dYdX has initiated its public testnet on Cosmos Network, marking a significant shift away from the Ethereum-based platform. The launch sets the stage for the development of a fully decentralized 'v4' version of the exchange.
The testnet
At this stage of the testnet, users have the ability to place market orders, generate private keys, and set up limit orders with advanced options. Bitcoin and Ethereum markets are available for trading on the testnet.
dYdX is a perpetual decentralized cryptocurrency exchange designed for advanced traders. It offers a range of services, including lending, borrowing, margin, and leverage trading. The platform operates through smart contracts on the Ethereum blockchain and utilizes the Starkware Layer 2 scaling protocol for a better user experience.
Perpetuals, also known as perpetual swaps or simply perps, are unending future contracts that let traders speculate on the value of an underlying asset without a defined expiration date. These financial instruments enable users to trade on margin, meaning that they can trade using borrowed funds, making it more capital efficient.
In simple terms, instead of needing the entire capital to trade a large amount of the underlying asset (e.g., 100 ETH), traders only need to deposit a portion as margin. However, this form of trading carries heightened risks as traders can lose their entire funds if the market does not move as anticipated.
The context
Last year, dYdX announced its plans to develop the fourth version of the project as a standalone blockchain utilizing the Cosmos software development kit (SDK) and the Tendermint Proof-of-Stake consensus protocol. This marked a significant shift from the DEX's original Ethereum-based infrastructure.
The v4 version of dYdX aims to achieve full decentralization by eliminating the centralized order book and matching engine. Instead, parts of the app will be run on a separate dYdX network with its own validators, enabling on-chain storage of the order book.
The final transition to the Cosmos main network is expected to take place later this year. The exact date has yet to be announced. The protocol's team plans to integrate stablecoins into dYdX and add support for Cosmos Inter-Blockchain Communication following the completion of the testnet phase, granting Cosmos users access to trading.
