Summary
GMX is a decentralized, permissionless exchange that allows for perpetual swaps and spot trading. Traders can access to easily trade cryptocurrencies on-chain by simply connecting their wallets. GMX has a native token called GMX, which functions as a governance, utility, and value token in the GMX protocol. Users can stake GMX tokens and earn a portion of GMX protocol fees, as well as benefit from other incentives. GMX currently supports the Arbitrum and Avalanche networks.
Introduction
Blockchain and its application to finance, cryptocurrencies, favored the development of decentralized finance (DeFi). General recognition of DeFi began in 2020 with what was called the "DeFi summer." Now, GMX demonstrates that it is possible to trade leveraged perpetuals and spot in a decentralized way. The trading experience resembles the functionalities of centralized exchanges, but is done directly from a personal crypto wallet.
What is GMX?
GMX is a decentralized spot and perpetual exchange that allows users to trade BTC, ETH, and other popular cryptocurrencies directly from their crypto wallets. The GMX user can do spot swaps and perpetual futures trading with up to 50x leverage, similar to what is done on a centralized exchange. The difference is that, instead of using a centralized exchange, the user maintains custody of their assets by using a crypto wallet.
GMX aims to provide a better trading experience with low swap fees and trades that do not affect prices. Trading is done through a native multi-asset pool, GLP, which earns fees for liquidity providers. Additionally, GMX uses Chainlink oracles to provide dynamic pricing by combining prices from other high-volume exchanges.
GMX was launched on the Arbitrum One blockchain when the network went live in September 2021. Arbitrum is a Layer 2 rollup of Ethereum, a solution designed to increase the speed and scalability of Ethereum smart contracts. Later in January 2022, the GMX implementation continued on Avalanche, which is also an EVM-compatible high-speed blockchain.
How does GMX work?
Trading on GMX occurs through a multi-asset pool called GLP. It is made up of 50% to 55% stablecoins, 25% ETH, 20% BTC, and 5% to 10% other altcoins, such as Chainlink and Uniswap.
Liquidity is added when users mint GMX Liquidity Provider Tokens (GLP). In exchange for minting GLP, they earn 70% of all commissions generated on that particular blockchain. Contrary to some liquidity pools, GLP does not suffer impermanent loss.
Anyone can become a provider of this liquidity pool and, in return, earn commissions. Users who want to do perpetual swaps or spot trading can do so with the assets provided. Likewise, the GLP pool functions as a counterparty for traders: since GLP token holders provide the liquidity used for leveraged trading, they profit when traders lose, and vice versa.
The GLP token can be minted from any of its indexed assets and is burned to redeem any indexed assets. Unlike the GMX token, its staking is automatic and non-transferable. The price, rewards, and index composition of GLP are different in Arbitrum and Avalanche.
What is GMX token?
The GMX token is a utility and governance token. Holders can use it to vote on proposals and help decide the future direction of the exchange.
Holders who stake GMX also earn three more rewards, which the protocol uses to reward users. The first is made up of 30% of all commissions generated in the protocol that is distributed to GMX stakers. These fees are charged for market maker activity, swap fees, and leveraged trading, and are paid in ETH or AVAX.
Second, stakers earn escrow GMX tokens (esGMX). These esGMX tokens can be staked for rewards, or claimed. When claimed by a user, after 12 months the tokens are reconverted to GMX. Therefore, esGMX issuances are a form of locked staking that prevents inflation and people from selling their GMX immediately.
Lastly, stakers earn Multiplier Points that increase their performance and reward long-term holders without contributing to token inflation. This duplication of incentives encourages engagement with GMX and encourages decentralized ownership of the platform.
The GMX token has a maximum supply of 13.25 million, with 8.2 million in circulation. Currently, more than 83% of circulating tokens are staked.
What makes GMX unique?
The trading system
GMX allows traders to open leveraged positions through an easy-to-use swap interface, which resembles traditional trading platforms. Additionally, GMX is trustless and self-custodied, meaning anyone can trade cryptocurrencies directly from their private wallet.
