GMX Review | The leading decentralised perpetual exchange on Arbitrum

Investing Crypto / / Leave a Comment

GMX is a decentralised spot and perpetual exchange offering margin trading with low fees, zero price impact trades, and up to 50x leverage. 

The exchange is currently available on both the Arbitrum and Avalanche networks but is natively on Arbitrum.

As of March 21, 2023, GMX dominates the Arbitrum DeFi ecosystem, accounting for over 27% of the total value locked (TVL) on the network.

In this post, you’ll get a comprehensive overview of the GMX, including my opinion on its key features or products and investment strategy.

Table of content

You can jump to the section that interests you more using the navigation below.

How does GMX work?

How providing liquidity works on GMX.

GMX enables you to provide liquidity using its liquidity provider token (GLP) which you can mint or buy with BTC, ETH, WETH, UNI, LINK, USDT, USDC, DAI, and FRAX.

So, you deposit any of these underlying assets in the pool and mint the equivalent $GLP tokens which you can then stake to earn rewards.

Margin traders on GMX borrow your deposited funds to trade with up to 50x leverage, and you earn a share of 70% of all trading fees generated on the platform in proportion to your share of the liquidity pool.

To redeem your original crypto assets, you unstake and burn your GLP tokens and you stop earning rewards accordingly.

Note that there’s a fee to mint or redeem GLP with or for the underlying crypto assets as each underlying asset has a limit on how much funds can be in the pool.

When an asset is near its limit, fees will be higher to encourage you to use the less full pools which would usually have a lower fee.

So, always make sure to check the prevailing fees before going through with the GLP purchase or redemption transactions.

Finally, as a GLP holder or liquidity provider, you’re the counterparty to all trades on GMX.

That means that, if traders make a profit, they’re paid from your deposits, and when they make losses, their money goes to you.

The traders’ profit is your loss and their loss is your profit. You’re literally “the house” on GMX.

How trading works on GMX

Traders on GMX can take long or short positions with up to 50x leverage and settle trades in USDC as the quote currency.

You can use any of the supported assets on the platform as a margin while longing or shorting any other asset, but your trades will be settled in USDC.

For example, when you open a position using the ETH in your wallet, the platform will automatically swap your ETH into USDC at the best available rate before executing the trade.

And when you close a trade, your original capital plus any profit you’ve made will be credited to your wallet in USDC.

This way, you can trade any asset with leverage without having to worry about the exchange rate or slippage.

Your positions are marked to market using an aggregate of high-quality price feeds from multiple sources such as Coinbase, Binance and Bitfinex; combined with Chainlink oracles for extra security.

This prevents temporary price fluctuations from triggering unnecessary liquidations.

Furthermore, for both long and short positions, you can place market orders, limit orders, and take-profit and stop-loss orders on GMX. But the take-profit and stop-loss orders can only be set after opening a position.

Finally, you can close your positions at any time and receive USDC in your wallet and monitor your margin ratio and liquidation price on the platform.

Fees on GMX

GMX charges a 0.0062% borrowing fee every hour which is calculated as: (assets borrowed) / (total assets in the pool) * 0.01% per hour. That’s a 0.1488% borrowing fee every day that you hold a position.

Furthermore, there’s a 0.1% fee to open a trade and another 0.1% fee to close a trade.

These are in addition to the $5 flat liquidation fee (IF you get liquidated) and the blockchain network fees for every on-chain transaction.

Finally, remember you pay a variable fee when buying or selling GLP. This fee range from 0.01% to 0.8%, depending on the asset you want to use in buying or redeeming GLP.

What tokens can I trade on GMX?

On GMX, you can trade AVAX, ETH, BTC, or WBTC against the USD on the Avalanche network and ETH, BTC, LINK, or UNI against USD on Arbitrum.

With time, it’s expected that the platform will support more assets for trading and add new chains in order to capture greater market share.

Who is behind GMX?

The identities of the GMX founders and team members are not publicly disclosed for security and privacy reasons as is common in DeFi.

However, they’re said to have been active in the crypto space since 2017 and have experience in building decentralised applications or protocols.

Also, the team is said to consist of developers, designers, marketers and community managers who work together to deliver a high quality product and user experience.

Furthermore, the project is backed by reputable institutional investors such as Binance Labs, Alameda Research, CMS Holdings, Spartan Group, etc.

They are also supported by a network of contributors who help with testing, auditing, bug fixing and feature developments.

They’re constantly improving the platform, adding new features and launching new products based on user feedback and market demand.

