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GMX V2
Cryptocurrency markets inherently consist of three elements: an index token, a long collateral token, and a short stablecoin token. To exemplify, in a SOL/USD market, SOL serves as the index token, ETH as the collateral for long positions, and USDC for short positions. Each component serves a specific purpose in maintaining the balance of the trading ecosystem.
In this architecture, liquidity providers, or LPs, generate revenues through trading fees from the liquidity pools they supplement. This model allows each market to potentially establish its unique fee structure. This freedom of operation enables a permissionless listing of assets, which augments liquidity for market makers, without requiring them to handle unwanted assets. Presently, GLP exposes users to an array of assets within the pool (ETH, BTC, UNI, LINK).
Traders can exploit this mechanism to their advantage. They can use ETH and USDC as long collateral to capitalize on an increase in the value of SOL. Similarly, they can utilize USDC and ETH as short collateral to profit from a decline in SOL's value.
However, it might prompt a question. What transpires if the SOL price soars due to promising news while the ETH backing the pools stays relatively stable? How does GMX v2 ensure solvency under such circumstances? Here is where the Auto-Deleveraging (ADL) mechanism steps in, safeguarding the system's solvency when the price of the index token quickly outpaces the long tokens backing it.
ADL becomes redundant in markets where the index token equals the long token and will not be enabled. But in markets where ADL is activated, profitable positions are adjusted to ensure the profits and losses of that specific market do not exceed the total amount supporting the pools.
Though such situations are edge cases, GMX v2 is equipped to handle them. Funding fees, borrowing fees, and price impact are applicable to each market. Individual markets can have their unique fee structures, which offer high flexibility for adding new assets such as stocks, forex, and commodities. These funding fees aid in mitigating major imbalances within the pools.
If all users on GMX v2 hold long positions in ETH, those positions will contribute funding fees to the short side, thereby ensuring a balance. This mechanism ensures that the larger side compensates the smaller one through funding fees.
Currently, GMX v1 leverages its in-house oracles to calculate the median price from the top three exchanges for leverage trading. For liquidations, it employs Chainlink oracles. With version 2, GMX has decided to exclusively partner with Chainlink, availing their low-latency oracles in return for 1.2% of GMX's total v2 fees. This partnership received tremendous support from the community, with 1.7 million GMX votes cast in favor, indicating a 97% approval rate.
GMX v2 will feature orders similar to the existing implementation, including market orders, limit orders, stop-loss orders, and take-profit orders. Unlike the current version where orders are not guaranteed due to chain congestion, GMX v2 will ensure executions, even in periods of high congestion, as records of the prices registered by oracles will be readily available.
Moving forward, GMX v2 aims to store asset prices in blocks and verify orders against them, ensuring a guaranteed on-chain verifiable execution for all orders. This development is a significant step toward making the platform more reliable and robust, aligning with the needs of both cryptocurrency investors and users.
