DEX margin trading vs BitMEX

Looking at high percentage APR on margin DEX sites like DyDx and Fulcrum can be intimidating when you’re used to seeing .01% funding on BitMex. With a bit of high school level financial math, it becomes more apparent how competitive these exchanges can be for low leverage traders. 

Why it isn’t that expensive

BitMex charges a .075% fee per transaction and .01% for “funding” every 8 hours unless price is extremely volatile. With a simple equation, we can calculate the APR that you would pay on Bitmex by longing Eth for more than 8 hours on a regular basis. 

USD/Eth derivative APR on BitMex

1.000749 ^ 365*3 = 27%

Dai/Eth derivative APR on DyDx

9.73% (fluctuates depending on Dai lending pool usage)

The biggest difference between BitMex and DyDx is that if you are a day trader, you might rarely pay the funding fee. On DyDx, interest is paid continuously, and you can see it draining your account in real time. 

With that being said, you earn interest on your collateral (margin) just by having it on the exchange. DyDx uses Eth the same way that BitMex uses Bitcoin. No matter what pair you are trading, you put Eth up as collateral. 

Though DyDx says that your collateral can earn more than the interest you are paying, Eth lenders only receive 0.07% supply side APR at the time of writing. The interest earned by holding Eth is very minimal especially during short term trades. 

Shorting an Ethereum Dai Pair on DyDx will pay you continuously compounded interest. If it didn’t, it would be much easier to not recommend the platform. Still, funding can go in the negative on BitMex which means that longs are being paid. On DyDx, Dai interest will never go in the negative, which means you have to short be compensated. 

To DEX or not to DEX

So if you are trading Eth, it mostly depends on how much leverage you would like to use. DyDx upped their 4x limit to 5x recently, but DEX margin is still nothing compared to BitMex’s 100x. Fulcrum exchange only offers 4x, but they are associated with bZx protocol, which claims that one “could” trade with up to 100x leverage on their network.

Fulcrum also offers wrapped Bitcoin derivatives, which is Bitcoin converted to an ERC20 compatible token. Since protocols and exchanges are built on the Ethereum network, Bitcoin needs to be in this format to travel from wallet to wallet. This is something that DyDx does not offer, but is planning on implementing in the future. 

Another factor to consider is how important stop-losses and limit orders are to you. Neither of these features exist on Fulcrum, and DyDx only supports limit orders on their Dai/Eth pair.

Lastly, liquidity really isn’t great. Thankfully, DyDx will estimate slippage on your order, but it still isn’t great for moving large amounts of money.

Decentralized exchanges still have some work to do to become competitive, but they are getting better on a regular basis. DEXs might be the last hope for margin traders in the U.S. if BitMex or Deribit ever require KYC, so it’s good to see them getting more competitive.