Examining the Design and Traction of GMX's Hybrid DEX

The DEX space is rife with innovative designs that enable efficient swaps across a multitude of assets. One of the newer additions to this space is GMX – a hybrid spot-derivatives DEX on Arbitrum and Binance Smart Chain. GMX specializes in spot swaps and leveraged trading via perpetuals. Traders can swap their tokens or enter perp positions with relatively low fees and zero slippage. The secret sauce behind the model is the protocol’s native index – GLP.

GLP is a floating basket of assets with target weights of 40% ETH, 30% BTC, 5% LINK, 5% UNI, 15% USDC, and 5% USDT. GLP acts as the liquidity source for all trades on GMX. Deposit and withdrawal fees for GLP adjust dynamically, helping the basket achieve its target weights per asset. Currently, GMX only supports six assets. In the future, more assets, and potentially other themed baskets, can be added. To understand how this works, let’s dive into GMX’s core design.

Spot swaps are structured like an OTC trade between assets in GLP. GMX pulls price quotes via Chainlink oracles as well as FTX and Binance for each asset. It uses the median of those prices to inform the protocol of an ideal quote for trade execution. The entire trade is executed at the decided price, thus eliminating slippage usually incurred via traditional AMM models. If you’re familiar with how Synthetix works, all of this probably sounds familiar.

Perpetuals on GMX works in the same way. For example, if a user wishes to enter a levered long on ETH it can be described as “renting out” the upside of the ETH in GLP. If the trader wants 2 ETH of leverage, 2 ETH from GLP is “rented out” to give the trader their desired exposure. This means that open interest for perp positions on the platform is capped at the availability or “utilization” of each respective asset in the pool. Similarly, a 2 ETH short at $4,000 per ETH is akin to renting $8,000 worth of USDC/USDT exposure.

For long positions, asset utilization and profits/losses are paid in the asset they long (ETH, BTC, UNI, and LINK). For short positions, asset utilization and profits/losses are in the stablecoin they use to open the position (USDC and USD