In traditional finance, the derivatives market stands out as one of the most actively traded sectors, boasting an astounding volume and notional value in the trillions of dollars annually.
Recognizing this, blockchain developers identified a substantial opportunity in migrating this thriving market onto the blockchain, which currently represents a much smaller domain than traditional finance. This discrepancy implies a vast potential for expansion in the years to come.
In this article, we introduce GMX, a perpetual futures decentralized exchange (DEX) that made its debut on the Arbitrum blockchain in 2021 and subsequently extended its presence to the Avalanche blockchain at the outset of 2022.
What is GMX?
GMX is a decentralized spot and perpetual exchange, designed for direct cryptocurrency trading from users' wallets. It supports spot swaps and offers up to 50x leverage for perpetual futures trading, similar to centralized exchanges. The key difference is that users retain control of their assets using their cryptocurrency wallets.
How does GMX work?
GMX operates through a dynamic multi-asset pool known as GLP. This pool is diversified, comprising a wide range of tokens such as multiple stablecoins, ETH, BTC, UNI, LINK, and Avalanche.
Note that there are two separate GLP pools for the Arbitrum and Avalanche blockchains.
Liquidity is infused into GLP when users mint GMX Liquidity Provider Tokens (GLP). In return for this minting activity, they receive a generous 70% share of all fees generated on the respective blockchain. Notably, GLP avoids the issue of impermanent loss, setting it apart from some other liquidity pools.
Anyone can contribute to this liquidity pool and earn fees in return. For users seeking to engage in perpetual swaps or spot trading, these assets are readily accessible from the pool. Furthermore, the GLP pool serves as a counterparty to traders; those holding GLP tokens, who provide liquidity for leverage trading, stand to profit when traders incur losses, and vice versa.
The GMX token serves a dual purpose as both a utility and governance token, empowering holders to actively shape the exchange's future through voting on proposals.
Staking GMX tokens unlocks a trifecta of rewards, strategically designed to benefit users and enhance the protocol. Firstly, 30% of all protocol fees, derived from activities like market making, swap fees, and leverage trading, are channeled back to GMX stakers in the form of ETH or AVAX.
Additionally, stakers earn escrowed GMX (esGMX) tokens, which can be staked for additional rewards or vested. The vesting period spans 12 months, gradually converting esGMX back into GMX tokens. This ingenious mechanism curtails inflation and discourages hasty GMX sales, fostering a more stable ecosystem.
Furthermore, stakers accumulate Multiplier Points, amplifying their yields. These points champion the cause of long-term GMX holders without contributing to token inflation, reinforcing commitment to GMX and fortifying the platform's decentralized ownership structure.
GMX boasts a maximum token supply of 13,250,000 tokens, with a current circulation of 67% of this total supply. The distribution is the following:
GMX is a major player in the perpetual DEX industry. If you think on-chain derivatives have growth potential and want to be a part of it, GMX is definitely worth considering.
Just remember, do your own research (DYOR) and good luck!
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