dYdX Token Expected to Triple and Hit $10 Billion Market Cap

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Crypto perpetual futures market leader dYdX is expected to triple in market capitalization and hit a valuation of over $10 billion over the next year, said crypto hedge fund Pantera Capital in a mid-February 2024 research note.

If the decentralized exchange (DEX) does hit the $10 billion valuation mark in the next 12 months, the rise could propel the dYdX token to rank among the top 20 most valuable cryptocurrencies in the world, including Bitcoin (BTC) and Ethereum (ETH).

In this article, we analyze the growth potential of the dYdX platform among the top crypto futures platforms and learn whether its native dYdX token can make the list of cryptocurrencies to invest in 2024

Key Takeaways

  • dYdX accounts for over 40% of perpetual futures trading volume on DEXs.
  • Despite the dominant market position, dYdX has a lower circulating market cap compared to other DEX tokens.
  • The lack of a fee-sharing mechanism for dYdX token holders was widely considered the primary reason for the price underperformance.
  • dYdX v4 will distribute protocol fees to validators and stakers.
  • Pantera Capital expects the dYdX market cap to triple over the next year.

dYdX Explained: What is dYdX?

Let’s begin with a brief summary of dYdX.

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dYdX is a decentralized exchange for trading crypto perpetual futures contracts. dYdX is not an automated market maker exchange like Uniswap (UNI). Instead, the exchange relies on a centralized entity – dYdX Trading Inc. – to manage its order books. 

In 2021, dYdX launched their perpetual trading platform (called dYdX v3) on an Ethereum Layer 2 chain using StarkWare’s StarkEx scalability engine. 

In 2022, the project announced that dYdX v4 will be developed as a standalone app chain using the Cosmos SDK and Tendermint proof-of-stake (PoS) consensus protocol to achieve full decentralization and high throughput.

dYdX accounts for over 40% of the entire perpetual DEX market volume, according to Pantera Capital. Despite the dominant market share, dYdX’s native token has a low circulating market capitalization compared to other DEX tokens.

Can the launch of dYdX v4 reverse the dYdX underperformance? 

Sectoral Analysis: Why Can dYdX Crypto Become a Top Performer?

There are two main sectoral tailwinds that back the case for dYdX to become a top-performing cryptocurrency in the mid-to-long-term. 

1. Growth of Decentralized Exchanges

When FTX and other centralized crypto companies collapsed in 2022, there was a silver lining to the debacle — the growth of decentralized exchanges.

Trust in centralized exchanges (CEX) hit a low point in 2022 after crypto users lost millions of dollars in savings to company bankruptcies. Subsequently, trade volumes on DEXs spiked as users withdrew their tokens from CEXs and started using self-custodial DEXs instead.

Although DEXs have been chipping away at the market share of CEXs, there is still a significant gap between the two. 

Data compiled by The Block showed that DEX-to-CEX spot trade volume has risen from 0.16% in February 2020 to about 7.1% in February 2024. This trend is expected to continue in the upcoming years.

2. Growth of Crypto Perps Trading

The second sectoral tailwind that bodes well for the future of dYdX is the growth of the crypto futures derivatives market.

According to Pantera Capital, higher capital efficiency (due to access to leverage) enables perpetual futures trading to grow faster than spot trading. There is enormous potential for perpetual DEXs that account for only 3% of CEX trade volumes at the time of writing.

Furthermore, the increased institutional interest in cryptocurrencies, following the approval of the spot bitcoin ETF, is expected to support the growth of crypto futures trading volume. 

Institutions are the most active traders of crypto perpetuals, contributing nearly 80% of dYdX’s trade volume.

80% of dYdX’s trade volume.
Caption: dYdX T28D Volume Annualized Source: Pantera Capital

dYdX Analysis: Could dYdX v4 Unlock Token Value?

Despite taking the crown as the top perp DEX in the industry, dYdX has a lower circulating market capitalization of $898 million as of February 21, 2024, compared to other DEX tokens, such as Uniswap’s UNI ($5.46 billion) and Synthetix’s SNX ($1.05 billion). 

