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Last updated: Jan 09, 2024
GMX Protocol, launched in September 2021, is a decentralized spot and perpetual exchange that enables users to trade popular cryptocurrencies directly from their crypto wallets. It was first deployed on the Arbitrum One blockchain in September 2021 and later expanded to the Avalanche blockchain in January 2022.
One of the key features of GMX is its multi-asset liquidity pool called GLP, which consists of a mix of stablecoins (50-55%), ETH (25%), BTC (20%), and other altcoins (5-10%) like Chainlink and Uniswap. Liquidity providers who mint GMX Liquidity Provider Tokens (GLP) earn 70% of all fees generated on the respective blockchain. This system is designed to avoid impermanent loss, which is a common problem in other liquidity pools.
GMX distinguishes itself by offering leveraged positions through a simple swap interface, reminiscent of traditional trading platforms, and by being self-custodial and trustless. It supports both spot swaps and leveraged trading of perpetual swaps, improving capital efficiency through high asset utilization of the GLP pool. The platform uses an aggregate of Chainlink Oracles and other price feeds to ensure accurate pricing, which helps protect positions from temporary liquidation risks.
Additionally, GLP token holders provide the liquidity used for leverage trading, creating a counterparty to the traders. It's important to note that GLP tokens on Arbitrum and Avalanche are not interoperable and non-transferable between these two chains.
GMX Protocol's evolution from V1 to V2 marks significant improvements and changes in its operational mechanics, each designed to enhance user experience and efficiency. Currently both versions of the GMX Protocol coexist, with each serving its own unique functions and attracting different user bases. While V1 focuses on the GLP model and its associated benefits, V2 moves towards a more sophisticated and diverse trading environment, catering to a wider range of trading strategies and preferences.
In its first iteration, GMX focused on providing a decentralized platform for perpetual trading. Key features included:
V2 of the GMX Protocol brought about substantial enhancements, particularly in terms of trading efficiency, asset diversity, and risk management:
GMX Protocol's V2 upgrade introduced several innovative features, including Auto-Deleveraging (ADL) in synthetic markets. This upgrade aimed to address the risks associated with rapid price changes, especially in volatile altcoin markets.
ADL in GMX V2 is designed to manage the risks that arise when large profits in leveraged positions could potentially outpace the available collateral, particularly in synthetic markets. When certain trades become exceedingly profitable, reaching a predefined threshold, the ADL system automatically closes these positions. This mechanism is primarily a safeguard and is expected to be triggered only in edge cases.
Additionally, GMX V2 offers two types of markets - Fully Backed and Synthetic. Fully backed markets ensure that the open interest does not exceed the amount of pooled tokens, thereby maintaining solvency, while in synthetic markets, the open interest can surpass the pooled tokens. This introduces the risk of insolvency, especially if the profits from trading exceed the collateral value. In synthetic markets, trades can be collateralized with different assets, such as ETH for long positions and stablecoins like USDC for short positions.
Perpetual contracts on GMX are a type of derivative that doesn't have an expiration date. They are used for speculating or hedging against future cryptocurrency price movements. These contracts adjust the “funding rate” based on the gap between the contract price and the spot price, providing flexibility to traders as there's no need to roll over into a new contract.
GMX utilizes a fee structure that includes a 0.1% trading fee of the position size to open a trade. Additionally, there's a "borrow fee," which is calculated as (assets borrowed)/(total assets in the pool) * 0.01% per hour. This fee varies based on the asset's popularity in the pool.
Traders on GMX can use up to 50x leverage, offering significant potential for profit (and risk).
At the same time, GMX enables zero price impact trades, allowing traders to open large positions without affecting the market price.
Trading is facilitated by a single multi-asset pool called GLP, which includes stablecoins, Wrapped Bitcoin (WBTC), Wrapped Ethereum (WETH), and other altcoins. Liquidity providers can mint GLP tokens by adding supported tokens to the GMX pool. These tokens earn 70% of all fees on the platform, paid in escrowed GMX (esGMX). The return for GLP holders varies based on trading activities; it shrinks as traders make profits and grows when traders incur losses.
The platform supports various trading features like spot and perpetual contract trading, including the use of market, limit, take-profit, and stop-loss orders.
GMX facilitates spot trading through a single multi-asset pool known as GLP. This pool contains a variety of assets including stablecoins (like USDC and USDT), Wrapped Bitcoin (WBTC), Wrapped Ethereum (WETH), and other altcoins such as UNI (Uniswap) and LINK (Chainlink). When users perform spot trades, they are charged swap fees that vary based on the assets they are trading. These fees typically range between 0.2% to 0.8%.
LPs contribute to the GLP pool by locking in their assets, for which they receive GLP tokens representing their stake in the pool. These tokens are automatically staked in the pool. LPs earn 70% of the platform's trading fees in the form of escrowed GMX (esGMX). The rewards are paid in ETH on the Arbitrum chain and in AVAX on the Avalanche chain. LPs can redeem their locked assets, which results in the burning of the corresponding GLP tokens.
GMX Protocol offers a platform for leveraged trading, allowing its users to engage in trades with up to 50x leverage. This means traders can amplify their potential profits, but it also increases their risk.
This trading method is centered around perpetual contracts, a type of derivative that doesn't expire, giving traders the flexibility to hold positions indefinitely. Traders can open long or short positions on various cryptocurrencies supported by GMX Protocol.
There's a 0.1% fee for opening or closing a position. Additionally, a borrowing fee is calculated every hour, based on the borrowed assets against the total assets in the pool. The trading is facilitated against the GLP pool, a multi-asset liquidity pool, which includes a mix of assets like stablecoins, Wrapped Bitcoin, Wrapped Ethereum, and other altcoins.
