GMX is a decentralized exchange (DEX) that offers spot and perpetual trading. Deployed on the Arbitrum and Avalanche blockchains, the GMX ecosystem is based on 2 tokens with distinct roles, the GLP and the GMX. How does this platform work and what are its advantages over other DEXs? Here is our tutorial and opinion on GMX.
What is GMX?
GMX is a decentralized exchange (DEX) for spot and perpetual trading. Perpetual contracts allow traders to speculate on the price of an asset (like Bitcoin) without owning the asset itself.
Unlike traditional forward contracts (futures) which have a specific expiration date, perpetual contracts have no expiration datehence the term “perpetual”.
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Deployed on the Arbitrum and Avalanche blockchains, GMX allows swapping tokens with very low fees and without impacting the price of the tokens concerned.
GMX users can also trade several cryptocurrencies including Bitcoin (BTC), Ether (ETH), Chainlink’s LINK or Uniswap’s UNI. In particular, they can trade perpetual futures contracts with a leverage of up to x50.
The underlying operation of trading on GMX is peculiar, and is provided by a pool of several cryptocurrencies which remunerates liquidity providers from swap fees, market makers and leveraged trading.
Dynamic cryptocurrency price determination is guaranteed by Chainlink’s oracles and a basket of prices from the major platforms in terms of volume.
The GMX ecosystem is governed by 2 tokens: GLP for exchange liquidity and GMX for protocol governance.
What are the roles of the GLP token?
Trading on GMX is made possible by GLP, a multi-asset pool that includes stablecoins, Ether (ETH), Bitcoin (BTC) and other altcoins like LINK (Chainlink) or UNI (Uniswap). The composition differs according to the periods and the networks. Here is the one from February 14, 2023:
Figure 1: GLP composition on Arbitrum (left) and Avalanche (right)
Liquidity is enhanced when users mint GMX Liquidity Provider Tokens (GLP), for which they receive 70% of all fees generated. The rewards are different depending on the network the GLPs are mined on. On Avalanche, the platform fees are redistributed in AVAX, while on Arbitrum, it is in ETH.
The GLP token can be minted from any index asset and redeemed for any index asset by burning it. Unlike the GMX token, the GLP is automatically placed in staking, and cannot be transferred between networks. In addition, between Arbitrum and Avalanche, the price and composition of the GLP index may vary.
Another very interesting feature for liquidity providers, the GLP is not affected by the impermanent lossunlike conventional liquidity pools.
What is impermanent loss in DeFi?
What are the roles of the GMX token?
GMX is the utility and governance token of the eponymous platform. Holding GMX tokens therefore makes it possible to vote on governance proposals, in order to participate in the development of GMX.
By staking their GMX tokens, users can also enjoy 3 benefits :
- 30% of all fees generated by the protocol are distributed to GMX holders;
- GMX stakers earn escrow tokens, esGMX. They can either be staked or acquired. If the user decides to acquire them, the esGMXs are then reconverted into GMX over a period of 12 months. This helps smooth out token inflation and avoid massive GMX sell-offs;
- GMX stakers benefit from multipliers that increase their returns. This rewards long-term holders in particular.
To go to GMX, you can click on the button below. This will allow you to enjoy lifelong 5% discount on your fees :
The leader in DEXs for trading perpetuals
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Once on the GMX website, you can connect to it with a compatible wallet (MetaMask, Coinbase Wallet or Wallet Connect) by clicking on “ Connect Wallet » :
Since GMX is compatible with the Arbitrum and Avalanche networks, make sure you are connected to one of these networks, otherwise GMX will offer you to switch networks.
Are you now logged in to GMX? Let’s take a closer look at how to trade cryptocurrencies and stake GMX/GLP on the platform.
Cryptocurrency trading with leverage
First of all, be aware that the use of leverage is a risky practice and not recommended for novice traders. Although the winnings can be multiplied, the losses are as well. On GMX, a leverage of x1.10 is applied by default, and this can be increased up to x50.
Note that at the time of writing these lines, only 4 trading pairs are available on GMX:
- ETH/USD;
- BTC/USD;
- LINK/USD;
- UNI / USD.
