GMX, the next Alpha after GNS

Written by: Please call me Maik

Preface

With the collapse of FTX last year, concerns about centralized exchanges have lingered in everyone's minds. Whenever there is a hint of trouble, the first instinct is to withdraw funds, regardless of whether there are actual issues, just to move them to a place they can control. However, the demand for trading has always been present, leading many to shift their focus to decentralized trading markets. In this context, the derivatives sector is a very promising direction. Decentralized derivatives possess most of the advantages of DEXs, such as decentralization, censorship resistance, permissionless access, and high asset autonomy. With the support of Layer 2, DEX derivatives also have the order book that CEXs pride themselves on. The combination of DEX derivatives with DeFi and NFTs will unleash limitless imaginative possibilities.

It can be said that decentralized derivatives are the culmination of DeFi and also absorb the advantages of CEXs. However, current DEX derivatives are still in the early stages of development, facing issues such as product design, trading depth, user habits, and performance inadequacies. Nevertheless, this does not affect the overall trend of DEX derivatives development. The characteristics of the derivatives industry include high capital retention, high-frequency trading, substantial real transaction fees, and a lack of visibility into bull and bear markets, making it a relatively stable business. Besides speculation, on-chain whales have leverage and hedging needs, and the current centralized futures business has relatively low capital efficiency for on-chain activities. Additionally, centralized futures businesses face strict KYC restrictions in various countries. For example, Binance, under pressure from financial regulations, has already banned contract services for clients from the U.S., Hong Kong, Japan, etc., which presents a good opportunity for decentralized derivatives. Derivative transaction fee income: Based on an average transaction fee of 0.1% for CEXs, daily income is $60 million. Even considering fee discounts and false trading volumes, taking 20% into account, daily income still amounts to $12 million.

Decentralized Derivatives Sector

There are mainly a few types:

The first type directly provides trading, such as the recently popular GMX, GNS, and the veteran DYDX.

The second type includes tool-related products that provide infrastructure for relevant projects (the most well-known being Chainlink oracles). Decentralized trading platforms are often unfriendly to small traders, with some even having high thresholds. Tools are needed to simplify the operational process, making it easier and more convenient for a broader audience to participate in high-threshold projects, such as the dappOS we will focus on later.

For the first type, since it is directly related to money, people are generally more aware of it. However, for the second type, which is user-friendly, not many are familiar with it. This article will provide commentary on both types.

Evaluation of Typical Representatives

GMX

GMX is a DEX on Arbitrum and Avalanche, supporting swaps and perpetual contracts. It was formerly known as Gambit on the BSC chain and was revamped and migrated to Arbitrum in July 2021, rebranding as GMX. GMX has governance token $GMX and liquidity token $GLP. Users can deposit assets like ETH, BTC, USDC, UNI, etc., to mint GLP tokens, which is equivalent to injecting funds into the GLP liquidity pool (i.e., providing liquidity to the platform). The GLP liquidity pool acts as the counterparty for traders. When users sell GLP, it is burned. The minting/burning price of GLP is related to the total value of the basket of assets in the GLP liquidity pool, i.e., GLP price = Total value of GLP liquidity pool / Total supply of GLP.

Demand and Pain Points

• Security, self-custody, permissionless

• Poor decentralized liquidity

• High slippage for large trades

Products and Innovations

• Unified liquidity pool

• Zero slippage trading

• GMX, GLP, transaction fees, counterparty for contracts

• Staking, earning ETH, AVAX dividends as LP, earning points through staking, and staking points

Currently, GMX can be said to be the hottest derivatives DEX, consistently ranking at the top on the ARB chain and is a leading project in the sector. With over $100 million in protocol value capture and 100% dividends, 77% of the circulating supply is staked. Staked GMX can be withdrawn or sold at any time, but the linear release of esGMX and the multiplier reward mechanism enhance the loyalty of stakers to some extent.

GNS

Gains Network's first product, gTrade, is a decentralized perpetual contract exchange deployed on Polygon and Arbitrum.

