Original article: "Review of Gains Network: Iteration and community are the source of vitality of crypto products"

Author: Beichen

Derivatives DEX, Arbitrum ecosystem, Binance Innovation Zone... It seems that in addition to the Hong Kong concept, Gains Network has gathered all the labels that have generated FOMO emotions in the past one or two months. (Related reading: "Interpreting the design mechanism of Gains Network: Nirvana in the "Luna Crisis", the "Best Example" of Decentralized Derivatives")

There is not much discussion about Gains in the Chinese community. Although there are relatively complete introduction articles on product features and economic models, there seems to be no clear point of view to explain it, so much so that some people say that Gains Network is a copycat of GMX.

I prefer to understand what Gains is and where it is going from the past background. So we have to go back two years.

Start with emergency shell replacement

On New Year's Day 2021, Seb, the founder of DeFi derivatives exchange gains.farm, transferred 5,000 GFARM tokens to white hat hacker @SquirrelDeFi because the other party reminded him that there was a loophole in the gains.farm contract and all LP funds (about US$2 million) could be stolen.

Seb promised to reward 5,000 GFARM tokens if the other party showed the vulnerable code. In the end, he found that it was true and the hacker's attack had already begun.

He quickly sold off 25% of the GFARM tokens controlled by the development fund (later used as capital to launch gains.farm V2), then told community members to sell their LP assets, and finally closed the trading function of gains.farm that day.

On the second day, when the incident should have started to ferment (the community started to make a fuss), Seb announced that he would launch a new smart contract (gains.farm V2). The model and tokens were still the same as V1, but with the addition of the function of monitoring transactions and being able to pause at any time. Is this matter over?

Yes! gains.farm V2 is now live on day 15.

This time, the GFARM token (GFARM2) was re-issued, with the total amount reduced by about 100 times (which also means the value increased by 100 times), and users can get GFARM2 rewards by providing liquidity on Uniswap. NFTs equivalent to transferable membership cards were also re-issued.

The model of V2 is the same as before. Traders must use GFARM tokens as margin for leveraged transactions, and losses exceeding 90% will be liquidated. In addition, traders can only use more than 10 times leverage (up to 150 times) and act as liquidators (who can earn 10% of the liquidated position) if they hold the corresponding NFT.

Today's Gains Network is the result of continuous iterations based on gains.farm V2.

V2's model and operation

There are not many iterations of gains.farm V2, which are all minor modifications based on the last hack. For example, each block can process a maximum of 10 transactions, the team can suspend the opening of new transactions, and the profit is limited to 400%, all of which are for the purpose of preventing attacks.

The core mechanism of V2 is to use GFARM as margin. In essence, this exchange only serves as a scenario for using/consuming GFARM.

However, using small currencies as margin will inevitably lead to liquidation due to price fluctuations, so the team has set up an additional mechanism to avoid this - although the deposited margin is GFARM, the position is denominated in ETH...

Let’s skip the somewhat convoluted logic and go straight to the end result - when the price of GFARM rises (relative to ETH), the GFARM in the position should be reduced proportionally, and vice versa.

Less than a week after the launch of V2, their NFT (claimed to be the world’s first DeFi NFT with real use cases) was removed from the shelves by OpenSea, so they decided to build their own NFT exchange and adopt an auction model - every time a bid is made, ETH is put into the pool, and when someone bids a higher price, it is returned to him (but a 5% fee is charged). Finally, when the NFT is sold, the highest bidder will charge a 25% fee - which will flow to the GFARM staking pool on Uniswap.

Therefore, the business of gains.farm at this time is centered on leveraged trading, and there is also NFT exchange + GFARM2 pledge business. But it should be noted that all businesses are born around GFARM tokens, rather than the other way around.

After V2 was launched, a trading competition was launched, but the effect was mediocre. There were only more than 160 transactions in the first three days after the launch, and the market value was only 600,000 US dollars. Therefore, the Gains team quickly started the iteration process at least once every two weeks.

Iterations after V2

Although V2 solves the loopholes of V1, its starting point (that is, all businesses revolve around GFARM tokens) has two unavoidable problems.

First of all, why bother, why not just use ETH or stablecoins to denominate? Secondly, the price of GFARM can be easily manipulated (especially on Uniswap).

The Gains team first solved the problem of price manipulation by adopting a new oracle and imposing very large spreads and restrictions on transactions. Later, they simply removed the GFARM token as a margin and directly converted the margin to DAI anchored to the US dollar.