To trade on GMX, simply click on the “ Trade ” top right. The GMX trading page will be displayed:
On GMX, it is possible to open a position ” long » (betting on the rise of the price) or « shorts (betting on the fall in the price).
After selecting your position, enter the amount and leverage you want to use. In the example below, 0.1 ETH with a value of $169.97 is used to buy a long position with x3 leverage with a size of $509.38. I’” Entry Price (Entry Price) of this position is set at $1,699.70, while its Liq. Price (Clearance Price) is found at $1,150.13:
Under this section, you will find other important information such as the ” Exit Price (Exit Price), which is the price used to calculate your profits if you open and then immediately close a position.
The cost of opening and closing a position is 0.1% of the position size. A ” Borrow Fee » (borrowing commission) is also deducted at the beginning of each hour. This hourly commission is calculated as follows: (borrowed assets) / (total pool assets) * 0.01% :
Once you have read all this information and want to open your position, simply click on “ Enable Leverage to allow GMX to interact with your wallet. Then, just click on “ Long ETH », check your position one last time and then click on « Long ».
After opening a position, it will be visible in the list of your positions. In addition, it is possible to click on ” Edit » (modify) to deposit or withdraw collateral, which allows you to adapt the leverage effect and the liquidation price of your position as you wish.
The method presented below uses an order of type “ market meaning that the order is immediately executed at the market price of ETH. In order to go further and improve the experience of its users, GMX also makes it possible to place “ limit “.
To do this, simply select the ” limit » and enter in the tab « Price », the trigger price of the order. In the example below, the long order of 0.1 ETH with x3 leverage will only be executed if the price of ETH touches $1,500 :
Use “ limit allows you to position yourself on support or resistance levels. This is a feature usually reserved for centralized platforms. The fact that GMX offers such an option represents a real strength for the platform.
GMX and GLP staking
To stake GMX tokens and take advantage of the various advantages it provides, simply click on the ” Stakes », to enter the amount of GMX tokens that you wish to place in staking, then to validate the transaction from your wallet.
On this dashboard, all information relating to GMX token staking is available: rate of return, accumulated rewards, multiplier obtained, etc. It is also from this dahsboard that it is possible to convert its esGMX into GMX, or to do GLP staking.
If you wish to obtain GMX and/or GLP tokens, it is possible to do so directly from the platform. Everything happens from the ” Buy by GMX.
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On this page, GMX indicates the yield rates corresponding to each token, depending on the network on which the user will be staking.
Depending on the network and token you are interested in, click on one of the ” Buy on… » :
In this example, we want to acquire GMX on Arbitrum. The platform will therefore show you all the possibilities available to you: DEX, DEX aggregators or even centralized platforms:
By clicking on one of the buttons, you will be automatically redirected to the corresponding platform in order to buy GMX. In case you want to go through a centralized platform, Binance is the most suitable solution for your needs due to its low fees and high liquidity.
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Our opinion on the GMX platform
As of this writing (February 2023), GMX is one of the hottest DEXesthanks to some of its particularities: rather low fees, absence of impermanent loss, numerous rewards for holders of GMX and GLP tokens, etc.
The platform is also easy to learn and approaches the operation of a centralized platform. In this way, GMX is relatively accessible and even the most novice investors can understand how it works.
When it comes to adoption, GMX impresses. If we combine the statistics of the Arbitrum and Avalanche blockchains (February 2023), GMX has nearly 225,000 users, who have generated a colossal volume of 105 billion dollars since the existence of the platform.
Despite GMX’s rise on the DEX scene, we regret the lack of diversity in terms of cryptocurrencies offered. Only BTC, ETH, LINK and UNI are available for trading, while exchanging cryptocurrencies via the “Swap” function adds some stablecoins.
The leader in DEXs for trading perpetuals
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Sources: GMX Documentation, GMX Analytics
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Editor-in-chief of bitcoinlinux, I discovered Bitcoin and blockchain technology in 2017. Since then, I have been striving to share quality content so that the sector becomes more democratic for everyone.
Clement Wardzala
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