How do liquidations work on DDEX?
Liquidations can be triggered at 110% collateral rate. When a liquidation occurs, the borrowers' assets are sold off in a form of a dutch auction to repay the loan. We also have an insurance fund that can be used to help maintain robust liquidations.
For more information on our liquidation methodology, check out this article: https://ddex.zendesk.com/hc/en-us/articles/360035813033-How-Liquidations-Work
How are interest rates set?
The interest rates on DDEX are set algorithmically based on supply and demand. Lending and borrowing achieved through the use of decentralized lending pools, where lenders pool assets into a smart contract and borrowers take loans from this pool (secured by collateral). As such, these interest rates are dynamic, and fluctuate when supply and demand changes. Each asset will have a unique interest rate for lending and borrowing.
For more information on our interest rate details, check out this article: https://ddex.zendesk.com/hc/en-us/articles/360036001493-How-Interest-Rates-Are-Set
What are your fees?
We have none! For our initial launch period we are dropping all trading fees. It's free!
*Note: blockchain transactions do cost some gas (in ETH) to process on the Ethereum network. These gas costs are split between both parties of the trade.
Are you planning to add an ETH-DAI market?
Yes - we are adding the ETH-DAI market very soon. You actually can see the market on DDEX now, but the liquidity is not hooked up yet.
ETH-DAI will be available and fully functioning before the end of September.
Why do you need ETH to Long ETH?
You don't! While the basic mode defaults to searching for ETH from your external wallet to use as collateral for a LONG, you can actually use the Quote token as collateral for LONGS using the Pro mode.
Most users would want to use ETH for Longing ETH though, so we default to that assumption for basic mode. (If you're LONG ETH, you think it's going to gain value over the quote token: so you'd probably want to sell the quote token and be completely leveraged on ETH)
Note that you can also sell your quote token for ETH in our SPOT trading area, and continue to use the basic mode to open your Long position.
Is it secure?
We work extremely hard to secure all aspects of DDEX. We also have all of our smart contracts professionally audited.
From the ground up we’ve designed DDEX to be as robust as possible: from price oracles, to liquidation mechanisms, to the underlying smart contracts.
Lending and Borrowing
Can I use my borrowed assets outside of DDEX?
Yes you can. However, you cannot achieve the same leverage rates that you could if you kept the assets on DDEX.
Within DDEX you can make 5x+ leveraged positions. We do this through a value assessment of your entire DDEX margin account, including both your collateral and your borrowed assets. When leaving the platform, we can no longer include those borrowed assets in your account value. This greatly reduces the amount of borrowed funds that you can take out of the platform.
To maintain a secure system for our lenders, we set the minimum collateral level for borrowed assets outside of DDEX to 150%. So if you deposit 1 ETH of collateral into DDEX, you could borrow up to 0.67 ETH worth of assets outside of DDEX. By contrast, you could borrow up to 4 ETH worth of assets within DDEX!
What does DDEX use to determine prices?
DDEX uses on-chain price oracles to determine real-time USD prices, which are critical for determining the value of collateral for a given account. These price oracles are different for each market (example: the ETH-DAI market will use the MakerDAO ETH-USD price oracle), chosen based on stability. Additionally, we have several safety mechanisms built into the price determination process to guard against oracle failures: both on a contract level and algorithmically.
With that being said, other platforms have already demonstrated some of the complications that can occur when a price oracle fails. While we have extra safety mechanisms in place to help the oracles be as robust as possible, we also want to make sure that there is a reliable backup option.
Price oracles and liquidation methodology together provide a strong metric for platform security. As both a lender and borrower, it’s imperative that these function properly.
What risks are associated with lending?
There are two main types of risk with lending:
- Contract Risk
- Liquidation failure
We have all of our smart contracts go through professional security audits to avoid contract hacks, failures, etc. It's extremely important to the entire platform that there is no failure at the smart contract level.
Liquidations occur when the borrowers' collateral starts to get close to the value of their loan. A liquidation failure would occur if the borrower’s collateral quickly became drastically less valuable than their borrowed assets, such that it was no longer profitable for others to liquidate the position. Failure to liquidate such a position would mean that the loan could not be paid back, thus resulting in a loss for the lending pool. Our liquidation structure is designed to specifically to avoid these failures.
We extensively researched existing decentralized lending platforms in creating our liquidation methodology on DDEX. Our liquidations are triggered when the collateral is still worth more than the borrowed amount. As such, the losses for the lending pool could only occur if the price of the collateral dropped below the borrowed amount so quickly that in the time it took to increment the auction, the price of the collateral was now less than the borrowed amount. This is a super rare event that we don’t expect to happen, but just in case we have another line of defense.
Compared to other platforms, there are several ways we have optimized to avoid liquidation failure:
- We do not re-lend out collateral. Doing this can lead to increased liquidation risk.
- We do not list risky assets.
- We have an insurance fund
A percentage of interest gets sent to an insurance pool, to help avoid losses for the lending pool. In the case where the borrowed amount became less than the collateral, the auction could increment the collateral beyond 100% and tap into the insurance pool to provide additional incentive for this collateral to be purchased in the auction.
Spot Trading and Margin Trading
What’s the max leverage rate DDEX supports?
For the initial release we have conservatively capped the maximum leverage rate at 5x. However, our decentralized margin trading architecture supports leverage rates over 10x.
In general, the practical leverage rate depends on the liquidity of the market. More liquidity = higher potential leverage.
How do you determine the liquidation price?
The liquidation price is calculated from the minimum allowable collateral rate for each market. This minimum allowable collateral rate is specified by market in our smart contracts. Initially, we will have a minimum collateral rate of approximately 110% for our starting markets.
Let’s run through a quick example. Let’s say I opened a:
4x long on ETH-DAI with 1 ETH of collateral;
Open price of 300DAI/ETH;
This yields a 4 ETH position with 900 DAI of debt.
My collateral rate is my total amount divided by my borrowed amount.
So initially CR=(4ETH*300DAI/ETH)/900DAI=133%.
If our minimum allowable collateral rate was 110%, we could calculate the price at which this rate would trigger (the liquidation price).
Liquidation price = 110%*900/4 → 247.50 DAI
Can I adjust my position once it is open?
Yes you can adjust existing positions!
You can close part of an open position, add collateral, and add additional leverage as desired using the Pro mode.
What types of collateral can I use to open a position on a market?
You can use either the base or quote token of that market as collateral for opening a position. So if I wanted to open a position on ETH-DAI, I could use either ETH or DAI for the position.
Can I make Limit Orders on Margin?
Yes, you can make leveraged limit orders on DDEX!
The standard Margin order is set as a market order, but you can change this to limit orders as desired.
Can I make stop-loss orders?
Yes, you can make stop-loss orders on DDEX!
This is one awesome advantage we have by using our own DEX instead of a third party one: we can naturally incorporate stop-loss orders into DDEX.