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GMX is a decentralized exchange that uses a multi-asset liquidity pool, and boasts low swap fees and zero price impact trades. It offers spot and perpetual contracts trading.
What is GMX?
Today, the majority of crypto trading is done via centralized exchanges. This is because of their great user experience, powerful features that help traders achieve their goals, and in-built security functions to protect user funds from the various perils of the big bad world of crypto trading. But what of the ethos of decentralization set out in the Satoshi whitepaper, at cryptocurrency’s very inception?
Enter the decentralized exchange, the DeFi world’s answer to central custody. With a decentralized exchange, you use your wallet, and are the custodian of your own funds. Of course, there are existent problems that plague decentralized exchanges, such as poor user experience and low liquidity. However, projects like GMX seek to address this through easy-to-use functionality and a mechanism called a multi-asset liquidity pool to enhance the reward investment cycle for liquidity providers.
Launched in 2021 on Arbitrum and since also on Avalanche, GMX is a decentralized exchange offering spot and perpetual contracts trading. It boasts low swap fees and zero price impact trades. Utilizing a multi-asset pool, GMX gives liquidity providers rewards in the form of GLP, GMX’s liquidity provider token.
Being a decentralized exchange, GMX does not have an order book like you would find on a centralized exchange, and there is no central authority handling funds. In lieu of this order book are liquidity providers and its multi-asset pool. But how exactly does this feature function?
How does GMX work?
What sets GMX apart is its use of a multi-asset liquidity pool that rewards liquidity providers in the form of the platform’s liquidity provider token, GLP, an index of the different tokens in the multi-asset pool. These tokens include the GMX token, ETH, BTC, LINK, UNI, USDC, USDT, DAI, MIM, and FRAX.
How it works is that liquidity providers invest on the index of assets on the platform and receive GLP in proportion to how much they put in. They can then stake GLP in order to earn platform fees resulting from market making, swap fees, and leverage trading.
Another feature of GMX is its use of price oracles to both empower trades and hedge against liquidation risk. Utilizing Chainlink and other price feeds to get accurate pricing data for the various assets in its pool, GMX is able to pinpoint when liquidations occur, protecting users’ positions.
Like other DEX’s, users need only to connect a compatible wallet like MetaMask. GMX allows users to perform spot and perpetual contract trades that provide for up to 30x leverage.
GLP, the liquidity provider token for GMX, comprises an index of the assets that make up GMX’s multi-asset pool system. What is the $GMX token?
$GMX is the platform’s utility and governance token. Holders are able to stake their $GMX tokens for rewards. The different rewards that one can receive are Escrowed GMX*, Multiplier Points, and ETH/AVAX Rewards. Holders are able to stake on Arbitrum and Avalanche, receiving ETH or AVAX, respectively. This is not to be confused with $GLP, the platform’s liquidity provider token that participants get for providing trading liquidity.
Let’s break down what each type of reward does:
Escrowed GMX, abbreviated as esGMX, can be staked for rewards or vested to become $GMX tokens after 1 year. esGMX is not transferable.
Multiplier Points can currently be staked to increase ETH/AVAX APRs when staking $GMX.
AVAX/ETH are earned when a user stakes $GMX on Avalanche or Arbitrum, respectively. When staking $GMX, a user will earn 30% of the fees incurred on the platform.
How to acquire $GMX
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The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.