Intro

Arbitrum’s DeFi ecosystem is starting to look strong. Arbitrum-native projects such as GMX have outperformed during the bear cycle and rekindled the spirit of experimentation and composability. Arbitrum is now luring established projects from other chains to develop a presence on it. Among these projects is Gains Network, a synthetic derivatives platform originally deployed on Polygon.

Gains Network has generated an impressive amount of usage and hype so far. But where does Gains Network fit into the blossoming Arbitrum ecosystem, and can it coexist with established players like GMX?

Breaking Down the Design

gTrade is Gains Network’s first product. gTrade is a perpetual futures exchange that allows users to trade crypto, stocks, forex, indices, and commodities with 2-1,000x leverage depending on the asset class.

gTrade features a synthetic model with oracle-fed prices. A single pool provides liquidity for all supported trading pairs. This is similar to how Synthetix works, but Gains Network doesn’t bother with spot synths, and targets a collateralization ratio closer to 100% (much lower than Synthetix’s c-ratio of 400%). To compensate for the additional risk of this more capital efficient approach, Gains Network features an intricate token economics design.

gTrade’s gDAI vault serves as the counterparty for trading activity, providing liquidity for all asset pairs. gDAI — and eventually other gTokens — represent a user’s ownership of DAI in the vault. The gDAI vault receives a share of trading fees, but depositors do not directly benefit from trader losses. Instead, trader losses are kept in the vault to serve as a buffer, preventing vault depositors from incurring drawdowns while safely earning trading fees. If the DAI pool becomes under-collateralized, the GNS token serves as the guarantor of last resort.

In this case, the vault is refilled by minting and selling GNS OTC, capped at 0.05% of the GNS total supply every 24 hours (18.25% per year