GMX is a decentralized platform where perpetual futures take center stage. You can also enjoy the usual DeFi variants there, such as providing liquidity, borrowing, lending, and so on.
The question is whether it is not just the next DeFi project. This we will try to answer in this blog.
✔️ GMX is a young 2021 DeFi platform
✔️ On the GMX platform, you can do the usual things you can do on any DEX. Borrow, lend, provide liquidity, swap, and so on.
✔️ On GMX, you can also use perpetuals, or continuous positions.
✔️ GMX houses three different coins: GMX, GLP and GM.
✔️ In 2023, their GMX V2 beta went live.
✔️ With their special components referrals, stop loss and take profit, GMX makes quite an impression. This is reflected in their high listing.
Table of Contents
- History of GMX
- How does GMX work?
- What is GLP?
- How does GLP work?
- GM token
- Trading on V1
- GMX V2 beta
- Forecast GMX
History of GMX
GMX itself is a 2021 project, but it builds on the XVIX and Gambit exchange, which saw the light of day back in 2017.
Since this merge, GMX has firmly established itself as one of the top DeFi platforms within a few years.
In 2023, their GMX V2 beta was rolled out, where a new token can be used instead of GMX. This token, GM, has roughly the same function as GMX for V1 and pretty much the same statistics.
GMX is a decentralized spot trading and futures platform for cryptocurrency trading and was built on Arbitrum, followed by further development on Avalanche.
How does GMX work?
You have several options in terms of DeFi on this platform. We will briefly review them.
Escrowed or also known as blocked GMX (esGMX) can be staked and then you earn just as much with it as with staking of regular GMX.
Upon vesting this token, you can get regular GMX for this token after a year.
When you start acquiring coins permanently (vesting), the average amount of GMX or GLP tokens you need to earn the esGMX rewards is reserved.
For example, if you've vested 1000 GMX tokens and earned 100 esGMX tokens with them, 1000 GMX tokens will be reserved, with which you will acquire the rewards over the course of a year. esGMX tokens will be fully converted to GMX in a year and will be sellable at any time.
If you want to leave the acquisition period in the interim, you can claim everything, and you will get your reserved coins back plus all coins that have already been converted from esGMX to GMX. The part not yet converted is then lost as a reward.
This all seems a bit cumbersome, but I'm sure they have a good reason for it. Probably to keep as many funds as possible within the GMX ecosystem.
Multiplier Points (MPs) reward long-term investors without inflation. Every second you stake GMX you get Multiplier Points at 100% APR. So, if you stake 1000 GMX you will have 1000 Multiplier Points after a year.
These MPs can be staked and get just as much reward as a regular GMX token you stake. For this, you get ETH or AVAX.
If you unstake your GMX, your MPs will be burnt in proportion. If you unstake all your GMX, no MPs remain.
Multiplier Points boost your earnings and if you are a loyal staker, these boost percentages can go up considerably. It is clear by now how this platform wants to work: with loyal stakers who leave the money on the platform, who then also earn the most.
GMX is also this platform's governance token, which means that if you hold it, you can vote with it for the future of the platform. Depending on how many coins you own, you may vote for or against a proposal.
What is GLP?
GLP is the token of this platform that regulates the provision of liquidity. Those who provide liquidity get rewards in the form of a percentage of fees paid for leverage trading, lending fees and swaps.
How does GLP work?
GLP consists of an index of assets used for swaps and leverage trading. It can be tokenized with any possession from this index and burned by reclaiming this possession.
GLP consists of two variants, which are not exchangeable against each other, namely the Arbitrum and the Avalanche address variant. When leverage traders make losses, GLP holders make profits and vice versa. Thus, there is always someone happy on the GLP ranch.
You buy GLP on the designated pages of their website and after purchase, they are automatically staked, and you start earning rewards in the form of esGMX and ETH / AVAX. If you play it a little smart, you buy this token for a possession the platform has less of on their "save on fees" page.
They try to get a balanced number of holdings on this platform. For example, if there is a lot of ETH and little USDC in the pot, adding ETH to the pool will have high fees and reducing it low. You can check this on their dashboard, so you make the right choices.
If many traders are long in ETH then the token weight will ensure that ETH will have a high weight. If a large number are short in ETH, then the weight of stablecoins like USDC will be high.
The GLP token will become worth less if, for instance, many people go short in ETH and the price of ETH indeed falls. However, if the price of ETH goes up, then the value of GLP goes up.
An AMM (automated market maker) serves the spot trade and handles the fees. A leverage trading algorithm processes the perpetuals.
