dYdX utilizes Ethereum smart contracts to settle trades from off-chain order books. They present a set of protocols that allow several types of financial products to be created, issued, and traded for any pair of underlying ERC20 tokens. Their approach uses off-chain order books with on-chain settlement to allow creation of efficient markets. All described protocols are trustless, attempting to create open markets that are not governed by a central authority. The protocols are extensible, requiring no special permissions to be used with other smart contracts.
Margin Trading Protocol
dYdX has an extension of the dYdX Margin Trading Protocol that allows tokenization of short and leveraged long positions. Short Tokens and Leveraged Long Tokens implement the standard ERC20 interface, making them usable with existing smart contracts, trading platforms, and wallets. They also show how the price of each token can easily be calculated from the price of the base token used in the positions.
dYdX Margin Tokens – dydxprotocol – Medium
dYdX Short Tokens & Leveraged Long Tokens
dYdX: A Standard for Decentralized Derivatives
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