The GMX protocol is a decentralized perpetual trading platform on Arbitrum. In this post, we will explore what GMX is, review the GMX vs GLP tokens, and show you how to use this exchange.
The vast majority of trading in the crypto ecosystem is conducted through centralized cryptocurrency exchanges. There are several reasons for this, such as Such as a simple and intuitive user experience, powerful features for traders to track their trades in line with their goals, and multiple built-in security features that protect funds from potential risks and bad actors. But doesn’t using a centralized exchange or agency contradict the very ethos of decentralization, as highlighted by Satoshi Nakamoto in the Bitcoin white paper?
However, the advent of DeFi (Decentralized Finance) and decentralized exchanges changed this scenario. DeFi and decentralized exchanges gained attention in 2020 during what many have dubbed the “DeFi summer” mainstream, allowing users to store their funds. However, these exchanges are plagued with a plethora of issues such as: B. Low liquidity and poor user experience. This is where GMX comes in, trying to address these issues through a unique multi-asset liquidity model and an interesting twist on the traditional AMM model.
What is the GMX protocol?
Launched in 2021, GMX is a decentralized spot and perpetual exchange that allows users to trade popular cryptocurrencies like Bitcoin and Ethereum directly from their crypto wallets. GMX went live on Arbitrum in September 2021 and then launched on Avalanche in early 2022. Unlike decentralized spot exchanges, GMX allows users to perform spot swaps and trade perpetual futures with up to 50x leverage while allowing users to keep their assets in their cryptocurrency wallet.
With low swap fees, zero-price impact trades and limit orders, GMX aims to offer its users a better and more efficient trading experience. Trading on the platform is supported via a multi-asset pool that allows liquidity providers to earn fees in the form of GLP tokens. The platform leverages Chainlink Oracles and aggregates price feeds from high-volume exchanges. Because GMX is a decentralized exchange, it does not have an order book, nor does it have a central authority that manages funds. Instead, it leverages its multi-asset pool and liquidity providers. But how do they work?
How does the GMX protocol work?
Now that we’ve gone through the “what,” let’s understand the “how.” GMX facilitates trading through a multi-asset liquidity pool called GLP. The multi-asset pool consists of 50-55% stablecoins, 25% ETH, 20% BTC, and around 5-10% other altcoins like Chainlink and Uniswap. Liquidity providers add liquidity when they mint GMX Liquidity Provider Tokens (GLP), for which they receive 70% of the fees generated on the blockchain. Unlike other liquidity pools, GLP does not suffer a temporary loss.
Another feature of GMX is the use of price oracles like Chainlink to boost trading and act as a hedge against any risk of liquidation. Using Chainlink oracles allows the protocol to obtain accurate price data for assets in the pool, allowing it to pinpoint when liquidations might occur and protect user positions. Any user can provide liquidity and earn fees in return. Users can also trade perpetual swaps and spots with the provided assets. Additionally, the GLP pool also acts as a counterparty for traders as the GLP token holders provide liquidity that is used for leveraged trading.
Users can mint the GLP token using any of the index assets and burn the token to redeem any index asset. In contrast to the GMX token, however, the GLP token is non-transferrable and can be stacked automatically. In addition, the reward, price and index composition of GLP differ between Avalanche and Arbitrum.
Weekly reward info 🔹
$1,321,966.67 raised in the last 7 days
$1,230,466.99 (ARB), $90,735.89 (AVAX), $763.79 (GMX-ETH)
To buy and stake $GMX / $GLP: https://t.co/HnDqM1JFdz pic.twitter.com/jQPTSNiO73
— GMX 🫐 (@GMX_IO) December 28, 2022
The GMX token and GLP
The GMX token is the protocol’s utility and governance token, allowing holders to vote on key decisions and proposals that will shape the future direction of GMX. Token holders can also use their tokens and earn three types of rewards.
- The first reward stakers are eligible for is 30% of all generated log fees, which will be distributed to all GMX token stakers. These fees are collected from leverage trading, market making and swap fees and are paid out in ETH or AVAX.
- Stakers can also earn GMX Escrow (esGMX) tokens, which can be staked to earn additional rewards or transferred. If a token holder transfers these tokens, they will be converted back to GMX tokens over 12 months. esGMX tokens act as a form of locked staking, preventing holders from selling their tokens immediately and staving off inflation.
- GMX players can also earn something called multiplier points that help increase yield and reward long-term users, contributing to further decentralized ownership on the platform.
The total supply of the GMX token is capped at 13.25 million, with 8,395,950 GMX in circulation. Of these, 7,042,003 are GMX staked.
On the other hand, GLP is the liquidity token for GMX, providing liquidity to traders on the platform. These tokens can be bought with any other liquidity pool assets like USDC, WETH, DAI, WBTC etc. The GLP token cannot be traded and can be used to redeem the assets locked during the minting process. The minted GLP tokens are also eligible for staking rewards (25% on Avalanche and 31% on Arbitrum).
How to use GMX?
The GMX exchange offers a viable alternative to traditional exchanges, allowing users to trade and make money by providing liquidity for market making. Trading does not require any registration process or account as users only need their wallets. Users can start a leveraged trade by setting their preference to be long or short. Users can also access low-fee spot swaps that allow them to swap between assets in the GLP pool. All open trades appear under the Positions tab and opening or closing a leveraged trade costs 0.1% of the position size.
Users can also stake their GMX tokens and earn a yield with boosted and compounded rewards.
Finally
Currently, the GMX protocol has nearly 200,000 users and a total trading volume of over $92 billion, and the protocol is quickly making a name for itself. The protocol allows anyone with access to a crypto wallet to avail its decentralized exchange services. With the protocol roadmap planned by its own GMX DAO, GMX aims to become the most complete and user-friendly DEX for on-chain leverage trading.
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