GMX Review: Is DeFi’s Buzzy 30x Leverage Exchange Easy to Use?

GMX customers can “lengthy” or “brief” as much as 30 occasions the dimensions of their collateral by borrowing funds from a big liquidity pool.

Decentralized Leverage

GMX is a well-liked decentralized exchange that makes a speciality of perpetual futures buying and selling. Launched on the Ethereum Layer 2 community Arbitrum in late 2021 and later deployed to Avalanche, the mission has rapidly gained traction by providing customers leverage of as much as 30 occasions their deposited collateral.

Leverage buying and selling—the act of borrowing funds from monetary platforms with a purpose to enhance one’s publicity to cost actions—has turn into a vital a part of the crypto ecosystem in recent times. Amongst different issues, it permits market individuals to revenue from worth downturns, scale back threat in unsure circumstances, and wager huge on an asset once they have conviction. 

There are a number of methods of taking up leverage in crypto. Binance, FTX, and different centralized exchanges supply clients the power to borrow funds for buying and selling functions. Binance and FTX each let clients borrow a most of as much as 20 occasions their preliminary deposit. DeFi protocols like Aave and MakerDAO problem loans in opposition to crypto collateral in a permissionless method. Extra lately, conventional finance firms like GME Group and ProShares have began providing their institutional purchasers entry to leveraged merchandise resembling choices on Ethereum futures contracts and Bitcoin Brief ETFs to their institutional buyers.

GMX differs from such companies in that it’s a decentralized alternate that provides leverage buying and selling companies. In that respect, it combines an analogous expertise to different DeFi exchanges like Uniswap with the leverage buying and selling companies supplied by the likes of Binance. On GMX, customers can take as much as 30x leverage on BTC, ETH, AVAX, UNI, and LINK trades. In different phrases, if a dealer deposited $1,000 value of collateral to GMX, they’d be capable to borrow as much as $30,000 from its liquidity pool. On this information, we unpack GMX’s providing to establish whether or not it’s secure, and in the event you ought to use it to your subsequent excessive conviction wager. 

Buying and selling on GMX

Buying and selling on GMX is supported by a multi-asset GLP pool value greater than $254 million at press time. Not like many different leveraged buying and selling companies, customers borrow funds from a liquidity pool containing BTC, ETH, USDC, DAI, USDT, FRAX, UNI and LINK reasonably than a single entity. 

Customers can go “lengthy,” “brief,” or just swap tokens on the alternate. Merchants go lengthy on an asset once they count on its worth to extend, and so they brief in expectation of with the ability to purchase an asset again at a cheaper price. On GMX, customers can choose a minimal leverage degree of 1.1x their deposit and a most degree of 30x on lengthy and brief trades. 

GMX is powered by Chainlink Oracles. It makes use of an mixture worth feed from main quantity exchanges to cut back liquidation threat from momentary wicks. A liquidation happens when a consumer’s collateral turns into inadequate to keep up a commerce; the platform then forcefully closes the place and pockets the deposit to cowl its losses. 

When a consumer opens a commerce or deposits collateral, GMX takes a snapshot of its greenback worth. The worth of the collateral doesn’t change all through the commerce even when the value of the underlying asset does. 

Buying and selling charges to open or shut a place are available in at 0.1%. A variable borrow payment additionally will get deducted from the deposit each hour. Swap charges are 0.33%. Because the protocol itself serves because the counterparty, there’s minimal worth affect when coming into and exiting trades. GMX claims it may possibly execute massive trades precisely at mark worth relying on the depth of the liquidity in its buying and selling pool. 

When a consumer needs to go lengthy, they will present collateral within the token they’re betting on. Any income they obtain are paid in the identical asset. For shorts, collateral is proscribed to GMX’s supported stablecoins—USDC, USDT, DAI, or FRAX. Income on shorts are paid within the stablecoin used. 

Tokenomics and Liquidity

The protocol has two native tokens: GMX and GLP.

