How GMX Works

GMX is a decentralized exchange (DEX) specifically designed for perpetual futures and spot trading of cryptocurrencies. It operates without the need for intermediaries, such as centralized exchanges, and runs on a blockchain network. GMX is known for adopting an efficient on-chain model and offering low fees. Here's how GMX works in practice.

Trading on GMX

GMX facilitates perpetual and spot trading with no expiration dates for open positions. This allows traders to hold short or long positions. To do this, traders can choose leverage options, enabling them to magnify their gains or losses based on borrowed funds. GMX allows leverage up to 50x, depending on the asset and liquidity situation in the protocol.

The process works by depositing collateral in the platform in exchange for opening a position. GMX uses an automated market maker (AMM) model for pricing, relying on an oracle mechanism to track real-time asset prices. The platform also integrates a multi-collateral system, allowing various forms of accepted assets, like stablecoins, for margin trading.

Funding Mechanism

The liquidity on the GMX platform is provided by users who supply assets to the GLP pool. The GLP serves as an index of multiple digital assets and helps in liquidity provision across different trading pairs. In return, liquidity providers (LPs) who deposit into GLP receive trading fees and staking rewards. A key part of GMX's value proposition is that it offers LPs notable returns, which can be more favorable compared to traditional staking models.

Decentralized Governance

GMX follows a decentralized governance model, where significant decisions about the protocol's upgrades, fee structures, or new asset listings are instructed by token holders. Holding GMX tokens allows users to stake and participate in governance votes. Stakers of the GMX token receive a portion of the platform's fees and other rewards, distributing incentivization back to the community.

Oracle Price Feed System

GMX uniquely relies on Chainlink's oracle price feed system to address one of the core challenges of decentralized trading platforms—minimizing price manipulation and slippage. This keeps the platform secure from flash loan attacks and extreme volatility caused by incorrect pricing, as the oracle updates price feeds in real time from various sources.

Fee Distribution

GMX charges transaction fees from trades, swaps, and liquidations that occur on the platform. The fees are distributed between liquidity providers (through GLP) and GMX stakers. This ecosystem encourages the continuous supply of liquidity and a balanced system of incentivization.

Tokenomics

GMX has a dual-token system: the GMX token and the GLP token. GMX tokens are primarily used for staking, governance, and rewards purposes. As staked GMX earns protocol fees, GLP tokens reflect users’ positions in the liquidity pool and are used for leveraging and farming activities. Thus, each token has a separate utility within the ecosystem but plays a critical role in keeping the system functional.