GNS Trading Model

The trading model of the gTrade platform is essentially a game between the trading party (long/short) and the LP party. The LP party deposits DAI into the vault to provide liquidity for the entire platform's trading, with the vault acting as the counterparty for all trades on the trading platform. When a user opens a position, they need to deposit DAI as collateral. If the trade is profitable, the platform withdraws DAI from the vault to pay the trader, resulting in a loss for the vault (LP party). If the trade incurs a loss, the collateralized DAI remains in the vault, increasing the amount of funds in the vault, and the LP party gains profits. gTrade uses Chainlink's a DON (decentralized oracle network) to provide prices, ensuring that each trade order receives an intermediate price, avoiding slippage and impermanent loss. Compared to GMX, GNS has lower transaction fees, as low as 0.08%, while GMX charges 0.1%. GMX involves perpetual and spot trading, requiring liquidity pools for trading, whereas GNS does not, allowing for better capital utilization; GNS also provides opportunities for forex, stock indices, and commodity traders.

dappOS

At this point, some may wonder why we suddenly jumped to a seemingly unfamiliar project. This is due to an important discovery. As a hot project recently, I have been paying attention to information related to GMX and SSV projects. I found that dappOS appeared in the official announcements of deep cooperation and joint activities with both projects. Out of curiosity, I followed the trail and researched related information, discovering that dappOS has also collaborated with Kyber, Benqi, etc., providing them with important infrastructure. I was pleasantly surprised to find that it has already been selected as a Binance incubation project. Everyone should understand Binance's vision; they do not take notice of projects without significant potential. dappOS should be a potential project worth paying attention to, and it is still in the early stages without a token release.

Next, let's understand what dappOS is doing and why it has garnered the favor of these well-known projects, some of which have already established deep cooperation.

The dappOS protocol is currently in the 5th season of the Binance Labs incubation program. It is somewhat like a Web3 Android foundational operating protocol, allowing users on the BNB chain and ETH chain to seamlessly interact with Layer 2 derivative protocols on chains like Optimism, Avalanche, and Arbitrum.

What is dappOS?

dappOS is an operating protocol designed to lower the barriers to interacting with crypto infrastructure (such as public chains and cross-chain bridges). The protocol makes the user experience of DApps as friendly as using common apps.

dappOS creates a universal platform to connect technologies across different blockchains, thereby providing a better experience for developers and users in the Web3 world. In simple terms, the blockchain products that people currently use are generally not very user-friendly. If these projects use the dappOS development kit, it can significantly lower the usage threshold, just like driving a car; previously, you had to understand how the engine works, but now you only need to know how to start it and press the gas and brake pedals.

Why is such a product needed? Because there are some issues in the development of Web3 that also exist in Web2. For example, ecosystem incompatibility requires different versions to be developed for different systems. To address these issues, dappOS is preparing to create a Web3 aggregation multi-chain operating system, allowing developers to deploy with one click, while end users can complete cross-chain and subsequent operations without complex procedures.

dappOS Technical Solution

dappOS V1 mainly consists of two parts:

dappOS Account: A contract wallet based on account abstraction. Compared to ordinary EOAs, dappOS Account can implement gas payment and provide a foundation for automating the execution of composable complex workflows. It also features a login method that aligns more with Web2 user habits, helping more users enter Web3 by eliminating the need for mnemonic phrases. dappOS Account does not involve centralized custody; even if dappOS ceases operations, users can still manually operate and continue using their dappOS Account.

dappOS Network: Used to solve the problem of automated execution of operations. Through the services provided by this network, users can conveniently manage and use account abstractions distributed across different chains, requiring only a single signature to confirm interactions with public chains of any complexity.

dappOS Workflow

Users create orders by signing to confirm the entire workflow, including on-chain interactions across one or more chains, cross-chain assets, and the costs of using the dappOS network. DApps send orders to the dappOS network via JSON-RPC. The dappOS network will delegate the order to one of the permissionless nodes, ensuring that the order is executed properly; otherwise, the node will compensate the user for their losses.
Under the incentive of rewards, the selected node will execute the entire workflow, including cross-chain assets and on-chain transactions (from the user's virtual wallet to the DApp contract).

dappOS Products

dappOS products are divided into To B + To C, and thus will be differentiated in functionality implementation.