GMX is the utility and governance token. It will possibly at present be staked for a 22.95% rate of interest on Arbitrum and 22.79% on Avalanche. 

Stakers can earn three sorts of rewards once they lock up GMX: escrowed GMX (esGMX), multiplier factors, and ETH or AVAX rewards. esGMX is a spinoff that may be staked or redeemed for GMX over a time frame, whereas multiplier factors reward long-term GMX stakers by boosting the rate of interest on their holdings. Moreover, 30% of the charges generated from swaps and leverage buying and selling are transformed to ETH (on Arbitrum) or AVAX (on Avalanche) and distributed to staked GMX holders. 

The GMX token additionally has a ground worth fund. It’s used to make sure that the GLP pool has adequate liquidity, present a dependable stream of ETH rewards for staked GMX and purchase and burn GMX tokens with a purpose to preserve a minimal worth of GMX in opposition to ETH. The fund grows because of charges accrued by means of the GMX/ETH liquidity pair; it’s additionally supported by OlympusDAO bonds.

At time of writing, the whole GMX provide stands at 7,954,166 value greater than $328 million, 86% of which is staked. The overall provide varies relying on esGMX redemptions, however the growth staff has forecasted that the provision won’t exceed 13.25 million. Past that threshold, minting new GMX tokens can be conditional on DAO approval. 

The second token, GLP, represents the index of belongings used within the protocol’s buying and selling pool. GLP cash may be minted utilizing belongings from the index, resembling BTC or ETH, and may be burned to redeem these belongings. GLP holders present the liquidity merchants have to get leverage. This implies they ebook a revenue when merchants take a loss, and so they take a loss when merchants ebook a revenue. Moreover, they obtain esGMX rewards and 70% of the charges the protocol generates. The charges are paid in both ETH or AVAX. GLP tokens are routinely staked and will solely be redeemed, not offered. The present rate of interest is 31.38% on Arbitrum and 25.85% on Avalanche.

GLP’s worth is contingent on the value of its underlying belongings, in addition to the publicity GMX customers have towards the market. Most notably, GLP suffers when GMX merchants brief the market and the value of pool belongings additionally decreases. Nevertheless, GLP holders stand to revenue when GMX merchants go brief and costs rise, GMX merchants go lengthy and costs lower, and GMX merchants go lengthy and costs rise.

Remaining Ideas

GMX is user-friendly. The buying and selling expertise feels clean, and the system offers customers with thorough information. At any time when coming into or closing a place, it’s straightforward to seek out the collateral dimension, leverage quantity, entry worth, liquidation worth, charges, out there liquidity, slippage, unfold, and PnL (income and losses). The protocol’s interface provides an abundance of knowledge associated to its belongings below administration, buying and selling volumes, charges, and dealer positions. The web site additionally particulars GMX and GLP’s market capitalizations and highlights the mission’s partnerships, integrations, and associated neighborhood initiatives. It moreover features a documentation part, which offers data on the alternate’s numerous parts, and suggests strategies to bridge to Arbitrum or Avalanche, or to accumulate GMX and GLP tokens. Because of its detailed dashboards, GMX offers off an impression of transparency. In consequence, the protocol’s mechanisms are comparatively easy to know.

With its permissionless accessibility and leveraged buying and selling providing, GMX combines the expertise of each decentralized and centralized exchanges, exhibiting that DeFi protocols are nonetheless breaking new floor day by day. The protocol’s buying and selling quantity has more than tripled previously two months and now ranges between $290 million and $150 million day by day, indicating rising curiosity amongst crypto natives. As GMX doesn’t but deal with billions of {dollars} of quantity like its centralized counterparts, it’s at present a product greatest suited to small retail merchants. Nonetheless, after fast development over current months, GMX may quickly entice the institutional market as extra huge gamers begin to experiment with DeFi. With extra room for development forward, it’s properly value maintaining a tally of.

Disclosure: On the time of writing, the creator of this piece owned ETH and several other different cryptocurrencies.