If the price of tokens from this platform goes up, the price of GLP also goes up, even if there are many long positions.
As always when providing liquidity, there are risks. For instance, traders may constantly be on the winning side and your deposit may become worth less and less.
It could also be that if you use a bridge that these coins lose their bridge with associated consequences.
However, what can also happen is that there is a bug in a smart contract and a smart trader takes advantage of it. Several audits this platform has undergone should rule this out as much as possible.
The GMX platform has tried the best it can to offer GLP holders solid compensation for their deposit, but from the other side: there are never any guarantees.
The GM token is meant to be used on their new platform, GMX V2.
Liquidity on V2
Liquidity on V2 is provided by individual GM pools. Whoever provides liquidity earns commission through fees for leverage trading, borrowing and swaps.
You can choose SWAP-ONLY, SPOT-ONLY or a GM pool with leverage.
You buy this token on their GM pools page. Bridges for coins are available. You also need ETH / AVAX for the buying process.
Basically, you go through the same process as buying GMX or a GLP token. Pay close attention to the balance when you buy. Mostly buy unbalanced coins that become more balanced when you buy, then you will be cheaper off. If everything is balanced, buy, say, 50 /50 of stablecoins and ETH or another coin.
The price of this token depends on several factors. For instance, it depends on the price of long/short positions.
Fees for leverage trading and swaps will automatically make the price of GM higher.
The price of stablecoins is determined by Chainlink's Oracles or price feeds, related to 1 USD.
The risks you run at GLP, you also run here. See GLP for details.
Trading on V1
GMX is a decentralized exchange (DEX) where you can trade without a username and password. The platform uses a price feed based on several exchanges, reducing the risk of liquidation due to a hefty wick on a single exchange considerably.
If you want to trade at GMX via V1, you can do so via their Trade page and then select V1.
To trade on decentralized exchanges, as you probably know, you need a wallet. You can use typical wallets like MetaMask or Trust Wallet for that, but you can also opt for their Rabby, if you don't already have one or want to do so.
Now you also know why you don't need to enter a username and password, it can all be done anonymously here.
Then you click "Connect wallet" and then select Avalanche or Arbitrum or follow the steps to add one of these networks, so you can trade on either of them.
If you're working with Arbitrum, you need ETH in your wallet and so need to get that in. If you work with Avalanche, you need AVAX to pay for fees. On GMX, you can buy these crypto or transfer them from another wallet.
A swap (exchanging one coin for another) is simple: you click on "Swap" and swap the coins you want for the ones you have.
Opening a position
On their "Trade" page, you click long or short to open a position. If you open a long position, you earn if the price goes up and if the price goes down then... you lose money! That makes pretty good sense!
If you go short, you make money if the price goes down and you lose money if the price goes up.
Once you have made your choice, you still must indicate how much you want to put in and with how much leverage. You will also be shown right away what the "Exit Price" would be if you closed the trade immediately.
For opening a long or short you pay 0.1% fees. For borrowing, you pay a fee according to a mathematical sum; asset borrowed / total assets in pool x 0.01%. The more there is in the pool, the less you pay.
When you open a trade, a snapshot is taken, and your collateral is determined in USD price. For example, if you have 0.1 ETH as collateral and the price of Ethereum is USD 5000, your collateral is USD 500 at a leverage of 10, even if the price of ETH were to change.
Then, if the price of ETH rises to $10,000, your profit is $1000 if you are long and $1000 loss if you are short.
Close a position
If you have had enough for some reason, you can close the position. If you were long, you get profits paid out in the asset you went for, e.g. ETH. If you were short, you get paid out in the stablecoin you opened the trade with.
You can also get paid in an asset of your choice, in which case you may have to pay a swap fee.
Stop loss or take profit orders
This is normally one of the pitfalls of a DEX: you cannot use stop loss or take profit orders, leaving your coins exposed to total collapse or you miss the boat on a huge rise because you were just doing a job.
To do this at GMX, go to their "Close" tab and then select their "Trigger" tab. You can then determine when you have made enough profit and the maximum loss you are willing to take. By the way, these orders remain for when you place a new order. You must delete those manually.
The usual dangers lie in trigger prices. For instance, the price you specified may never be reached and the price was suddenly much higher or lower, so the trigger didn't work. It could also be that the size of your order was unfulfillable for the buyers. You can solve this by not having all your coins triggered, but selling them in stages, so you don't depend on 1 moment and the buyers at that moment.