The dual exchange model supports both spot swaps and leveraged perpetual swap trading. This should improve capital efficiency due to the high utilization of LPG pool assets, allowing user deposits to generate additional returns and not remain unused.
GMX allows you to enter and exit trading positions without affecting the price. This design can help traders get better entry prices than some exchanges that use order book mode, which can lead to slippage issues. GMX also uses an aggregate of Chainlink oracles and other price feeds to mitigate price fluctuations, which can protect positions against temporary liquidation wicks.
The ecosystem
GMX emphasizes the importance of community and has attempted to foster the DeFi mindset of engagement and tool building among its users.
Community-built tools include a Telegram position bot, gmx.house leaderboard, gmxstats.com, Dune Analytics Dashboards and calculators, which are a benefit to traders, stakers and liquidity providers. GMX has a growing list of collaborating projects developing DeFi functionality with GMX's composable lego blocks.
The community is also responsible for communication about the GMX ecosystem. For example, the weekly community-driven newsletter The Blueberry Pulse highlights developments in the ecosystem. The Blueberry podcast does the same in audio format.
How to use GMX?
Trading
The GMX trading interface displays the price chart. To start a leveraged trade, click "Long" or "Short" to set your preference. GMX also offers simple spot swaps with low commissions. Click the "Swap" tab to open the interface and perform a swap between the GLP pool tokens.
The first token is the collateral you provide and the token you see below is the asset for the trade. The leverage slider indicates how much you borrow from the GLP pool. Limit orders are available, as well as Take Profit and Stop Loss.
Open trades will appear in "Positions". You can click "Edit" to deposit or withdraw collateral. Opening and closing leveraged trades carries a commission of 0.1% of your position size. Traders also pay an hourly loan fee based on utilization. For detailed instructions, see their trading help page.
Staking
To stake your GMX tokens and earn rewards, you need to connect your wallet and press the “Stake” button.
Once you confirm the on-chain transaction in your wallet, you will begin earning 30% of all GMX protocol commissions, plus esGMX incentives and Multiplier Points.
You will clearly see that all three types of rewards increase under "Total Rewards" in the GMX user interface. You can click the "Compound" button to stake your earned rewards and compound your returns.
How can I buy GMX on Binance?
You can buy GMX on cryptocurrency exchanges like Binance.
1. Log in to your Binance account and go to [Trade] -> [Spot].
2. Type "GMX" in the search bar to see available trading pairs. We will use GMX/BUSD as an example.
3. Go to the [Spot] box and enter the amount of GMX you wish to purchase. In this example, we will use a market order. Click [Buy GMX] to confirm your order, and the purchased GMX will be credited to your Spot wallet.
What's next for GMX?
GMX's Decentralized Autonomous Organization (DAO), GMX DAO, planned its roadmap through its internal governance process. GMX's vision is to become an even more comprehensive and user-friendly DEX for on-chain leveraged trading. The current roadmap includes:
Synthetics
Synthetics are going to be a new class of tokens that will be available on the exchange. Synthetic cryptoassets derive their value from the underlying asset, such as stocks, commodities, or digital currencies. In essence, they are digital representations of derivatives.
Improved UI and UX
GMX strives to increasingly perfect its user interface (UI) and user experience (UX) of the protocol for its users. For example, it plans to integrate TradingView charts into the platform.
X4: Protocol Controlled Exchange
GMX's longer-term vision is to become an Automated Market Maker (AMM) that allows other DeFi projects to build on top of its liquidity pools and customize its pool features. These projects could then specify any custom behavior they would want to have for selling and buying tokens and for adding and removing liquidity.
Network expansion
GMX also plans to launch the exchange on a third blockchain network that would join Arbitrum and Avalanche.
Conclusions
Cryptocurrency trading has come a long way. GMX allows anyone with a crypto wallet to enjoy the benefits of its transparent decentralized exchange services. Firstly, traders can use their perpetual swap and spot exchange platform. Secondly, users can enjoy many benefits and have a stake in governance by owning GMX tokens. As we have seen, the GMX community decides on the future of the platform. Therefore, new services can continue to be added to what the exchange already offers.