From my few interactions with the team, they appear to be very transparent and communicative on social media and on their official blog.

For example, while writing this article, I asked several noob questions in their Telegram group and got really helpful responses.

You can connect with the GMX team and other community members on their various social media platforms and website for further research:

GMX features

GMX is basically a decentralised exchange that offers both spot and margin trading with up to 50x leverage on supported chains.

Unlike other DEXes, GMX uses a multi-asset pool that provides high liquidity and reduces liquidation risks for traders.

It also uses a fast price feed oracle that ensures accurate and timely price data for its trading protocols.

Furthermore, it has a dual token model that rewards both traders and liquidity providers with 100% of the platform’s generated fees.

Below, I discussed the various features of GMX that you should know about.

1. Swap

GMX enables you to swap the available tokens for one another on the supported chains using market or limit orders with zero price impact.

With the Swap feature, you’re buying or selling the actual crypto assets at a specific or prevailing market price.

2. Margin trading

GMX enables you to trade perpetual contracts on supported cryptocurrencies with up to 50x leverage directly from your wallet.

Leverage means that you can trade with more money than you have in your wallet by borrowing from the liquidity pool at a small fee.

As a result, you can make more money than you normally would if you’re trading with only your own capital if your price prediction is correct.

But you will only lose a portion or all of your deposited collateral when your prediction is wrong and you have to cut your losses or get liquidated.

With margin trading, you can open long or short positions on perpetual contracts depending on whether you expect the price of the asset to go up or down.

You can always close your position at any time by swapping back to any supported asset or holding it indefinitely, depending on your trading strategy.

After opening a trade, you can monitor your margin ratio and liquidation price, or set your take-profit and stop-loss accordingly on the platform.

3. Multi-asset pool and fast price feed

On GMX, all your trades get executed in the multi-asset pool at the prevailing oracle prices which provides deep liquidity and reduces liquidation risks.

More so, the multi-asset pool allows you to trade on GMX with zero price impact. This means that the price of the asset you are swapping does not change based on the size of your trade.

The platform uses an aggregate price feed from Chainlink and other exchanges’ price feeds to determine the fair market price of the assets and avoid liquidation wicks.

4. Staking

GMX allows you to stake your GMX and GLP tokens to earn your share of the platform’s generated fees in ETH or AVAX, depending on the chain you’re on.

30% of the platform’s generated fees go to GMX stakers while the remaining 70% of all fees go to the GLP stakers as rewards.

5. GMX referral program

GMX have a referral program which rewards both you and the people you refer to the platform. You can earn up to 15% referral rewards while your referrals can get up to 10% discount on fees.

The GMX referral program is structured into 3 tiers based on the total number of weekly active users you have referred, and their weekly trading volume.

  • Tier 1: Gives 5% discount on fees for traders, and 5% rebates to referrers. This is the tier everyone belongs to when you first create your referral code.
  • Tier 2: Gives 10% discount on fees for traders, and 10% rebates to referrers. To upgrade to this tier, you must have referred at least 15 weekly active users with a combined weekly trading volume above $5 million.
  • Tier 3: Gives a 10% discount on fees for traders, a 15% rebate to referrers paid in ETH or AVAX, and another 5% rebate to referrers paid in esGMX. To upgrade to this tier, you must have referred at least 30 weekly active users with a combined weekly volume of over $25 million.
If you meet the above requirements for upgrades, you have to submit the referral upgrade application form, and then send a DM to @GMXPartners on Telegram for follow-up and activation of your new tier.

6. GMX Governance

GMX has a functioning governance system that allows GMX token holders to propose and vote on various aspects of the platform.

For this, the project has a dedicated forum where you can discuss and share your ideas, feedback and suggestions with the team and other community members.

How to earn on GMX

You can make money on GMX as a trader (your trading profits), an affiliate (through the referral program discussed above), and a GMX or GLP holder.

As a GMX or GLP holder, you earn 30% or 70% of all platform-generated fees (real yield) respectively by staking your tokens on the platform.

Please, note that the fees distributed to GMX and GLP stakers are what’s left after deducting referral rewards and the network costs of keepers (usually about 1% of the total fees).

These rewards are paid in ETH or AVAX depending on what chain you’re on, whether Ethereum or Avalanche and any new chain the platform supports in the future.

The reward system on GMX is structured to mainly benefit long-term holders and users of the platform.

GMX tokens and tokenomics

GMX has a dual token model aimed at creating a balanced and sustainable system that benefits both traders and liquidity providers.

The two tokens that power the GMX ecosystem are GMX and GLP (GMX LP token).