If the value of your losses comes close to the value of the collateral, your position could be liquidated. Especially if you have borrowed 10x or more with leverage, it will get closer quickly.
If collateral -/- losses -/- lending fees become worth less than 1% of total collateral your position will be liquidated. You can extend your position by bringing in additional collateral. It should be mentioned here that the more leverage you have taken, the faster this moment of liquidation approaches.
Any remaining collateral after liquidation will be deposited in the account of the position holder.
As long as there is little volatility, the "mark price" Chainlink collects with its Oracle will also withstand large orders.
As soon as there is high volatility, the average price of all the exchanges included will be taken instead of Chainlink's.
If you go short or long, you must pay 0.1% of your position as a fee.
If a swap is needed for any reason, you will have to pay 0.2% - 0.8% of the collateral for this swap, the amount depending on whether this makes the balance better or worse.
There is also an execution fee for executing your trade on a blockchain by the miners or validators.
If you go short with a stablecoin that is a lot lower than a dollar, say $0.95, the snapshot ensures that with a deposit of 1,000 of that stablecoin you also have collateral of $950.
This is because it could be the case that when the stablecoin is exchanged it is back to a dollar, or that a front runner tries to pocket the difference.
Once a short contract is paid out, it will be based on the Chainlink price or USD 1, whichever is higher.
Long positions will not normally suffer from this, if at all.
GMX V2 beta
There are fairly few differences between V1 and V2. There are two possible markets on V2:
Fully backed markets
These are markets that are fully backed by the assets in the perpetual (continuous) pool. An example is an ETH perpetual contracts market with ETH - USDC as collateral, where the open interest is limited to less than the total numbers of ETH and USDC in the pool.
For example, if there is 1,000 ETH in the pool and 1,000,000 USDC and the maximum long interest open is limited to 900 ETH and the maximum short interest allowed to be open is 900K USDC, then all profits can always be paid out and there is full backing, regardless of the price of ETH.
An example of a synthetic market would be a DOGE perp market with ETH-USDC as backing. If the max long interest on ETH is limited, the profits from long positions in a synthetic market may still be more than the total value of tokens in a pool.
As an example, we again take 1000 ETH and 1 million USDC in the pool with a max open interest of 300 ETH this time. Suppose the price of DOGE goes x10 and the price of ETH x2 then there is not enough in the pool to pay for this.
Since this obviously doesn't work they have come up with an ADL (auto deleveraging). If the pending profits are more than the threshold determined for a market, then profitable positions are partially or fully closed. This prevents profits from not being able to be paid out because they are more than there is in the pot.
Fees are somewhat lower here than on V1. To open or close a position here, you pay 0.05% - 0.07% of the total.
Swaps are considerably cheaper here though, namely also 0.05% and 0.07% of the total.
As for stablecoin swaps, you pay only 0.01% of the total.
Another difference, as already mentioned, is that on this new platform, you work with GM instead of GMX.
Everything else, though, is roughly similar in nature to V1.
Always nice if you can make referrals. At GMX, you can benefit from referrals by getting discounts on your trading fees. So, you cannot redeem it for cash or crypto.
Both you and your referrals get discounts on your trading fees, so if you are going to trade on this platform, do so through a referral link.
There are three tiers, or levels. For level 2, you need especially rich referrals, but level 1 already provides a 5% discount for yourself and your referral.
So, this referral program is worthwhile if you like trading here. If you have 20 referrals, you can trade for free, according to our mathematicians here.
API (application programming interface) details can be found on their page here about it. It is too technical to display here.
They have already undergone and passed quite a few audits of both versions from companies like Quantstamp and ABDK.
To give outsiders a chance to make a buck too, they have a bug bounty program.
They are active in all sorts of places, including Telegram, Twitter, Discord, Substack and GitHub.
GMX has broken through as a DeFi platform in a short time. They opened their doors during the bear market and have done very well in terms of price during that time.
They also regularly sniff CoinGecko's top 100 or are in it. So, they might be on their way to one of the top rankings among DeFi players.
This is not that strange, as they are firmly establishing themselves and have thought carefully about their platform. For instance, the option to set a stop loss and a take profit is fairly unique among DEX players.
Furthermore, they have already rushed through a major upgrade after 2 years, which indicates that this is a serious player in terms of work ethic.
It is quite possible that they are going to be rewarded for this by more traders coming to their platform. This will then be reflected in the price of their 3 cryptocurrencies.
We are especially curious here to see how the coins will do during the upcoming bull market. Then perhaps a lot will become clear about the strength of this platform.
This blog is written for educational purposes and not intended as buying advice.