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Customizable collateral tokens? An article summarizing the highlights of GMX's new V2 version.

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GMX V2 version may see better development.

GMX can be said to be one of the most successful DEXs on Arbitrum. When interacting with ARB before, GMX was one of the most important DEXs for ARB airdrop recipients to interact with, and it was also a popular DEX among everyone after the ARB airdrop.

Although GMX is a relatively powerful participant, there are still some shortcomings in its current version. For example, open positions pose a higher risk for LPs. It is more friendly to large traders, but the fees charged to small and medium-sized traders are higher compared to other DEXs. The number of tradable assets is relatively small, and capital efficiency is low.

Recently, GMX also 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 version.

Trader Fee Collection Plan

The new Fee collection plan has some changes compared to the previous version:

-The cost of opening/closing a position is reduced by half, from 0.1% to 0.05%.

-Introduction of financing costs paid to the weaker party.

- Reserve borrowing fees to ensure that the OI pool is not accumulated for free.

- Implementation price impact (negative, especially for medium to large trades)

Compared to other DEXs, GMX has a significant market impact. Here are the fee collection schemes of other DEXs.

Each DEX has a significant difference in its fee level and mechanism, so it is meaningless to compare different types of DEX. However, the following fee indicator data can still be used as a reference:

GMX v1: 0.1% order opening/closing fee + borrowing cost

GMX v2: 0.05% opening/closing + funding rate + borrowing cost + price impact.

dYdX: 0.02% for limit orders / 0.05% for market orders + discounts for large trading volumes.

Kwenta: 0.02% order book / 0.06 - 0.1 market order + $2 execution fee.

GNS: 0.08% for opening/closing trades + 0.04% spread + price impact.

LVL: 0.1% opening/closing + borrowing fees

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, allowing for greater flexibility and scalability. For example, when opening a position in SOL, ETH is used as collateral for the long position and USDC is used as collateral for the short position. For long positions, this is equivalent to holding both ETH and SOL long positions simultaneously. Traders can also choose their own long and short collateral, and the liquidity of each token pair will be isolated, allowing LPs to choose their preferred token pairs based on their risk preferences/returns.

Another interesting change is that traders can choose leverage ratios less than 1, such as 0.9 or 0.8.

On the surface, the returns of large capital portfolios may be smaller but safer. Due to the large trading volume, high-risk junk coins may have higher annual interest rates, but if the capital pool is unbalanced (due to higher volatility relative to ETH), the risk of traders losing capital gains and losses will be higher.

Introducing financing costs will make the new capital pool more balanced in terms of GLP, which is a very high-quality development direction for LPs because their exposure to trader profits and losses will be reduced (even to 0 in a completely balanced situation). However, the cost here is that due to decentralization, liquidity guidance will be a more difficult process, and some capital pools may struggle to attract sufficient liquidity.

Expand the trading market

Under the GLP mode, all tradable assets need to be included in the GLP pool, but this is not required under the new mode. Tradable pairs can be added independently, and LPs do not need to touch the assets because some markets will collateralize with ETH and stablecoins instead of hard assets, while others will continue to collateralize with hard assets (ARB/USDC will be supported by ARB, but LTC/USDC will be supported by ETH).

However, this type of market collateralization method has a drawback. If there is significant fluctuation in the value of ETH and the selected assets, these highly profitable trades may ultimately end up without collateral.

In order to solve this problem, GMX will introduce a new feature called Automatic Deleveraging (ADL), which will automatically close some trades when a certain level of profit is reached to avoid margin issues. This feature will only affect a small number of trades and will only come into play in special circumstances.

In addition, the calculation of price impact, which solves the problem of oracle manipulation in a small number of tokens, is included. This type of price manipulation attack is an important attack method in GLP, and the design of the new model will effectively solve this problem.

More Efficient 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 currently the main pain point of contract DEX pricing for oracles.

Low-latency oracle: Faster oracles will make front-end trading more difficult and make the experience of entering/exiting prices and executing orders smoother. The oracle for the new version of GMX application is a product from Chainlink, and GMX will be the first protocol to implement them.

Order Backtracking: As long as the oracle reaches the selected price, limit/stop 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).

Conclusion

Overall, the GMX V2 version has made some meaningful improvements and solidified its position in the GMX DeFi field. The new features of GMX V2 have achieved a balance between efficiency, simplicity, and transparency in trading, while also opening up new avenues 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 and the launch of the main network, the GMX V2 version may have better development prospects.