GMX: A Quick Breakdown
Updated: Jul 24
Leverage up to 50x when trading Bitcoin, Ethereum, AVAX, and other leading cryptocurrencies directly from your wallet.
What is GMX?
Only a handful of cryptocurrencies have had price increases since the beginning of 2022, and GMX is one of them. GMX is a decentralized spot and perpetual exchange that allows users to trade BTC, ETH, and other cryptocurrencies directly from their wallets.
GMX first launched on the Arbitrum One blockchain when the network went live in September 2021. Arbitrum is an Ethereum layer-2 Rollup, a solution designed to boost the speed and scalability of Ethereum smart contracts. Later, in January 2022, the deployment of GMX continued on Avalanche, which is also a high-speed EVM-compatible blockchain.
GMX offers zero-impact trades and low swap fees. Trading takes place in GLP, its native multi-asset pool, which generates fees for the producers of liquidity. It employs perpetual swap markets and perpetual futures that provide up to 30x leverage for long or short positions in major tokens. As an alternative to using an order book, GLP uses a pool of all tradable assets as its shared liquidity mechanism.
Trading on GMX
In addition to being a decentralized derivatives exchange, GMX's intuitive design makes it possible to get the liquidity necessary to swap different DeFi assets via GLP pools with no slippage (at least up to a certain size).
Swaps are executed based on the market price, which is determined by an oracle (which is guaranteed by Chainlink). For all practical purposes, there is no limit to the depth at which transactions can be made using the current oracle price . Essentially, GMX uses Chainlink Oracles for its dynamic pricing in order to aggregate prices from other high-volume exchanges.
Perpetual trading refers to trading with derivatives, allowing users to gain exposure to spot assets without actually buying them. Perpetual futures allow traders to bet on the rise or fall of a cryptocurrency's value by committing to buy or sell at a specified price and date in the future. In essence, they function like futures contracts, except that market participants pay or receive a fee, known as a funding rate, in exchange for continuing to take part in the market.
No expiration date, thus eliminating the need to re-establish short/long positions
The physical asset itself is not traded, thus the price of a perpetual trade often closely reflects that of the underlying asset. It is also possible to short cryptocurrency.
How Does GMX Work?
The platform utilizes a central liquidity mechanism known as GLP, a pool of all traded assets, that facilitates trading on GMX. The pool consists of 50–55% stablecoins, 25% ether, 20% bitcoin, and 5-10% of other altcoins such as Chainlink and UniSwap.
Given that there is no orderbook, trades can be executed with nearly infinite depth at the current oracle price. While the GMX token acts as the system's governance token, the GLP token facilitates trading liquidity on the GMX platform.
Adding liquidity to the GMX platform is achieved when users generate liquidity provider tokens (GLP). In return for minting GLP, they receive 70% of all transaction fees generated by that blockchain. When it comes to liquidity, GLP is immune to impermanent losses that plague other pools.
Any of the GLP index assets can be used to generate tokens, and those tokens can be burned to obtain the underlying assets. Unlike the GMX token, it can't be traded and must be staked right away.
Essentially anyone can join as a liquidity provider and start earning fees in exchange. Assets can be traded perpetually or on the spot market, depending on the user's preference. Because GLP token holders supply the liquidity for leveraged trading, they profit when traders lose and vice versa. The GLP pool thus acts as a counterparty to the traders.
What Is The GMX Token?
The GMX token serves a dual purpose as both a utility and a governance token for the GMX ecosystem. Token holders can use it to vote on proposals to help decide the exchange's future direction.
There are three additional benefits for GMX token holders who stake their tokens through the protocol.
Firstly, GMX stakeholder organizations receive 30% of all protocol fees generated. Market makers, swap providers, and leverage traders all contribute to these fees, which are paid in either ETH or AVAX.
Second, the stakers receive GMX tokens that are held in escrow (esGMX). These esGMX tokens can be staked for rewards or vested. When a user vests tokens, they are automatically converted back into GMX over a 12-month period. As a result, esGMX emissions function as a form of locked staking that prevents inflation and prevents individuals from selling their GMX right away.
Last but not least, staking rewards participants with Multiplier Points that increase their yield without adding to token inflation. These two incentives encourage users to stick with GMX while also extending the platform's decentralized control.
The total supply of GMX tokens is 13.25 million, but only 8.2 million are currently in circulation. The current percentage of staked tokens exceeds 83%.
What is a GLP Token?
The GLP Token is the native token for liquidity providers on the GMX network. It is effectively a weekly rebalancing index of the large-cap assets that are supported by the GMX protocol (currently including ETH, BTC, LINK, UNI, USDC, USDT, DAI, MIM, and FRAX).
The asset acts as a benchmark for all other assets in the GMX multi-asset pool and can be staked for esGMX and ETH rewards. Specifically, 70% of GMX's accumulated fees are distributed to GLP's stakers.
Why choose GMX?
GMX is a user-friendly, non-custodial perpetual swap trading platform. Quick transactions, low swap and transaction fees, and support for both long and short positions on GMX make it an attractive platform for traders, while the multi-asset pool system can make it profitable for LPs to contribute assets for use in leveraged trading and swaps.
The term "perpetual swap" refers to a futures contract that does not expire and can be held indefinitely. In DeFi, "perpetual funds" are used to wager on the future direction of a cryptocurrency's price, and small amounts of funds can support highly leveraged positions.
It's worth noting that many DEFI firms also offer perpetual futures. Nonetheless, centralized exchanges pose a threat because they will always have their own stake in the market.