Crypto Derivatives Platform dYdX Raises $65M in Polychain-Led Series C

Crypto Derivatives Platform dYdX Raises $65M in Polychain-Led Series C

Crypto derivatives exchange builder dYdX raised $65 million from Paradigm and a handful of market makers after seeing its improved swaps protocol catch fire among users.

The Series C was joined by “strategic investors” including liquidity providers such as CMS Holdings and CMT Digital; crypto VCs Electric Capital and HashKey; and StarkWare, the software company supporting dYdX’s low-fee platform upgrade.

The San Francisco-based exchange builder said it will use the new capital to “significantly improve liquidity” during volatile trading periods. Additionally, the funds will go toward protocol decentralization, an expansion of perpetual swaps contracts, a mobile app and back office hires.

The beefed-up war chest makes the idea of decentralized exchanges meaningfully challenging the Coinbases of the world a smidge more concrete.

The exchange aims to be a decentralized hub for Ethereum-based crypto derivatives. Its biggest volume comes from the cross-margined perpetual swaps market, which has seen $2.2 billion in trading since a February tech improvement that dramatically lowered user costs by skirting around pricey Ethereum transaction fees.

Success with swaps

Perpetual swaps are comparable to bitcoin and ether futures contracts without an expiry date. Cross-margined means traders can use the same asset pool as collateral across multiple markets, instead of needing to deposit collateral in each market separately. That means more risk to the trader – but also higher potential reward. Founder Antonio Juliano said it’s more “capital efficient.”

“We’re doing about $40 to $50 million in volume every day on layer two” perpetual swaps Juliano said, referring to the protocol upgrade, a collaboration with new backer StarkWare.

Nearly 30% of dYdX’s perpetual trading volume still flows through the exchange’s on-chain margin product; Juliano credited that activity to a handful of whales. He said his team is dedicated to layer 2.

“We feel that’s a better product and has a lot more growth potential,” he said.

Big goals

In the long run, Juliano said he’s positioning dYdX to build one of the largest crypto exchanges in the world by catering to derivatives, which he said is crypto’s biggest market.

“And the biggest thing that’s happened I think in the crypto markets in the past year, is that the derivatives volume, really driven by perpetual contracts, has become bigger in terms of trading volume than everything else in crypto put together,” he said.

Additionally, his team is betting that decentralized exchanges (DEXs) will ultimately prevail over their centralized counterparts because of their potential to offer censorship resistance, transparency and security to traders.

“The thing we’re really thinking is that the next really big thing is going to be derivatives on DEXs,” Juliana said.

That bet appears to be paying dividends for dYdX – at least in the short term. Juliano, who said his exchange was in the red as recently as October or November, is now “hugely profitable.”


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