GMX - Low Swap Fees & Zero Price Impact
GMX - Low Swap Fees & Zero Price Impact
Inside the innovative decentralized exchange offering perpetual contracts and more
With the tedium of a year-long crypto bear market now looking like something we can discuss in past-tense, we haven’t been spoiled with many legitimate projects that have performed consistently well after launch. But despite the series of financial meltdowns that have seen other protocols spiraling, there’s one platform that not only has held its ground, but has consistently grown by many key metrics.
GMX, a decentralized spot and perpetual exchange, has the numbers to claim it as one of the biggest successes among decentralized exchanges (DEXs). It’s also the leading protocol in terms of total value locked (TVL) on Arbitrum with a trading volume exceeding $89 billion as of writing.
What is GMX?
As a decentralized exchange built on Arbitrum and Avalanche, GMX offers swaps on a number of leading Ethereum-based cryptocurrencies such as Ethereum (ETH), Wrapped Bitcoin (WBTC), Avalanche (AVAX), Chainlink (LINK), Uniswap (UNI), and stablecoins Tether (USDT), USD Coin (USDC), and Frax (FRAX).
However, unlike other DEXs which only offer direct swaps, GMX is able to offer its users perpetual swaps – a type of futures contract but without a fixed settlement date.
Spot exchange - allows users to make market and limit orders.
Perpetual exchange - allows for long and short positions with up to 50x leverage. Market, limit, take-profit, and stop-loss orders are also available.
GMX also highlights low swap fees and zero price impact as one of its main points of difference. With zero price impact, this means that trades are executed exactly at the marked price, even for large trades.
GMX also provides the same convenience as with other DEXs, as users can immediately start trading just by connecting their wallets, without the need to set up or verify an account.
What are perpetual trades?
Perpetual trading is a type of futures trading, wherein traders do not trade with the assets directly (as with spot trading) but instead trade futures contracts. Futures contracts are simply agreements between the buyers and sellers to buy or sell an asset at a predetermined price and time in the future.
In commodities, futures contracts are carried out as a safeguard between producers and traders in case of market fluctuations between the time it takes to produce the goods and sell them in the market. In stocks and cryptocurrencies, futures contracts are made to speculate on price movements to gain massive profits through the use of leverage, or to manage risks with huge investments. And since trades are carried out with contracts, futures trading allows for traders to trade without necessarily owning any of the assets themselves.
With perpetual trading, the main advantage is their flexibility and liquidity, as traders can enter and exit positions at any time without worrying about expiration dates.
How does GMX work?
GMX is able to offer its users zero price impact through an automated market maker (AMM) and a system called “dynamic pricing”. With dynamic pricing, the exchange does not rely on order books for its market prices, but instead relies on real time data from Chainlink oracles, which aggregates them from the prices on leading volume exchanges. This makes the platform’s prices consistent with everywhere else and limits the chances of slippage.
Instead of an order book market, trading relies on a “unified” multi-asset liquidity pool which earns its providers fees from providing liquidity as well as from fees collected from swaps and from opening and closing positions in leveraged trading.
Users who provide liquidity for the platform are given liquidity provider tokens called GLP, which represent the size of their share of the pool and rewards collected from fees. GLPs are only minted accordingly with every deposit, and likewise burned when any of their corresponding assets are redeemed, thus functioning as an accurate index of the assets in the pool at any given time.
GLP swap fees adjust accordingly for each indexed asset, according to their supply. So if an index asset falls over or below its target weight, its fees are adjusted to incentivize users to balance its supply in the pool.
GLP can also be staked to earn escrowed GMX and ETH rewards for LP rewards. GLP accrues a large portion of the platform’s fees –70%–, as GLP holders essentially function as the counterparty to all perpetual traders’ trading positions.
The GMX token
Meanwhile, GMX also has its main utility and governance token of the platform, also called GMX. Staking GMX allows for the users not only to vote on community proposals for the DEX, but also rewards the stakers with 30% of the generated fees from the entire platform. These staking rewards are then distributed in three ways:
Staking GMX rewards users with escrowed GMX, multiplier points, or Ethereum (ETH) and Avalanche (AVAX) for staking on Abitrum and Avalanche respectively.
In turn, escrowed GMX can also be staked for more rewards, or vested over a year to be converted in GMX tokens.
Meanwhile, multiplier points can be used to compound ETH and AVAX rewards.
GMX Tokenomics
GMX has a projected total supply of 13.25 million tokens of which 8.5 million are currently in circulation as of writing. The GMX supply is closely tied with two other protocols, XVIV and Gambit – who share the same anonymous founders as with GMX.
2 million (15.09 %) paired with ETH for liquidity on Uniswap
2 million (15.09 %) reserved for vesting for escrowed GMX rewards
2 million (15.09 %) for the floor price fund
1 million (7.55 %) for marketing, partnerships and community developers
250,000 (1.9 %) to be distributed to contributors over two years
Conclusion
On its own numbers alone, GMX already seems well poised to become a favored platform when it comes to trading cryptocurrencies in a permissionless and automatic way. Further, the derivatives market in the crypto industry has observed a significant surge of 114% from December 2022 to January, now accounting for a substantial 70.3% of the total crypto market. With this development, it seems improbable for the platform to relinquish its share of crypto customers anytime soon.
References
GMX: https://gmx.io/#/
GMX Gitbook: https://gmxio.gitbook.io/gmx/
GMX Token Terminal Dashboard: https://tokenterminal.com/terminal/projects/gmx
Arbitrum TVL - DeFi Llama: https://defillama.com/chain/Arbitrum
GMX Stats: https://stats.gmx.io/
Cointelegraph – What are perpetual futures contracts in cryptocurrency?https://cointelegraph.com/explained/what-are-perpetual-futures-contracts-in-cryptocurrency#:~:text=Perpetual%20futures%20trading%20allows%20traders,case%20of%20such%20financial%20instruments.
Crypto Derivative Volumes Saw Speedy Growth as Prices Rose in January: https://www.coindesk.com/markets/2023/02/08/crypto-derivative-volumes-saw-speedy-growth-as-prices-rose-in-january/
GMX: The perps DEX of the future: https://www.stakingrewards.com/journal/gmx-valuation-staking-the-perps-dex-of-the-future/
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