The way dYdX works is that it does not matter what the utilization of DAI is, just what the token balance is in the contract that determines whether you can withdraw your funds at any time.
The protocol allows for >100% utilization because it is a dollar denominated protocol, that allows users to sell dai they dont have and others to borrow dai.
Say there is 0 dai in dydx:
User 1: Has $400 worth of USDC, takes a 4x long USDC/DAI, borrowing 1200 DAI
User 2: Has $400 worth of ETH, posts a limit sell of 1000 DAI, borrowing 1000 DAI
Everyone remains solid because it is dollar denominated, and there is no DAI in the system. If there were dai in the system, even at utilization > 100%, you could withdraw up to the dai balance of dYdX. This is likely the mechanism they will use when they add BTC trading, which I hear is in the works. Also, this is generally how centralized exchanges like Bitmex ETH derivatives work as well
The way dYdX works is that it does not matter what the utilization of DAI is, just what the token balance is in the contract that determines whether you can withdraw your funds at any time.
The protocol allows for >100% utilization because it is a dollar denominated protocol, that allows users to sell dai they dont have and others to borrow dai.
Say there is 0 dai in dydx: User 1: Has $400 worth of USDC, takes a 4x long USDC/DAI, borrowing 1200 DAI User 2: Has $400 worth of ETH, posts a limit sell of 1000 DAI, borrowing 1000 DAI
Everyone remains solid because it is dollar denominated, and there is no DAI in the system. If there were dai in the system, even at utilization > 100%, you could withdraw up to the dai balance of dYdX. This is likely the mechanism they will use when they add BTC trading, which I hear is in the works. Also, this is generally how centralized exchanges like Bitmex ETH derivatives work as well