The GMX Protocol operates with two primary tokens: GMX and GLP, each playing a unique role in the ecosystem.
The GMX token is a utility and governance token within the GMX ecosystem. Token holders can use GMX to vote on key proposals and decisions, influencing the direction of the protocol.
Staking GMX tokens allows holders to earn a portion of the protocol's fees. About 30% of all fees generated on the platform are distributed to GMX stakers. These fees are collected from various sources like market making, swap fees, and leverage trading, and are paid in either ETH or AVAX, depending on the chain used. Stakers also earn escrowed GMX (esGMX) tokens, which can be staked for further rewards or vested over 12 months, converting back into GMX. Additionally, stakers receive Multiplier Points that boost their yield.
As of the time of writing this review, the circulating supply of GMX is around 9.34 million tokens, while the maximum supply is capped at 13.25 million tokens. The GMX token has a floor price fund in ETH and GLP, which can be used for buybacks and burning GMX under certain conditions.
The initial distribution of GMX tokens was as follows: 45.28% for XVIX and Gambit migration, 15.09% for the Floor Price Fund, another 15.09% for liquidity, 15.09% reserved, 7.55% for the presale round, and 1.89% for marketing and partnership.
GLP is a liquidity provider token within the GMX ecosystem. Users can become liquidity providers by locking supported tokens into the GMX pool and minting GLP tokens. These tokens represent the user’s stake in the liquidity pool.
GLP token holders earn 70% of all platform fees paid in escrowed GMX (esGMX). The rewards and index composition of GLP may vary between the Arbitrum and Avalanche chains.
Furthermore, GLP tokens are utilized in the platform's trading mechanisms, providing liquidity for leverage trading. Profits and losses from trading directly impact the returns of GLP holders.
The governance model of GMX Protocol is community-driven and is structured around the GMX token, which acts as both a utility and governance token. GMX token holders have the ability to vote on proposals that influence the direction of the platform. This includes decisions on protocol upgrades, feature implementations, and other significant changes. The voting power is directly tied to the number of GMX tokens a user holds. The community can propose changes or new initiatives.
GMX's revenue model also plays a role in its governance. A significant portion of the platform's fees (30%) is distributed to GMX stakers. This aims to incentivize token holders to participate actively in governance as they have a direct stake in the platform's financial success. Those who stake GMX tokens receive multiple rewards, including a share of protocol fees, escrowed GMX (esGMX), and Multiplier Points. The esGMX tokens can either be staked for additional rewards or vested over 12 months.
Using the GMX Protocol for trading is a relatively straightforward process that caters to both novice and experienced traders. To begin, you need to access the GMX website and connect your personal wallet using the "Connect Wallet" option. Once your wallet is connected, ensure you're on the correct network. GMX operates on both the Arbitrum and Avalanche blockchains, so it's important to confirm that your wallet is set to the desired blockchain to avoid any transactional discrepancies.
For users interested in spot trading, GMX offers a decentralized spot trading protocol that allows you to swap cryptocurrencies directly from your wallet. This process bypasses the need for intermediaries, streamlining the trading experience. Navigate to the "Swap" section, choose the assets you wish to trade, enter the desired amount, and execute the swap.
In addition to spot trading, GMX specializes in decentralized perpetual contract trading. This feature enables traders to speculate on the price movements of cryptocurrencies using leverage, which can amplify both gains and losses. To engage in perpetual contract trading, select your trading pair, decide on your position (long or short), and set your trade parameters, including the amount and level of leverage. It's essential to review your trade details, such as entry price, liquidation price, and fees, before confirming your position.
Risk management is an integral part of trading on GMX, particularly when leveraging trades. The platform allows you to set stop-loss and take-profit orders, which can help mitigate risks. These orders automatically close your position at predetermined price levels, safeguarding your investments against market volatility.
The GMX team comprises anonymous developers, which is not uncommon in the DeFi sector. Key contributors include front-end developers, a designer, and community managers, all active in developing and improving the platform since its inception.
Initially launched as XVIX in November 2020 and then rebranded to Gambit on the Binance Smart Chain in March 2021, GMX has continuously evolved, adding new features and expanding to other chains like Arbitrum and Avalanche.
A crucial aspect of GMX's trading model is its unique Oracle Pricing Model, which uses dynamic aggregated Oracle price feeds provided by Chainlink. This model helps in determining the market price of an asset by taking the median price from major exchanges like Binance, Coinbase, and Bitfinex, thereby reducing the risk of price manipulation.
GMX also has a bug bounty program, which encourages the community and security experts to identify and report potential security issues, further strengthening the platform's security posture.
GMX has attracted a substantial user base since its launch, with a significant total value locked (TVL) on the Arbitrum ecosystem. It also has a considerable market share on Avalanche.
The protocol encourages projects to build on its unique technology. This has led to the emergence of a variety of strategies and protocols that leverage GMX's capabilities, such as yield aggregators and lending protocols. These projects aim to acquire their own GLP treasuries to become key liquidity providers on the network.
The current GMX roadmap is guided largely by community input and aims to foster overall ecosystem growth. Key developments have included the introduction of new features like dynamic fees, which differentiate GMX from traditional automated market maker (AMM) models. The protocol has also shown interest in expanding to additional chains and delving into the synthetics market.
GMX's direction is heavily influenced by its community, with proposals for new features and directions being actively discussed and voted on by token holders. Therefore, for the most current and detailed information about GMX, it's advisable to follow their official channels and community forums.
https://snapshot.org/#/gmx.eth
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Last updated: Jan 09, 2024
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