There has been improvements in the cryptocurrency industry as financial derivatives try to come to terms with Bitcoin. However, even with this progress, many experts believe we are still far from seeing financial products available for the whole cryptocurrency asset class.
A new platform, dydX, is trying to build a decentralized protocol for derivatives. The program wants to use the Ethereum blockchain together with the Ox protocol. The Ox protocol allows clients to use peer to peer short sells, do long options and also do options on the ERC20 token. It also gives traders the chance to make some fully collateralized loans, which in turn can be used to fund some short sellers.
One advantage of a decentralized protocol is that there will be no single entity controlling the process. There is no one able to come in and steal funds or rip anyone off. As long as the smart contracts which are used to power the protocol are written securely and properly vetted, users will be safe. A few of the decentralized exchanges on the market right now include EtherDelta. EtherDelta allows exchanges of crypto-assets peer to peer. However, most of the platforms limit the exchange of tokens between users, and thus the dydX comes in and solves a problem for the people.
The platform is expected to launch in the spring and will bring with it a decentralized open protocol for everyone to access. It will also bring a centralized relay built by dydX which would act as a user interface to the protocol.
The user interface of the platform will be like any traditional trading site. However, it will not take control of any user funds, and dydX will charge a small fee for any trade done using its interface. The platform also allows anyone to build a private or public interface which could be used to interact with the dydX protocol for free. Order books will be made offline, but there will be on-chain settlements, which will be useful during network congestion times.
During the first few days, trades will be made only through the ERC20 tokens and Ethereum, but it is believed cross chain atomic swaps technology can be used to allow non-Ethereum based tokens.
The platform was founded by Antonio Juliano, a former employee of Coinbase and Uber. They managed to raise a seed round together with Andreesen Horowitz and PolyChain Capital. They were helped by Coinbase founders Fred Ehrsam and Brian Armstrong, Elad Gil and many others. With the funding, Juliano wants to build a team of engineers and also undergo third-party security audits.