Decentralized crypto derivatives exchange dTrade announced a $6.4 million seed round of funding Thursday as it prepares to go live on Polkadot later this year.
DTrade will be the first derivatives decentralized exchange on Polkadot’s multi-chain network, according to those running the project. At a $50 million valuation, according to co-founder Nikodem Grzesiak, dTrade secured lead backing from Su Zhu's Three Arrows Capital and DeFiance Capital with investments from Polychain, ParaFi Capital and other crypto venture capital firms.
Run by a decentralized autonomous organization (DAO), dTrade will aim to capture a slice of the heavily centralized, multibillion-dollar market for crypto derivatives. Brand names like FTX and Binance see tens of billions of dollars in derivatives volume daily, while decentralized alternatives – none of them smash hits – capture orders of less magnitude.
Grzesiak estimated that less than 1,000th of the crypto derivatives market’s perpetual swap volumes flows through decentralized exchanges. He said he's “optimistic” that dTrade’s perpetual swaps and options support can help close that gap.
“Ultimately the thesis is that decentralized platforms are better at distributing value to the end users, so there is simply a better value proposition for traders,” Grzesiak said. He also said holders of the protocol’s DET governance token can decide where to allocate the revenue generated by the exchange, instead of it flowing to “the management, or the holding company behind the exchange.”
But DEXs face additional challenges in the derivatives market in that they don’t go after traders who close their trades below the bankruptcy threshold, according to Grzesiak. That would create an untenable negative balance, he said.
To cover the gap, dTrade is prepping an “insurance mining program” that rewards users who stake their USDC as a backstop with a share of the exchange’s native governance token, Grzesiak said. The DAO has set aside 5% of the DET token supply as an incentive.
Other investors in the round included Huobi, Mechanism Capital, Magic Ventures, Bixin Ventures, IOSG Ventures, Hypersphere Ventures and Fenbushi Capital.
Alameda Research, CMS Holdings, Wintermute, MGNR, PNYX, Kronos, Altonomy and LedgerPrime will support liquidity on dTrade, Grzesiak said.