One month after V2 was launched, the community reported that Ethereum’s fees were too high (not only gas fees, but also handling fees, because the ChainLink price feed alone costs $3). In the end, the cost of each transaction exceeded $24, which was not suitable for derivatives trading. The result of the team’s communication with the community was to turn to layer2 and finally chose Polygon.

The testnet was launched in less than a month, and soon in April, Polygon was officially launched, and the fee for each transaction was reduced to US$0.001...Gains then ushered in a big explosion - there were 317 transactions within 24 hours of going online, and the transaction volume reached 8.6 million US dollars.

Moreover, the Gains team is constantly adjusting its positioning - cryptocurrency is just the beginning, and in the future it will expand to stocks, foreign exchange and commodities.

Since then, gains.farm has been continuously launching new currencies, adjusting the front-end design, and cooperating with mid-level KOLs for joint marketing. By September, it had been upgraded to V5. Less than 48 hours after V5 was launched, its daily trading volume exceeded 20 million US dollars.

As the Gains team put it, “It’s like watching a plant grow every day. You don’t notice the changes from day to day, but one day you realize how much it has grown.”

Rebranding Gains Network

The Gains team realized that the name gains.farm could easily be mistaken for a farm that releases tokens rather than a derivatives exchange, so in October 2021, they changed their name to Gains Network.

However, their starting point has not changed - all businesses are centered around the GFARM token, but now they are starting to lay out a product matrix.

gTrade is the first Gains Network product, which is essentially the previous gains.farm V2. However, the GFARM token has been split 1,000 times and renamed GNS (Gains Token).

The model has also been adjusted to use DAI as collateral - if the user makes a profit, they can withdraw money directly from the vault as before, but the money the user loses is used to repurchase GNS and destroy it when the vault is over-collateralized (more than 110%).

The Gains team also deeply realizes that marketing, especially community marketing, is a top priority, even if the project is still in development. "We prioritize development itself, but this is an ongoing work, so there is no estimated time of arrival."

So the team brought in a marketing team, all of whom were early users of Gains, had a deeper understanding of the project, and believed in its potential.

Later, we saw that the marketing team had a visible driving force in Gains' popularity - launching a more intensive and systematic marketing, including but not limited to hosting Twitter Spaces with various partners, actively interacting within the community to plan community content, contacting KOLs to promote referral programs, etc. Three months later (January 2022), Polygon awarded Gains Network $250,000 in MATIC for two trading competitions.

Gains Network also began to consider expanding to other chains (Solana was the preferred choice at the time).

V6 to now

Gains Network experienced explosive growth a few weeks after its launch, but decided to continue iterating, which was V6. There were countless iterations, big and small, afterwards. Small iterations included optimizing various experiences (such as adding stop loss, web chat functions, etc.), and big iterations included no longer using GNS as collateral after the LUNA crash, but changing to DAI.

However, the current form of Gains Network has finally been finalized at this stage. So we will skip the numerous adjustments and directly introduce the current model of Gains Network.

All trades (from cryptocurrencies to forex with up to 1000x leverage) are collateralized and settled in DAI, with zero slippage on every trade.

The counterparty of the transaction is the DAI vault (the trader's collateralized DAI is still in the contract). If the trader makes a profit, he will withdraw DAI from it. If he loses money, the corresponding collateral will be deducted and placed in the vault.

So the question is, isn’t the starting point of Gains Network that all its businesses are centered around the platform currency? In this case, GNS is not needed, but the Gains team has found a consumption scenario for it - 40% of the market order and 15% of the limit order fees are allocated to the GNS unilateral staking pool, which is almost 32.5% of Gains’ revenue.

Another scenario is also critical, that is, the DAI vault repurchases GNS and destroys it. The premise is that in the long run, the trader's losses must be greater than his profits (long-term gambling will inevitably lead to losses), so the loss part of the money goes into the DAI vault, and then repurchases GNS and destroys it.

Summarize

Now we can review again. Gains Network had bubbles and loopholes in the early days, but it continuously iterated on the product and actively communicated with the community, and eventually eliminated the bubbles and loopholes on the way to a growth flywheel (rather than a reverse death spiral).

Strictly speaking, Gains Network is not the most professional derivatives exchange, but it doesn’t matter. Iteration and community are the source of vitality of crypto products (for the same reason, refer to GMX and TreasureDAO).