The main reason for the underperformance of the dYdX crypto price was its lack of utility and absence of a fee-sharing mechanism on v3.

“It has become common to heavily scrutinize a token for its amount of value accrual. In many cases, it is more accurate to think of the token as exposure to a high growth company that just happens to pay a massive dividend,” said crypto research firm Delphi Digital in a report.

While most DEX tokens distribute protocol fees earned to token holders, dYdX did not have such a mechanism until its v4 release. On dYdX v3, the revenue generated by the exchange goes to dYdX Trading Inc., a company that runs some parts of the dYdX exchange, like managing order books and determining new features to add.

The launch of dYdX v4 as a standalone open-source blockchain finally brings competitive fundamentals to the dYdX token. 

As a standalone blockchain, dYdX v4 features a decentralized, off-chain order book and matching engine that will allow the exchange to lose its dependence on dYdX Trading Inc. More importantly, dYdX Trading Inc. will not receive any fees from the dYdX v4 platform. Validators and token stakers will earn the protocol fees accrued on the platform instead.

“dYdX began returning capital in the form of staking rewards (analogous to equity dividends) to token holders in conjunction with its v4 upgrade in December. dYdX protocol profit is now getting distributed directly to token holders, making the token value accrual concrete,” noted Pantera Capital.

“From a protocol valuation perspective, dYdX is attractive. With that dividend yield, it currently trades at a roughly 15% dividend yield, which is attractive relative to any other traditional asset and especially cheap in the context of a high margin business with double-digit, month-over-month growth,” added Pantera Capital.

dYdX All-Time Performance Chart
Caption: dYdX All-Time Performance Chart Source: CoinMarketCap

dYdX Fundamental Analysis: How Does dYdX Work?

In their dYdX research report, Pantera Capital talked about dYdX’s “sustainably positive unit economics.” The investment firm said that the exchange made a profit of roughly one basis point of its trade volume for a 40% profit margin. 

dYdX’s business model was described as “straightforward.” According to Pantera Capital, dYdX collects commission fees at roughly 2.5 basis points of its trade volume, while the platform’s main expenses are customer acquisition fees, which come in the form of trader incentives and reward programs. 

Like most crypto exchanges, dYdX uses a tiered maker-taker fee structure where fees depend on a trader’s 30-day crypto trading activity and order types. For example, a trader with a 30-day volume of less than $1 million pays a 0.02% maker fee and a 0.05% taker fee, while a trader with a 30-day volume over $50 million pays a 0% maker fee and 0.025% taker fee.

The platform’s early mover advantage, v3 migration to Ethereum L2 for faster and cheaper transactions, and traders’ rewards through the dYdX token have been instrumental in attracting the majority of the crypto perpetuals trading volume.

According to data compiled by Token Terminal, dYdX earned $5.12 million in fees in January 2024. The platform spent $3.29 million in token incentives, resulting in a monthly profit of $1.83 million.

“Over the next year, you can pencil out a reasonable scenario where the dYdX protocol is worth over $10 billion or more than 3x upside from today’s market cap.  During that time, token holders will continue to benefit from that dividend yield in addition to the potential price appreciation of the underlying protocol as it continues to grow, “ Pantera Capital stated. 

The Bottom Line 

As we spoke about dYdX’s growth potential, it is only fair to remind traders about some key risks that could adversely affect dYdX crypto price. They include the regulatory crackdown on decentralized finance (DeFi), lower-than-expected DEX trade volume growth, and competition from CEX and DEX rivals.

Remember that analyst predictions can be wrong. Always do your own research before investing. Cryptocurrencies are extremely volatile and considered risky investments. This article should not be considered investment advice and is for information purposes only.

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Mensholong Lepcha
Crypto & Blockchain Writer
Mensholong Lepcha
Crypto & Blockchain Writer

Mensholong is an experienced crypto and blockchain journalist, now a full-time writer at Techopedia. He has previously contributed news coverage and in-depth market analysis to Capital.com, StockTwits, XBO, and other publications. He started his writing career at Reuters in 2017, covering global equity markets. In his free time, Mensholong loves watching football, finding new music, and buying BTC and ETH for his crypto portfolio.