DeFi in blockchain is one of the more interesting aspects to cryptocurrency since the bull run of 2017 with ICOs. DeFi could be the catalyst to not just have a bull run with cryptocurrencies – but actually cement cryptocurrencies into history as the defacto standard currency for the future. An analogy has been mentioned that DeFi is to blockchains as what APIs were to the Internet. Without APIs on the internet, you could never get an Uber or have your groceries delivered to your door in two hours.
Once such DeFi platform that has its origins out of Silcon Vallye is DyDx. I have been reading about DyDx for a number of months now and learning more about the latest with DeFi. I have found the experience to… well, you decide.
“DeFi is to blockchain as APIs were to the Internet.”-Chris M, January 2021
I wanted to find out what is was like to trade on a decentralized exchange. In addition, I wanted to see if I could take advantage of a possible airdrop that DyDx may be doing over the coming months. The following is my journal of that experience – it is not necessarily a comprehensive guide but it may give you some ideas on how to navigate DyDx.
There are a number of DyDx tutorials available online for depositing funds onto DyDx and trading. The steps are very similar to a centralized exchange, except for… well, brace yourself for some high minimums and constantly changing metrics.
Here are some of my initial observations doing some DYDX trading this morning for the first time:
1) It’s not for the “faint of heart” both monetarily and technically.
Could you Mom do this? Probably not. Could your financial adviser do this? Probably not. Could a computer engineer with crypto experience do this? Barely.
2) Charged about $20USD in gas to to transfer ETH from my wallet to DYDX ‘spot’ ETH account.
This was an interesting experience and not really surprising as I’ve come to expect high fees from ETH. It is rather unfortunate, as any normal person (i.e. not technically and financially inclined) would ever pay the equivalent of $20USD to transfer a small amount of money. Blockchain and crypto continue to price itself out of the central banking system.
3) Minimum trade is 1 ETH. You cannot do limit orders for any trades less than 20ETH.
This is a little steep – especially if you want to just evaluate the experience. What would happen if you put in the wrong Gas amount and just to get your balance to DYDX – the DEX (Decentralized Exchange)?
4) Selling ETH to DAI costs 4% of the trade
MARKET trade came with a 4% fee. This seems rather abitrary and it warned you of this fee before hitting the ‘Market’ submit button. I couldn’t do a LIMIT order – and safest and is my favorite way to trade on any platform. I must have left my 20 ETH in my wallet (::rolls eyes::)
5) You have to have a wallet that DYDX can access (i.e. MetaMask ,etc).
This is where the vast majority of regular people would get stuck. Working with your own wallet can be dangerous (see the 100 different articles about people loosing their private keys) to trying to manage transferring your crypto from a central exchange to your own wallet to a DEX to be traded. It is quite the experience.
6) The Spot account at for earning interest on DAI dropped from 30% APR down to 20%.
This was a “shocker” for me. Almost a “bait and switch” of sorts. From the time I saw the screen initially for the APR, to do the trade and finally go back to the ‘Balances’ page – about 15 minutes. The DAI APR (Annual Percentage Rate) for storing your DAI on DYDX dropped dramatically from 30% APR on the screen initial to 20%. I still do not full understand why it had such a swing, but it is par-for-the-course with crypto. This is one I’d really like to learn more about in the future.
7) Converting from DAI to ETH for a $1000USD equivalent amount incurs a 13% transaction fee
In 2021, trading the equivalent of $1000USD is not an insignificant amount of money. According to DyDx, 13% is their fee and is considered a “small transaction fee”. The screenshot below was taken from the DAPP browser in the Coinbase wallet. The second painful part about this whole experiment is the minimum 1 ETH requirement to buy ETH using DAI. Needless to say, I did not have enough DAI to purchase 1 ETH at the time. Therefore, I had to transfer over more DAI in order to purchase the 1 ETH minimum.
There is a time and a place for DEXs. However, I just can’t see DEXs (Decentralized Exchanges) being successful to the masses with fees this high.
How do you get your money off of DyDx?
I thought after selling my ETH on DyDx for DAI that I would have to keep that on DyDx. Or even worse, I would have to send more ETH to DyDx to buy back my ETH. Neither of that was true.
Once you sell your ETH for another stable coin such as DAI, you can transfer it from your Spot account to your Wallet (i.e. via Metamask, Trezor, Coinbase Wallet, etc.).
DeFi is not for the faint of heart. The path to mass adoption of DEXs is still a little bit away from relality for the masses. Issues:
- The fees to purchase and sell are just too high. This is often due to the ETH network and will hopefully be resolved with new solutions such as L2 / “second layers” and ETH 2.0
- The high minimums prevent the casual investor from participating and sort of violates the mantra that seems to permeate this space – crypto is for everyone, not just the elite.
- Although it is becoming easier such as with DAPP browsers integrated into Coinbase Wallet, it is still a reach to ask someone such as my mother to purchase ETH on a DEX.
In summary, I couldn’t imagine using an app such as Uber just to get a ride from someone who I do not know. There is significant barrier to entry for anyone that is not technically and financially inclined, which ultimately alienates the vast majority of crypto enthusiasts and novices. The solution is to continue to improve – and even completely obfuscate – the technical complexities of being able to participate on a DEX (Decentralized Exchange).
Ultimately, people do not care if it is decentralized – they will care if it is easy to use, fast and cost effective. Centralized exchanges provide that capability (i.e. PayPal, Coinbase, etc.). DeFi has a long way to go if it ever has the goal of massive adoption or to be able to compete with the centralized exchanges.