Big problems with the v1 protocol
GMX has emerged as a prominent player, offering a unique operating model centered around the “casino game” philosophy. This innovative design positions liquidity providers (LPs) as casino owners while traders take on the role of players. However, while GMX’s approach has garnered attention, it is not without its limitations.
One key issue plaguing the current model is the skewed nature of the crypto market, where traders tend to engage in bulk buying or selling. As a result, the Open Interest (OI) on GMX often experiences significant fluctuations, creating challenges for both LPs and traders alike.
Furthermore, the absence of a funding rate mechanism in GMX v1 puts LPs at a disadvantage. When the market moves against traders’ bets, the liquidity providers bear the brunt of the losses, jeopardizing the stability of the platform.
Another concern lies in the GLP token, which represents the liquidity provided by LPs. As GLP’s value is closely tied to a basket of tokens, including volatile ones like BTC, ETH, LINK, UNI, and stablecoins, it becomes vulnerable to extended downtrends, leaving LPs anxious about potential losses.
Various attempts have been made to address these issues and boost LP profits, such as integrating GLP as collateral on lending and borrowing platforms or introducing Yield Farming protocols. Nevertheless, these solutions still fall short of completely mitigating the risks LPs face when directly confronting traders. In the worst-case scenario, when traders win excessively, LPs may withdraw liquidity from the protocol, increasing the risk of a protocol collapse.
Moreover, GMX’s transaction fees have come under scrutiny, as they remain considerably higher compared to rival platforms in the same industry. This disparity could lead to a loss of market share, especially with the emergence of cheaper Perpetuals on different Layer 2 solutions like Pika Protocol or Kwenta on Optimism.
In addition to the transaction fee challenge, GMX supports only a limited number of asset classes, including ETH, AVAX, LINK, BTC, and UNI. This dearth of options leaves users with limited choices, while other popular Perpetual products like dYdX or Kwenta offer a more extensive range of supported assets. This situation stems partly from GMX’s liquidity pool model, which presents hurdles in promptly adding new trading pairs.
Furthermore, GMX faces capital efficiency issues, with a significant portion of liquidity in its pool remaining idle and not being utilized to generate profits. This inefficiency hampers the platform from maximizing potential earnings, mirroring the low demand for borrowing in a scenario like AAVE’s pool.
Additionally, the GMX development team itself gains no direct benefits from the protocol’s growth. The revenue generated is primarily distributed to GLP holders (Liquidity Providers) and GMX holders, leaving the development team and the project’s treasury with limited gains.
To ensure long-term resilience and competitiveness in the derivatives industry, the GMX development team must address these concerns effectively. Solutions may include refining the operating model, introducing mechanisms to regulate trader activity, revising transaction fees, expanding the range of supported assets, and optimizing capital efficiency. Only by addressing these challenges head-on can GMX secure its position as a leading DeFi platform in the market.
Notable updates in GMX v2
Transaction fees on GMX are diversified
In a recent proposal adopted by the majority of DAO V2: Interface & Market Parameters, GMX v2 has set its sights on overhauling transaction fees, marking a significant step towards reforming the platform. The upcoming release promises several prominent changes to the GMX market, ushering in a more diverse fee structure.
One of the key changes in GMX v2 revolves around the “Increase / Decrease Position” fee. Under the new system, this fee will range from 0.00% to 0.1%, with an initial value of 0.05%. This alteration aims to make trading more flexible for users while maintaining a fair and efficient system.
Another significant adjustment comes in the form of the “Price Impact” fee. The new system will adjust the fee based on the liquidity available on specific exchanges. This change aims to align transaction costs with market conditions, ensuring a smoother trading experience for GMX users.
GMX v2 also reevaluates the “Swap Fee” structure for both Crypto Assets and Stable Assets. Under the revised framework, the fee will now range from 0.00% to 0.5% for both categories. In its initial form, the fee stood at 0.04% for Crypto Assets and 0.01% for Stable Assets. This modification seeks to strike a balance between the two asset types, encouraging a more inclusive trading environment.
The introduction of the “Funding Fee” adds yet another layer of diversification to GMX v2. This fee is payable by the dominant party to the less dominant party, mirroring prevalent practices on various centralized exchanges (CEX). By embracing this model, GMX aims to enhance fairness and encourage broader participation on the platform.
Moreover, the “Borrow Fee” will now be calculated based on a percentage using the Liquidity Pool and Multiplier Value. This change serves to limit the efforts of traders or competitors attempting to exploit the system through Long and Short orders at minimal cost. Such adjustments are designed to bolster the protocol’s stability and protect users from potential market manipulations.
The “Multiplier Value” in GMX v2 plays a crucial role in adjusting the Funding Fee and Borrow Fee, ensuring a well-balanced and robust ecosystem.
The incorporation of newly introduced fees, including Price Impact, Funding Fee, and Multiplier Value, significantly diversifies the fee market on GMX. A notable distinction between GMX v1 and v2 is the fee structure. While GMX v1 implemented a 0.1% opening/closing fee plus the Borrow Fee, GMX v2 adopts a lower 0.05% order opening/closing fee and includes Borrow Fees, Funding Fees, and Price Impact. This multi-tiered approach aims to provide users with more options and flexibility while transacting on the platform.
Furthermore, GMX v2 incorporates a novel fee-sharing mechanism, unlike its predecessor. Under the new system, transaction fees will be divided among four parties: Oracle, Liquidity Providers (LP), GMX stakers, and the project’s fund, GMX Treasury. This distribution ensures a fairer allocation of fees and rewards the various contributors to the platform’s growth and success.
In conclusion, GMX v2’s diversified transaction fees mark a significant step towards enhancing the efficiency and fairness of the protocol. By introducing a range of fees and implementing a new fee-sharing model, GMX seeks to create a more robust and user-friendly ecosystem for its community of traders and stakeholders.
