To say it's an exciting time in crypto is an understatement. There's so much building and innovation taking place, especially in DeFi.
Not only are DeFi protocols creating entirely new financial markets, they're also re-imagining legacy financial products in the new permissionless, trustless, and decentralized DeFi paradigm.
There is perhaps no better example of this phenomenon than Perpetual Contracts. Since first introduced to crypto, Perpetual Contracts have since become the industry's most popular trading product by far.
Until recently, these products were only available through a centralized exchange. Fortunately, the DeFi renaissance has given rise to a number of decentralized derivatives protocols built on the Ethereum network. While these protocols were initially hamstrung by the network's scaling problems, a handful have already implemented their own Layer 2 scaling solutions. The result is a new breed of derivative DEX's built on Layer 2 that possess all the benefits of DeFi, with none of the downside.
I'm going to compare two leaders in the DEX derivatives arms race, and explain a few of the technical and functional differences between them.
If you've used a DEX before, you know it's generally simpler and faster to start trading on than any CEX.
Take dYdX for example. In order to use the platform you will create a Stark Key associated with your wallet. This is a public key that is required in order to place an order and withdraw funds. Before depositing USDC as collateral you must also enable USDC deposits. This step only needs to be performed once, but it does entail a transaction fee (the cost of which varies according to current gas prices). Both these steps can be completed in a few minutes, at which point you will be able to begin trading.
That's it. No KYC, 2FA, or account verification required–just nearly instantaneous trading.
Getting started on MCDEX requires even less steps. Simply connect your Arbitrum One network wallet to the platform and (provided you have the requisite collateral in your wallet) you're ready to take a trade. Unlike dYdX, no deposit is required–funds will be withdrawn from your wallet after taking a position and signing the associated transaction (and paying its negligible Layer 2 gas fee).
You probably already picked up on the first differences between the two platforms. Notably, their different solutions to Layer 2 scaling. dYdX employs StarkWare and its ZK-Rollup technology, whereas MCDEX uses the Arbitrum Network. They also have slightly different collateral requirements. dYdX uses USDC, whereas MCDEX uses USDC for their first certified ETH and BTC markets, but collateral for future markets can be set by the pool operator.
Order Book Hybrid Vs Automated Market Maker
Users of centralized exchanges will find dYdX's UI quite familiar. Just like a CEX there's a price chart, order form, and order book.
The latter highlights another important distinction between the two exchanges: their different matching engine solutions. dYdX employs a hybrid matching engine which combines off-chain order book matching using StarkWare's ZK-Rollup technology with on-chain settlement. The solution provides a smooth, low slippage trading experience.
By contrast, MCDEX uses a decentralized Automated Market Maker matching engine of their own design.
Perhaps the greatest differences between MCDEX and dYdX is that the former is a truly decentralized Automated Market Maker. So, in addition to it operating without an order book, there is virtually no limit to the number and type of synthetic asset markets that can be created and traded on the platform.
It should be noted that while the promise of nearly unlimited markets on MCDEX is enticing, the platform is still in beta and the present selection is actually less than dYdX's. Theoretically, the selection of markets on MCDEX will grow with increased user adoption and liquidity.
Fees, Volume, and Liquidity
Like most exchanges, dYdX uses a tiered fee structure, with Maker fees having a slight discount over Taker. Holders of the dYdX token also receive a discount on their trades. For a more detailed view of dYdX's fee structure, see the full fee schedule here.
Volume and liquidity on dYdX is already quite impressive and able to accommodate all but the biggest of whales.
MCDEX's total trading fee is the sum of the Operator, Treasury, and LP fees. All of these are subject to change by governance, but they currently sit at around .08%.
Because MCDEX V3 just launched, its volume and liquidity are low. This is expected to change as the protocol gains traction, but it's important to note for traders and investors looking for an immediate DeFi derivative solution.
Both dYdX and MCDEX present exciting value propositions. Both are decentralized exchanges with Layer 2 solutions offering cross-margin Perpetual Contracts using up to 25x leverage.
dYdX utilizes a unique hybridized matching engine that provides an institutional-grade, liquid, and low slippage trading experience for a growing number of markets.
MCDEX is a truly decentralized exchange where anyone can create and trade any number of synthetic Perpetuals granting them exposure to a virtually unlimited number of underlying assets.
Which one you decide to use depends on your particular needs as a trader or investor.