GMX token gives you access to higher leverage, lower fees, rewards, and governance rights on GMX. While GLP gives you real passive income.

I explained both tokens in detail below, including their respective use cases on the platform.

GMX token and use cases

GMX is the utility and governance token of the platform.

You can stake it to earn 30% of the platform’s generated fees, burn it to increase your maximum leverage or reduce your trading fees on GMX, or submit and vote on governance proposals.

GLP token and use cases

The GMX liquidity provider (LP) token (GLP) accrues 70% of the platform’s generated fees to stakers.

GLP is backed by an index of crypto assets which you deposit as liquidity and used to facilitate swaps and leverage trading on the platform.

The token represents your contribution to the liquidity pool, which you can describe as a big pot of money that is used to fund the trades on GMX.

When you deposit any supported cryptocurrency into the pool, such as ETH or USDC, you get GLP in return.

It shows how much of the pool belongs to you and earns you a share of 70% of all fees generated from trading activities on the platform.

GMX and GLP supply

GMX does not have a fixed maximum supply. The supply increases when new tokens are minted to reward stakers, and decreases when tokens are burned by traders to increase their leverage or reduce their fees.

Similarly, the supply of GLP increases when new tokens are minted as liquidity providers deposit their crypto assets into the various pools, and decreases when tokens are burned as liquidity providers withdraw their assets from the pools.

However, according to the team, the forecasted maximum supply for GMX is 13.25 million (13, 250, 000).

Minting beyond this amount is controlled by a 28-day timelock and is subject to a governance vote which will be conducted before any changes are made.

Regardless, I will be investing with the mindset that the supply is uncapped and then structure my portfolio accordingly.

Is GMX secure?

First, the GMX contracts have been audited by ABDK Consulting, which gives some assurance there’re no obvious vulnerabilities or malicious codes in the contract.

Also, there is an active bug bounty for GMX on Immunefi since October 2021 which aims to reward developers who find and report eligible vulnerabilities.

Thus, there’re enough eyes looking into the GMX codes to discover and eliminate exploitable vulnerabilities.

Furthermore, the platform has never been hacked or exploited, and it’s been integrated into various other DeFi protocols on Arbitrum.

This shows there’s great confidence in the GMX security and functionality.

However, all these do not mean there’s zero security risk on the platform. It could still get hacked or exploited. So, keep that in mind as you explore it.

Is GMX a good investment?

GMX has solid fundamentals and the team is competent and committed to the success of the project.

Also, the project dominates the Arbitrum ecosystem in terms of TVL and is widely integrated into other protocols on the network.

Its popularity, superior functionality, and widespread integration with other protocols on Arbitrum give it a significant competitive advantage.

And that’s exactly what you want to see in a great project.

The only possible concern is the team’s significant influence on the project and the uncapped maximum supply. Other than that, I have strong confidence in GMX.

Whatever amount I am investing in the project will go into both GMX and GLP in a 50:50 ratio.

But whether it’s a good investment for you or not; is your decision to make.

Where can I buy or trade GMX?

UniSwap on Arbitrum One chain and Binance exchange are the leading places you can buy or trade GMX.

You can find other exchanges to trade the token on CoinGecko or CoinMarketCap and choose the one that’s convenient for you.

My GMX investment strategy

I am staking both GMX and GLP to take advantage of their unique features and earning opportunities.

For example, staking GMX gives me exposure to the potential price appreciation of the token as well as a share of the platform’s revenue and governance rights.

For GLP, I have it staked on this new and amazing protocol called Dolomite which enables you to borrow against your GLP with up to 5x leverage even while you’re earning your full GLP staking rewards.

Dolomite is a DeFi powerhouse, but I haven’t started doing anything complicated there yet.

Currently, I just stake my GLP, borrow USDT, buy more GLP and stake; repeat until I achieve my desired leverage.

Conclusion

GMX is a decentralised perpetual exchange that offers you margin trading with low fees, zero price impact trades, and up to 50x leverage.

The exchange is currently available on both the Arbitrum and Avalanche networks with plans to expand to other promising chains in the future.

One interesting thing about GMX is that 100% of its revenues go to GMX and GLP token investors. Making it one of the most prominent pioneers of the concept of real yield on Arbitrum.

Overall, GMX is a sophisticated exchange protocol and functions perfectly. The team is solid, and the project is very popular and well-respected in the Arbitrum ecosystem.

Earn BUSD daily just by holding CST in your wallet. Click HERE for details.

Leave a Comment

Your email address will not be published. Required fields are marked *