For the To B layer, mainly targeting DApp developers and teams:

• One-click multi-chain deployment for DApps: dappOS has its own front-end SDK, allowing any DApp developer to integrate through the SDK without needing to redeploy contracts on other public chains.

• Reducing interactions between DApps and public chains: After user demands are raised, dappOS will assist applications in achieving interactions with public chains.

• Developing other application services: After SDK integration, DApp developers can develop additional functionalities based on the service system, such as linking with Web2 social applications.

• Advertising and marketing: In the integrated platform of the system, corresponding functions can be utilized for advertising and marketing, acquiring traffic and users from other ecosystems and applications within the platform.

For the To C layer, the mini-program platform has the following points:

This platform can achieve a user experience for DAPPs that is close to Web2.

• Virtual wallet: A virtual wallet is automatically created for users when switching ecosystems, with no mnemonic phrases, and accounts are unified, eliminating the complexity of managing multiple accounts.

• Wallet account recovery: Accounts can be reset through other devices or third-party KYC services.

• One-click completion of complex operations like cross-chain: Users only need to initiate a request, and the system automatically processes it.

• Flexible gas fee types: With node support, any asset from any public chain in the account can serve as gas fees.

• Supports cross-chain and cross-currency merging payments of assets within the account.

A simple example can illustrate this: In the Web2 world, if I want to repay my credit card, and I do not have sufficient funds in my Shanghai Pudong Development Bank account, I cannot repay my Pudong credit card through the bank's app; I need to transfer funds from another bank to Pudong. This process is lengthy. However, if I use the Cloud Flash Payment app to make the repayment, I can switch to another bank (as long as I have linked the card) to repay the Pudong debt at any time. dappOS serves this function, greatly simplifying user operations and making it very convenient and quick.

Current Partner Projects

At the end of January, it was officially announced that dappOS has a deep cooperation with GMX, with a pilot version supported by dappOS now online, allowing users to experience the convenience and smoothness of operations at https://gmx.dappos.finance/, which is much smoother than the original GMX.

In addition, multiple DApps have already integrated for testing and have reached cooperation intentions with over 50 communities. Polygon, IoTeX, Nervos, Fortube, Perpetual, Alchemy Pay, QuickSwap, Pangolin, KyberSwap, etc., are all current partners.

Future Directions (Roadmap)

Phase 1: Centralized supernodes and server nodes (2022 Q3) have been completed.

Phase 2: Centralized supernodes and decentralized server nodes (2022 Q4 - 2023 Q1).

Phase 3: Decentralized supernodes and server nodes (2023 Q2 - 2023 Q3).

The recent plan includes launching the Host Network test network and the mainnet. Integrating most of the top DApps in the industry and reaching cooperation with more projects. After launching the mini-program platform, token issuance will follow.

Mainly used for small-scale testing, contract debugging, and demand validation. Key functionalities: 1. Account abstraction 2. Cross-chain funds 3. Service nodes.

From a longer-term development perspective, dappOS will enable the sharing of application resources and liquidity across the entire ecosystem, helping hundreds of millions of users enter Web3.

Competitive Analysis: Early competitors are cross-chain products like MultiChain and LayerZero. Traditional cross-chain products suffer from complex operations and slow speeds. dappOS, on the other hand, allows for one-click operations and is very fast. Mid-term competitors are wallet products like MetaMask and Argent, which have issues with mnemonic phrase management and complex operations. dappOS allows for self-recovery of mnemonic phrases and offers convenient operations.

Conclusion

Why is the development of Web3 so complex and lengthy? Besides the higher technical requirements, it is largely related to insufficient infrastructure and applications, with the barrier to entry being a significant obstacle for most users. If dappOS can significantly lower this barrier, it can naturally become a traffic entry point, representing a very good business model. Moreover, due to the issue of switching costs, once this entry point is occupied, users may be reluctant to migrate.