless migration of CEX user experience with a low risk of error; but on the other hand, there is much room for newcomers to take dYdX’s place by combining more innovative mechanisms with DeFi. Next, let’s take a look at potential competitors in the arena of decentralized derivatives exchange that do not use order book-based trading mechanisms.
Project profile: Established in 2020, dFuture is a decentralized derivatives trading protocol developed by Mix Labs under the MIX Group. Mix Labs, founded in 2015, is a professional blockchain lab under the Mix Group. So far, Mix Labs has successfully incubated several well-known blockchain projects and teams, including the decentralized search engine MixSearch and the game AI project GamesMind.
As a decentralized derivatives trading project incubated by Mix Labs, dFuture accelerates the deployment of its businesses over the whole industrial chain backed by the exceptional capital, financing and technological advantages of the group. In the increasingly fierce competition in the arena of DeFi projects, dFuture still enjoys a steady dominant position, and sees a trend of further expansion in its market development.
The team: dFuture was initiated and incubated by Mix Labs under the Mix Group. Mix Group has incubated several blockchain projects and teams, including ChainNews, MixMarvel, TokenView, Mixpay, etc.
It should be noted that the dFuture project has not disclosed its development team for the time being, and the team members are working on the project anonymously, which has sparked speculation. Although dFuture has not disclosed the information of its team members, judging from the achievements of the current project, the core team must have powerful capability and a strong background.
Mechanism model: Unlike traditional models in the market, dFuture is one of the few decentralized derivatives trading protocols adopting external price feeds in the market that does not use the order book-based model. Its original QCAMM (Quoted Price and Constant Sum Based Automated Market Maker) can realize futures trading without slippage.
It is worth noting that QCAMM’s pricing is based on a combination of quotations obtained through Chainlink, Uniswap, OpenOracle, Mdex, PancakeSwap and other external oracles or decentralized exchanges, which are then provided to traders. The traders trade on the quotations without any slippage. In addition, its trading depth does not need to be determined by the internal market game, and trading (opening) of a large amount can be directly carried out without any slippage, like a dark pool trading.
Economic model: dFuture (DFT) has a total issuance of 400 million. In addition to the previous issuance on BSC and Heco, in the future, it will continue to be issued on the Ethereum chain after the launch of layer2. After the output is completed Will no longer be produced.
30.4% of the DFT is allocated to traders who complete valid transactions on the platform;
30.4% of the DFT is allocated to the LP that provides liquidity margin for the platform, and the LP obtains 30% of the LP income according to the proportion of the staked DFT;
15.2%-LP Token mining
15.2% is provided to users who provide liquidity for DFT on MDEX and PancakeSwap, that is, LP Token mining;
10% of the DFT is used as a team reward for team operations, technology research and development, etc., and will be linearly unlocked 24 months after launch;
10% as an early investor share, to provide more sufficient and beneficial funds and resources for the development of dFuture, and to unlock linearly within 12 months after launch;
In order to further promote the dFuture platform, we will conduct multiple airdrops for traders, members of the Defi community and other potential user groups. The total amount of DFT currently used for airdrops is estimated to be 3%;
In order to further improve the functions of the platform and reward activists in community activities, we reserve 1% of DFT for rewards for various community activities;
NFT: dFuture has officially launched NFT, and is one of the few exchanges in the arena of decentralized derivatives trading to do so.
On July 12, dFuture officially started internal testing of the NFT. dFuture NFT not only has financial attributes, but also has business value and transaction value as it can be combined with a variety of business scenarios. dFuture has designed interest-related NFT and identity-related NFT, which can be used, upgraded, combined, given, sold and so on.
With the benefit of NFT, dFuture seems to have one more trump card to play than any other project in the arena, which helps dFuture really stand out in the arena of the centralized derivatives.
Summary: As dFuture project has not been launched for a long time, the number of products needs to be further increased, and there is still a certain gap in terms of the number of users and the amount of funds as compared with dYdX. In addition, the current operation mode of dFuture is relatively single and not systematic. Although the community is highly active, the future ability of monetization is weak, which is also a problem that the dFuture operation team needs to deal with.
Despite these problems, dFuture is growing at an impressive pace. According to the data released by the project, the daily trading volume of dFuture on the Binance Smart Chain has exceeded $ 200 million, which surpassed not only dYdX, PERP and other leading Ethereum projects but also many centralized exchanges. What’s more, its current market value seems to be undervalued. So the news that dFuture is going to launch Layer2 has been eagerly anticipated by many loyal users.
In addition, compared with projects that copy the core mechanism of the CEX or spot DEX, dFuture team independently innovated QCAMM, a paradigm innovation different from that of AMM at the level of spot exchange, on the basis of a deep understanding of the nature of perpetual contracts and combining it with DeFi’s incentives. The new model, the cornerstone of open finance, and a market space of ten billion are waiting for exploration by more platforms like dFuture.
Looking forward, we expect to see more platforms like dFuture emerge in the arena of decentralized derivatives to accelerate the industry’s iteration and orderly development based on healthy competition.