GMX is a decentralized perpetual contract trading protocol created by an anonymous team. GMX launched on Arbitrum on September 1, 2021, and on Avalanche on January 5, 2022. GMX currently supports spot trading and perpetual contract trading with up to 50x leverage. The orders supported by GMX include market orders, limit orders, and trigger orders (profit/stop-loss orders).

GMX contains two native tokens. Among them, $GMX is the utility and governance token of GMX. Holders of the $GMX token can obtain the governance voting rights of GMX or choose to stake the token to obtain rewards. $GLP is GMX’s liquidity provider token. Holders of $GLP, that is, liquidity providers, can receive a certain percentage of platform transaction fees as a reward for providing liquidity.

What is the mechanism of GMX?

Compared to dYdX, GMX is more decentralized. GMX does not adopt the order book model of dYdX, but innovates a GLP mechanism. The GLP liquidity pool provides liquidity for transactions and consists of a variety of assets, including wBTC, wETH, and stablecoins. Under this mechanism, the platform divides users into two categories, namely traders and liquidity providers.

For traders, if they want to do leveraged trading, they need to deposit collateral into the GLP pool first. According to the rules of the exchange, the collateral for opening short and opening long is different.

For example, when a trader is long ETH, it can be described as the trader "lending" ETH from the GLP pool; and when a trader is short ETH, Then the stablecoin corresponding to ETH is "loaned" from the GLP pool, thus corresponding to two different collaterals, but in fact the assets in the pool have not been lent. When closing a long position, if the trader makes a profit, the long asset (ETH in this case) will be withdrawn from the pool as profit to the trader. If there is a loss, the initially deposited asset will be deducted and placed into the GLP pool. , that is, the currency of profit and loss is consistent with the currency of collateral. The GLP pool therefore acts as a counterparty to the trader.

For liquidity providers, $GLP can be minted/destroyed by injecting/withdrawing a specific asset from the GLP pool, and both minting and destruction will charge a certain fee. Each asset in the pool has a corresponding target weight, which is adjusted according to market conditions. If the current weight of an asset is higher than the target weight, you will be charged a higher fee when depositing that asset, and as an incentive, the fee will be reduced to withdraw the asset, and vice versa.

The price of the GLP pool is provided by Chainlink’s oracle, and its price is based on some centralized exchanges such as Binance and Bitfinex. This makes GLP extremely capital efficient and achieves zero slippage in transactions (the oracle price feed provides the optimal transaction execution price), while liquidity providers do not face impermanent losses because they do not need to discover prices.

If you want to learn more about oracles, please click to read this entry "What is Oracle".

What is GMX’s fee structure?

Compared with dYdX, GMX has more sources of transaction fees, which mainly include two parts: one is the fees incurred when minting/destroying $GLP and swapping, as mentioned above, A fee of 0-80 bps is charged depending on the current option weight; the other part comes from margin trading, and the transaction fee is 0.1% of the total position. At the same time, a "borrowing fee" will be charged to the GLP pool in margin trading. The calculation formula is (Assets Borrowed) / (Total Assets in GLP) * 0.01%, which will be charged once an hour. 70% of the fees collected by the platform will be distributed to $GLP holders, and the remaining 30% will be distributed to $GMX stakers.

100% of GMX income is distributed to $GMX and $GLP holders. The total return for $GMX holders is 30% of the trading fee (in the form of ETH or AVAX) plus the $esGMX tokens and multiplier points earned for staking. $esGMX can also be staked again like $GMX to earn the same returns, or exchanged for regular $GMX tokens after a one-year lock-up period.

At the same time, $GMX/$esGMX stakers can also obtain 100% APR multiplier points every second. It can also be staked again to encourage holders to continue staking $GMX. Once the user cancels the pledge of $ GMX, the corresponding proportion of multiplier points will be destroyed. Similarly, $GLP holders earn a total of 70% of trading fees (in the form of ETH or AVAX) plus $esGMX earned for staking.

It is worth noting that the price of $GLP is positively correlated with the price of assets in the GLP pool, and liquidity providers indirectly enjoy the potential appreciation of the assets in the pool. All in all, on GMX, both $GMX and $GLP holders can obtain certain fee income and token rewards, and there are more potential benefits. It can be seen that GMX is undoubtedly much better than dYdX in terms of user incentives.

What makes GMX different?

In addition to the innovative GLP mechanism, another feature of GMX is that it has successfully integrated many DeFi protocols and has strong composability. As of February 2023, there are 28 projects built on the basis of GMX, which can be divided into five categories, including: treasury, lending, social trading, options and others.

Specifically, vaults are the largest category, including 13 projects in total. As we learned above, holders of $GLP will continue to receive income, and these income can also be put into the GLP pool again to generate income. But many people always forget about this, resulting in missing some free money. The treasury came into being. You only need to deposit the $GLP in your hand to the protocol, and it will automatically and continuously deposit the generated income into the GLP pool, thereby increasing your income.

In addition, there are some protocols (such as Rage Trade, Neutra Finance, Umami, etc.) that have designed more complex GLP strategies based on this. The most common of these is the Delta Neutral strategy, which is designed to help $GLP holders hedge their exposure in a bear market. There may be subtle differences in how each protocol implements this strategy, but the overall goal is to maximize profitability while ensuring security, thereby attracting more users and competing for more GLP shares.

Lending is the second largest ecosystem on GMX. Users can use GLP as collateral to borrow money to increase leverage for revenue mining. Major players in this space include Vesta, Sentiment, and Tender.fi, among others. The remaining areas do not currently have many players, but because of this, there is also a lot of room for growth.

If you want to know more about GMX, you can click to view:

• GMX Lego
• GMX will be in the bull market Collapse?

In short, dYdX and GMX are the leading perpetual contract exchanges in the current Cryto market, and their influence is self-evident. The market share of the two exchanges has also been changing in the past 2022, and GMX has a growth momentum exceeding dYdX. But what will happen in the future? Will dYdX stabilize its leading position, will GMX achieve a comeback, or will other dark horses stand out? Let us wait and see.

If you want to know more about the perpetual trading market, you can click to view our research article: Decentralized Derivatives Exchange Research Report 2022 Q3.