What is GMX?

What is GMX?

GMX is a decentralized perpetual exchange specializing in futures and spot trading for assets like BTC, ETH, and AVAX, enabling direct wallet-based transactions without the need for intermediaries. Offering up to 100x leverage, GMX merges ultra-high-leverage trading with the privacy of DeFi. Among the 21 supported market pairs, including popular assets and unique tokens like PEPE and WIF, catering to a broad spectrum of traders.

Key features of GMX include low swap fees and minimal price impact, achieved through advanced price feeds that ensure precise liquidation thresholds, shielding traders from market volatility. Operating across both Arbitrum and Avalanche, the GMX trading app has a dynamic trading ecosystem supported by GMX, GLP, and GM tokens, which incentivize participation and liquidity, cultivating a robust, community-driven platform.

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How Does GMX Work?

GMX functions as a dual decentralized exchange that facilitates spot (instant swaps) and futures trading (2-100x leverage) directly from user wallets. An overview of GMX features looks like this:

• Leverage Trading: GMX enables users to trade leading cryptocurrencies with up to 100x leverage. This allows traders to magnify their market positions beyond their initial capital. As of now, GMX has an open interest of $136 million, placing it 56th on the CEX+DEX ranking.
• Decentralized and Non-Custodial: Unlike centralized exchanges, GMX does not take custody of user funds. Users connect their wallets to trade, maintaining full control over their assets and reducing the risk of hacks or unauthorized access.
• Advanced Price Feeds and Liquidation: The platform uses an aggregate of high-quality price feeds from multiple sources to determine liquidation points (great during high volatility).
• User-Friendly Swaps and Liquidity Provision: GMX offers a straightforward interface for simple token swaps. Users can enter and exit positions with minimal spread and low price impact.
• Cross-Chain Trading: GMX supports multiple blockchain networks, including Arbitrum and Avalanche, both of which have lower gas fees than Ethereum.
• Ecosystem Tokens: The GMX ecosystem is driven by three key tokens: GMX, GM, and GLP. GMX serves as both a utility and governance token, allowing holders to earn fees generated by the platform. GM acts as the liquidity provider token for GMX V2 markets, while GLP is utilized in V1 markets, with both earning a share of trading fees.
• Staking: The platform also provides opportunities for liquidity provision through GM and GLP tokens, rewarding participants with a share of the platform's trading fees.

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What Assets Are Tradable on GMX?

GMX focuses on a select range of assets to ensure liquidity and efficiency. On Arbitrum, users can trade assets like WETH, WBTC, LINK, UNI, USDC, USDT, DAI, and FRAX. On the Avalanche network, the available assets include WAVAX, WETH, BTC.b, WBTC, USDC, and USDC.e. Most recently GMX added support for ORDI, STX, PEPE, and SHIB, as mentioned in their Substack blog.

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GMX Trading Fees

GMX implements a dynamic fee structure designed to maintain liquidity balance. Trading fees range between 0.05% and 0.07% for opening and closing positions, determined by whether the trade supports the equilibrium of long and short positions in the pool. Trades that contribute to balance are charged the lower 0.05% fee, while others incur a 0.07% fee.

For swaps, fees follow a similar structure, adjusted based on the swap’s impact on the pool balance. Stablecoin swaps benefit from reduced fees, set at 0.005% and 0.02%, encouraging stablecoin liquidity. This fee strategy not only supports a sustainable trading environment but also rewards GMX and GLP token holders through the distribution of a portion of these fees.

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GMX Tokenomics

GMX's tokenomics model is what caught the eye of early adopters when the DEX launched in 2021. At the time, yield farming and other decentralized earning products were dying, yet GMX found a way to beat the system, by placing liquidity providers (LPs) in the driver’s seat.

A popular slogan at the time was that you could "be your own casino," as using the tokens from the GMX trio allowed you to earn APR (annual percentage rate) from both long and short-leveraged traders on the platform. Here is a complete breakdown of GMX and GLP:

• GMX Token: The GMX token functions as both a utility and governance token. It allows holders to participate in decision-making processes that shape the platform's future and grants them a share of the trading fees.
• GMX Distribution: a max supply of 13.25 million GMX, with 6 million for XVIX and Gambit migration; 2 million paired with ETH for Uniswap liquidity; 2 million for vesting of escrowed GMX tokens; the rest 3.25 million for floor price fund, integrations, and contributors.
• Staking Rewards: By staking GMX tokens, users earn rewards from trading fees in ETH on Arbitrum (currently 4.63% APR) and AVAX on Avalanche (currently 4.68% APR), providing a passive income stream that incentivizes continued support of the platform.
• GLP Token: As the liquidity provider token, GLP enables holders to earn a share of the fees generated by the platform's liquidity pool, rewarding those who contribute to the platform's market liquidity. The current APR for GLP is 3.73% on Arbitrum and 6.79% on Avalanche.
• Supply Management: The GMX token supply is strategically allocated to support ecosystem growth, incentivize the development team, and reward the community, ensuring sustainable progress and balanced tokenomics.
• Governance Rights: GMX token holders are empowered to influence the platform’s direction through governance participation, ensuring that the community remains central to the platform's evolution and decision-making process.

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Security Features and Risk Management

GMX employs classical security measures to protect its users, including non-custodial trading, which ensures that users retain control over their private keys, audits on both the V1 and V2 smart contracts and an ongoing bug bounty program. The platform leverages Chainlink Oracles for accurate price feeds, reducing the risk of price manipulation and unfair liquidations.

Additionally, the GLP liquidity pool is designed to minimize impermanent loss, providing more stable returns for liquidity providers. Despite these safeguards, users should be aware that GMX still carries the inherent risks of high-leverage trading and the broader volatility associated with DeFi platforms.

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Referral Program

GMX offers a referral program that provides fee discounts and rebates, incentivizing users to bring new traders to the platform. The program includes three tiers, offering up to 15% rebates and additional rewards in esGMX, depending on the number of active referrals and trading volume.

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Bottom Line

GMX is a decentralized exchange that facilitates leveraged and spot trading of the top cryptocurrencies. During the bear market, GMX stood out as a high-performing project, attracting users with its consistent and high APY for liquidity providers, capitalizing on the frequent losses by traders in derivatives exchanges, similar to a casino's edge where people seek high-risk, high-reward bets.

However, GMX's growth has recently stagnated, with its trading volume dropping to $390 million monthly and its TVL decreasing to $477 million, placing it outside the top 40 DEXs. GMX currently doesn't have a mobile app, which is one of the main drawbacks including the high cross-margin collateral for traders, a topic frequently mentioned on the GMX governance forum.

Despite this, GMX plans a comeback by introducing synthetic assets, enhancing its UI/UX, and expanding to additional blockchain networks, all aimed at restoring its previous success. These developments are central to GMX’s strategy to regain its position in the DeFi market.