Looking at high-percentage APRs on margin DEX sites like dYdX and Fulcrum can be intimidating when you are used to seeing 0.01% funding on BitMEX. With a bit of high-school-level financial math, it becomes clearer how competitive these exchanges can actually be for low-leverage traders.
Why it isn't as expensive as it looks
BitMEX charges a 0.075% fee per transaction and 0.01% for "funding" every 8 hours, unless price is extremely volatile. With a simple equation, we can approximate the APR 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: roughly 9.73%, which fluctuates depending on DAI lending pool usage.
The biggest difference is that if you are a day trader, you might rarely pay BitMEX's funding fee at all. On dYdX, interest is paid continuously, and you can watch it draining your account in real time.
That said, you earn interest on your collateral just by having it on the exchange. dYdX uses ETH the same way BitMEX uses Bitcoin: no matter what pair you trade, you post ETH as collateral. Though dYdX says your collateral can earn more than the interest you pay, ETH lenders were only receiving around 0.07% supply-side APR at the time of writing, so the interest earned is minimal, especially on short-term trades.
Shorting an ETH/DAI pair on dYdX pays you continuously compounded interest. Funding on BitMEX can go negative, which means longs get paid; on dYdX, DAI interest never goes negative, so you have to short to be compensated.
To DEX or not to DEX
If you are trading ETH, it mostly comes down to how much leverage you want. dYdX raised its limit from 4x to 5x, but DEX margin is still nothing compared to BitMEX's 100x. Fulcrum offers 4x and is associated with the bZx protocol, which claims traders "could" go up to 100x on their network.
Fulcrum also offers wrapped Bitcoin derivatives — Bitcoin converted to an ERC-20-compatible token. Because these protocols are built on Ethereum, Bitcoin needs to be in that format to move between wallets. dYdX did not offer this at the time, but planned to.
Another factor is how important stop-losses and limit orders are to you. Neither exists on Fulcrum, and dYdX only supported limit orders on its DAI/ETH pair. Liquidity, finally, was not great — dYdX would at least estimate slippage on your order, but it still was not ideal for moving large amounts of money.
Decentralized exchanges still had work to do to become fully competitive, but they were improving steadily. DEXs might be the last hope for margin traders in the U.S. if BitMEX or Deribit ever require KYC, so it is good to see them getting sharper.