Perpetual Contract Markets exist on an L2 (Layer-2) system, which publishes ZK (zero-knowledge) proofs periodically to an Ethereum smart contract in order to prove that state transitions within L2 are valid. Funds must be deposited into the L2 smart contract on Ethereum before they can be used with the dYdX system.

Perpetual Contracts are synthetic trading markets that allow for exposure to arbitrary liquid assets using stablecoin (USDC) collateral. The 0x API is also supported and can be used to seamlessly convert any supported token into USDC for use on the dYdX system.

Similar to existing perpetual contracts, the price of the contract is tethered to the price of the underlying asset by a dynamic interest rate. An L2 price oracle is used for liquidation purposes (and secondarily for interest payments). The order book for the market is off-chain, allowing for faster price movements and better liquidity. Importantly, the contract’s underlying asset does not have to already exist as a token.

For each account trading the perpetual, profits and losses are exchanged using the collateral token (USDC). This effectively allows users to trade assets that do not actually exist on Ethereum as long as a sufficient price oracle exists. For example a BTC–USDC perpetual contract can exist as long as a BTC–USDC oracle exists. Only USDC would be used as margin deposit for all parties; tokenized BTC is not required.