Decentralized Crypto Futures Exchanges: Is it time to switch trading from a CEX to a DEX? An analysis dYdX vs. Binance & OKX
The FTX meltdown has brought attention to decentralized exchanges again, as DeFi solves many of the transparency issues apparent at the centralized exchanges. At a decentralized exchange, you have your coins in your own custody, do not have to sign-up or KYC, and can always read on the blockchain what happened with your coins. For spot trading, decentralized exchanges have already gained huge popularity, Uniswap, Pancakeswap, Curve have billion dollar daily trading volumes on many days. How about Perpetuals trading though? Many traders want to short sell and leverage their trades, therefore trading futures. Adoption has been much slower, but in the recent past, multiple decentralized perpetual exchanges have come up. Today we will be going to have a look whether it makes sense to move your futures trading to a DEX, how much volume and market depth they have, how much fees and spreads you pay, and much more.
We will use dYdX, the oldest and largest perpetual DEX as reference, and compare it against Binance and OKX.
Let’s first of all have a look at the trading volume of the different centralized exchanges and the DEX. Trading volume is important to have your positions executed quickly, if there is no volume, your positions wouldn’t be executed.
I have collected the different 24h trading volumes for the most traded BTC perpetual pair at the respective exchanges. As we can see, Binance has by far the largest trading volume, with roughly 4.6bn USD, followed by OKX with 875m and dYdX is last with 87m USD. What does that mean for you as a trader? If you are trading large positions, let’s say multiple million USD in a trade, you may face difficulties to get your order filled if you place a limit order. For traders with much smaller trade sizes, trading at dYdX will probably not cause much difference compared to a centralized exchange. If you are placing market orders, it is important how much liquidity is in the market to fill your order, hence the market depth is important.
We will have a look at the 2% market depth. The 2% market depth describes how much order value is in the market until a price level 2% above or 2% below the current market price.
Again, we see that the market depth is highest for Binance with 140–160 million USD each long and short. dYdX actually follows second with 10–11m USD each long and short and OKX has 8–9m USD for long and short. Surprisingly, unlike the trading volume, the decentralized exchange scores much better in this metric, enabling also larger market orders. Yet again though, for traders with very large volumes, Binance or other centralized exchanges will most likely yield better prices for their trades.
Next, let’s have a look at the fee levels:
We will assume a 10m USD futures volume, and no significant holdings in the native exchange token (for example BNB for Binance).
At Binance, that trader would fall in tier 1, giving maker fees of 0.02% and taker fees of 0.04%. For OKX, the trader would pay maker fees of 0.02% and taker fees of 0.05%, while for dYdX, the trader pays only 0.005% maker fees and 0.03% taker fees. This is significantly less at the decentralized exchange compared to the centralized exchanges. What does it mean in absolute terms though?
If we assume 50% maker and 50% taker trades, the trader would pay yearly trading fees of 36.000 USD at Binance, at OKX 42.000 USD and at dYdX 21.000 USD, which is a very significant difference. With only half of the trading fees, the trading could save 21.000 USD at dYdX compared to OKX. The fee differences among exchanges are oftentimes very much underestimated, however they have a huge effect on the trading performance.
This is why we developed dr-fee. Instead of a complex manual comparison, at dr-fee you can just type in your trading volumes, and seconds later see the exact fees you would have paid at all the major crypto exchanges.
Oftentimes this reveals saving potentials of 50, 60, 80%. Instead of typing in your trading volumes manually, you can also just connect your account through a read-only API and dr-fee reads all the necessary information from your account to present you the exact fees at all the large exchanges.
Trading fees is not the only cost aspect we have to look at when comparing the centralized exchanges with the decentralized perpetuals exchange. Spread is another cost factor that can influence your performance. Spread describes the difference between the bid and ask price. At Binance and OKX, the spread for the Bitcoin USDT pairs is 0.1 USD each, while at dYdX it is 1 USD, 10 times as much.
Let’s have a look what that means in US Dollar: While the user pays spreads of roughly 340 USD per year for the 10m USD trading volume at Binance and OKX, the trader pays 3400 USD at dYdX.
Overall, we can see that our trader would still be significantly better off at dYdX in terms of fees and spread compared to the two centralized exchanges. Fees and spread add up to 36.3k at Binance, 42.3k USD at OKX, and 24.4k USD at dYdX.
Before wrapping up, we will have a look at one more dimension: Funding fees. Funding fees are paid or received depending whether the future trades above or below the spot price and whether you are long or short positioned. At the time of this video, the funding fee at Binance was -0.033%, at OKX -0.027% and -0.025% at dYdX. As you can see, there is not much difference here at this point between the centralized exchanges and the decentralized exchange.
One little note of caution: Other traders with different volumes and trading styles may face different fee levels. All three exchanges have a tiered fee level system and you may also receive additional discounts in case you hold the native exchange token. Again, if you don’t want to manually compare the fees, just head over to dr-fee.com and let the automated fee analysis do that job for you.
If you want to receive an additional 5% off the usual trading fees at dYdX, just follow this link. Although not being part of this exemplary analysis, at GMX, another large Perpetual DEX, you can also a discount of 5% off your trading fees with the following link.
Summary:
Given what we have just seen in this comparison of decentralized and centralized perpetual exchanges, decentralized exchanges can already be a very attractive alternative to centralized exchanges. Besides the benefits of a decentralized exchange such as full transparency and full control over your own coins, you can also benefit from great trading conditions and save significantly in fees. With that being said, if you are a large volume trader, you may still face much better conditions at the centralized exchanges. With the ongoing move towards decentralized Finance, we may soon see higher volumes and market depth at decentralized exchanges, further improving the trading conditions there. We at dr-fee definitely keep an eye on it and we are already working on including decentralized exchanges into our fully automated fee analysis.
