Custom Collateral Tokens? A Summary of GMX’s New V2 Version HighlightsGMX recently released its new V2 versionGMX's new V2 version offers exciting features, including custom collateral tokens for wider asset use. Other highlights include an improved liquidation mechanism, more flexible borrowing options, an enhanced user interface, and lower fees for borrowing and lending. Overall, the V2 version represents a significant step forward for GMX, providing users with more flexibility, security, and ease of use.
Author: Leo, BlockBeatsGMX can be said to be one of the most successful DEXs on Arbitrum. When interacting with ARB before, GMX was one of the more important DEXs for ARB airdrop recipients, and it was also a DEX that people liked more after the ARB airdrop.Although GMX is a powerful participant, its current version still has some shortcomings. For example, open-ended contracts are more risky for LPs. It charges higher fees for small and medium-sized traders compared to other DEXs. It has fewer tradable assets and low capital efficiency.GMX also recently released its V2 testnet, which can be experienced on the Avalanche Fuji testnet, and its V2 mainnet may be launched soon. Let’s take a look at the highlights of GMX V2.### Trader Fee Collection SchemeThe new Fee Collection Scheme has some changes compared to the previous version:- The cost of opening and closing orders is halved from 0.1% to 0.05%.- Introducing funding rates paid to the weaker party.- Retain borrowing costs to ensure that the OI pool is not accumulated for free.- Implement price impact (adverse, especially for medium and large trades)Compared with other DEXs, GMX’s market impact is quite large. The following is the Fee Collection Scheme of other DEXs:The level and mechanism of fees for each DEX vary greatly, so it is meaningless to compare different types of DEXs, but the following fee index data can still be used as a reference:- GMX v1: 0.1% opening/closing orders + borrowing costs- GMX v2: 0.05% opening/closing orders + funding rates + borrowing costs + price impact- dYdX: 0.02% limit order / 0.05% market order + discounts for large trading volumes- Kwenta: 0.02% limit order / 0.06-0.1% market order + $2 execution fee- GNS: 0.08% opening/closing orders + 0.04% spread + price impact- LVL: 0.1% opening/closing orders + borrowing costsThe V2 update will increase GMX from being based on large trades in the market to allowing small trades as well.### Innovative Liquidity Provision Mechanism
In the new model, the market will use ETH as collateral for long positions and USDC as collateral for short positions, achieving greater flexibility and scalability. For example, when opening a position in SOL, ETH serves as collateral for the long position, while USDC serves as collateral for the short position. For long positions, traders effectively hold both ETH and SOL long positions. Traders can also choose their own long and short collateral, and each token pair’s liquidity will be isolated, allowing LPs to choose the liquidity of the token pair they prefer based on their risk preference/return.
An interesting change is that traders can choose leverage ratios less than 1, such as 0.9 or 0.8.
On the surface, the return for large capital portfolios will be smaller but safer. Since large trading volumes may provide higher annual rates of return for more volatile coins, but if the capital pool is imbalanced (due to higher volatility relative to ETH), the risk of loss of capital by traders will be higher.
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The introduction of funding rates will make the new capital pool more balanced in terms of GLP, which is a good development direction for LPs because their exposure to trader profit and loss will be reduced (even to 0 in a completely balanced case). However, the cost is that liquidity guidance will be a more difficult process due to decentralization, and some capital pools may have difficulty attracting sufficient liquidity.
Expanding the Trading Market
In the GLP model, all tradable assets must be included in the GLP pool, but this is not required in the new model. Tradable pairs can be added independently, and LPs do not need to be exposed to the asset because a certain type of token will be collateralized with ETH and stablecoins instead of hard assets, while other markets will continue to be collateralized with hard assets (ARB/USDC supported by ARB, but LTC/USDC will be supported by ETH)
However, this type of market collateralization has a disadvantage. If the value of ETH and the selected asset fluctuates greatly, such profitable trades may ultimately have no collateral.
To solve this problem, GMX will introduce a new feature called Automatic Deleveraging (ADL), which will automatically close some trades when a certain profit is reached to avoid collateral issues. This feature will only affect a small number of trades and will only be used in special cases.
In addition, including price impact calculation solves the problem of oracle manipulation in a small number of tokens. This price manipulation attack is an important attack method in GLP, and the design of the new model will solve this problem well.
Faster Price Oracle
In addition, there are some features that can significantly improve the user experience. Both are very innovative and can be directly converted into order execution, which is the main pain point of the current pricing of oracle contract DEX.
Low-latency oracle: A faster oracle will make front-end trading more difficult and make the experience of entering/exiting prices and the time required to execute orders smoother. The oracle of the GMX new version application comes from Chainlink’s product, and GMX will also be the first protocol to implement them.
Backtracking orders: As long as the oracle reaches the selected price, limit/stop-loss orders will always be executed, even if price changes occur very quickly (in the previous V1 version, some orders were not always executed during high price fluctuations).
Overall, the GMX V2 version has made some meaningful improvements and solidified GMX’s position in the DeFi field. The new features of GMX V2 balance efficiency, simplicity, and transparency in trading, while opening up new ways for traders and liquidity mining. Of course, there may be some risks, such as system development, fee collection, and liquidity attraction, but the currently public test network is still in the trial stage. With the improvement of the test network to the launch of the main network, the GMX V2 version may usher in better development.
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