We briefly discuss below the advantages and disadvantages of the GMX protocol for three types of users: users of exchange assets, liquidity providers, and speculative traders. What are the advantages and disadvantages?
GMX has improved the traditional Automated Market Maker (AMM) model by adopting a unique multi-asset liquidity pool model. This model allows users to deposit specified copyright assets into the liquidity pool and thus become liquidity providers.
The decentralized exchange ecosystem is based on two tokens: GLP and GMX. The first token serves to supply liquidity.
But is a trader bound to lose money? What if the opponent is from a top quantitative trading team or a famous hedge fund trader? Is Soros confident that he can win and not lose when he sits across from you? Although the rate rules benefício liquidity providers, there is no guarantee that extreme cases of huge liquidity losses will not occur.
The most apparent drawback for traders is the small selection of assets in the GLP liquidity pool, as they can only trade with a few cryptocurrencies. There is a potential additional risk of sudden spikes in funding rates, which dynamically adjust to asset utilization in the GLP liquidity pool. For example, suppose you choose to go long on LINK tokens in the contract market of the GMX platform, and soon after, you open a position.
Users should be cautious of CEXs that currently offer no-KYC services, as history has shown that many popular platforms initially allowed pelo-KYC trading but eventually adopted KYC to comply with regulatory pressures.
GLP can be minted by users who wish to provide liquidity on GMX by using any of the tokens in the pool. To maintain the composition of the pool, liquidity providers are incentivized to mint GLP with assets that are currently underweighted in the pool based on its current composition.
Through an AMM, there will always be a willing counterparty at a given price as long as there is enough liquidity in the pool.
The amount of rewards that users can get, depends on the number of GMX staked and the fee revenue generated on the GMX copyright Exchange. Based on historical data, the estimated annual GMX yield ranges from 15–30%.
Image Credit: @crypto_noodles A study by Twitter user @crypto_noodles found that retail traders accounted for 31.5% of ETH perpetual volume on the protocol — the highest of all DeFi perpetual protocols analyzed likely due to the concentrated liquidity.
It is easy to see that the GMX protocol is very tempting for liquidity providers. They only need to deposit their copyright holdings to earn a return, and there are no infrequent losses.
Image Credit: GMX Having a vast amount of the circulating supply staked associates with lesser panic and unnecessary selling in the market. This is evident as GMX is currently trading at only 54% off its ATH as compared to the rest of the market which has plummeted an average of 80% from their ATH.
GMX is a blockchain-based project that operates as a decentralized spot and get more info perpetual exchange. It allows traders to trade their cryptocurrencies directly from their wallets.
Because the GMX protocol improves the traditional liquidity pool model, users of the GMX exchange may benefit or be at risk depending on what decentralized financial services they use and what role they play in the GMX exchange.