Innovative mechanism for liquidity
Departing from the traditional approach of sharing liquidity across all trading pairs from a single liquidity pool, GMX v2 has divided the liquidity sources for each trading pair into multiple independent liquidity pools. This new approach empowers liquidity providers (LPs) to freely choose the pools that align with their risk appetite.
Under the GMX v2 model, each perpetual trading pair, such as BTC/USD, will require a mini GLP pool encompassing the respective cryptocurrency and a stablecoin like USDT, USDC, or DAI. Consequently, when traders engage in perpetual contracts involving assets like ETH, the liquidity source will stem from various independent pools containing ETH paired with different stablecoins. This stands in contrast to the v1 model, where liquidity was solely sourced from the GLP pool.
This novel liquidity provision model in GMX v2 bears similarities to popular AMM DEX platforms and Perpetual Protocol systems. By implementing this strategy, GMX can efficiently expand its offerings to numerous assets. Nonetheless, some concerns emerged about the requirement for multiple LPs and various asset types in each pool, potentially limiting scalability.
To address this limitation, GMX v2 has devised an ingenious solution for trading pairs with lower liquidity and riskier tokens. The mini GLP pool for such pairs will consist of the respective cryptocurrency and another stablecoin, mitigating risk and enhancing liquidity.
However, the most pivotal transformation in GMX v2 comes with the introduction of the Isolated Markets model. Unlike its predecessor, which pooled all assets under the umbrella of GLP, the new model separates each asset into isolated pairs and pools. For example, we now witness isolated pools like ETH – USD, BTC – USD, SOL – USD, DOGE – USD, LINK – USD, and others. The roles of crypto assets in these Isolated Markets are as follows:
BTC, ETH, LINK, UNI, and similar tokens act as Long Collateral Tokens.
Stablecoins function as Short Collateral Tokens.
Index Tokens serve as Long Collateral Tokens.
With the Isolated Markets model, liquidity providers gain the flexibility to choose between providing liquidity for specific crypto assets or both, receiving LP Tokens as GM. This model ensures that LPs bear the risks solely within the market they serve, without being influenced by other pools.
By adopting the Isolated Markets approach, GMX effectively diversifies its asset offerings without exposing users to undue risks associated with highly volatile assets. Additionally, this addresses one of the key limitations of GMX v1, where users had fewer asset options for Long – Short positions. Consequently, LPs also benefit from this innovation, overcoming certain challenges faced in the previous iteration.
In conclusion, GMX’s Version 2 represents a transformative leap in liquidity provision, paving the way for more extensive asset coverage, reduced risk exposure, and enhanced opportunities for users and liquidity providers alike. As the crypto industry continues to evolve, GMX remains at the forefront, ushering in innovative solutions that cater to the dynamic needs of the market.
Enhancing user experience
Introducing Chainlink’s new oracle integration
GMX is proud to be at the forefront of innovation as it becomes the first DeFi platform to integrate Chainlink’s groundbreaking new Oracle solution. This latest product from Chainlink is set to revolutionize the way transactions are processed and user orders are matched, significantly improving the overall trading experience on the platform.
The new Chainlink Oracle will bring a host of benefits, one of which is the faster deployment of Oracles. Oracles play a crucial role in providing real-world data to smart contracts, and with this new integration, they will function more swiftly and efficiently. As a result, transactions on GMX will become quicker, ensuring users experience seamless and near-instantaneous order execution.
Lookback Orders for enhanced execution
GMX is introducing a game-changing feature called “Lookback Orders” that is designed to offer users greater peace of mind during times of rapid price fluctuations. The new feature ensures that key orders, such as Limit or Stop, will always be executed, even if the market is moving rapidly, as long as the Oracle can accurately capture the price movement.
The introduction of these two improvements aligns perfectly with GMX’s commitment to constantly improving user experience and staying at the forefront of the DeFi industry. By integrating Chainlink’s new Oracle product and introducing Lookback Orders, GMX is redefining how DeFi platforms cater to their users, offering enhanced efficiency, reliability, and security.
Conclusion
Version 1 of GMX faced several pain points that hindered its widespread adoption. Among these issues were notably high transaction fees, limited diversity in transaction fee options, and a relatively small number of available trading pairs. However, with GMX v2, the platform seeks to overcome these hurdles and mark a turning point in its development.
One of the critical improvements in GMX v2 is its ability to address the limitations surrounding the OI imbalance, transaction fees, and scalability, especially concerning LPs dealing with risky assets. By streamlining these aspects, GMX v2 endeavors to create a more seamless and efficient trading experience for users and LPs alike.
Moreover, GMX v2’s potential for growth appears promising. Market analysts predict that the new version could narrow the gap with other established DeFi platforms like dYdX and even surpass the popularity of Perpetual. The platform’s strategic approach lies in preserving the existing tokenomics, with only a slight tweak involving a 10% deduction for Chainlink integration and Treasury reserves. This prudent move is believed to position GMX for sustainable growth and long-term success in the DeFi ecosystem.
The introduction of GMX v2 is met with great anticipation in the market. As DeFi enthusiasts look forward to its official launch, expectations are high for the protocol to make a breakthrough in the industry. The improvements and optimizations brought by GMX v2 are set to elevate its status and attract a wider user base.
In conclusion, GMX v2 is on the brink of becoming a pivotal moment in the protocol’s journey. By addressing the shortcomings of version 1.0 and presenting innovative solutions, GMX is poised to take a giant leap forward in the DeFi arena. As the market eagerly awaits its official launch, all eyes are on GMX v2, expecting it to reshape the DeFi landscape and usher in a new era of financial possibilities.
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