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GMX is a DeFi liquidity platform that allows users to take leveraged trades on various cryptocurrency assets like Ethereum and Bitcoin with no price slippage. It is currently deployed on Arbitrum and Avalanche, with the majority of its activity focused on the former. With millions of dollars in volume, GMX is one of the largest protocols in terms of Total Value Locked (TVL) on Arbitrum and is driving the real yield narrative in the DeFi space.
GMX offers a DeFi exchange with a number of unique features, allowing large swaps with no slippage. At first glance, this may look similar to Integral SIZE, however the mechanisms couldn’t be more different. Here we compare some of the main features for traders and how each protocol accomplishes them.
How does GMX Offer No-Slippage Trades?
One of the key innovations in GMX is to allow traders to take highly leveraged trades with no slippage and no price impact.
In traditional exchanges, slippage can occur when the price of an asset changes between the time a trade is placed and the time it is executed. This can result in a less favorable price for the trader, leading to losses.
GMX solves this problem by using an oracle to provide real-time price feeds. This ensures that traders can execute trades at the current market price, without any deviation.
With Integral SIZE, trades are executed at the oracle price of the 30-minute TWAP. This lets SIZE provide traders with no slippage swaps.
How does the GMX oracle system work?
The GMX oracle system is one of the most important parts of the protocol, as it provides the price data that drives all trades. Currently, GMX uses a centralized fast price oracle that takes prices from multiple exchanges and updates the data regularly on-chain. In addition, there is a Chainlink oracle circuit breaker in place to prevent trades with large price deviations from executing.
The fast price oracle is updated using a keeper system run by the GMX team. The oracle aggregates price feeds from a number of exchanges and then provides a mid-point price that is regularly updated on chain.
In Integral SIZE, the oracle is a 30-minute TWAP calculated on chain from a trustless oracle like Uniswap.
How does GMX avoid LPs getting arbitraged?
One of the key risks of providing liquidity as a counterparty for swaps on chain is that informed traders can come and arbitrage the on-chain pricing from an off-chain venue. This “toxic flow” is key to keeping prices in DeFI protocols like Uniswap up to date, but is also quite impactful on the profits for LPs.
GMX avoids this issue in a few ways. One is the custom oracle set up described above. Another is by adding on a spread and high fees to all swaps. This discourages or completely eliminates toxic flow arbitrage by making it unprofitable.
In Integral SIZE, LPs do not worry about getting arbitraged since the 30-minute TWAP delay makes direct atomic arbitrage unprofitable.
While the goals of protocols like GMX and Integral SIZE is to give venues for great execution on chain, the way that we address these challenges proves to be very different. GMX allows for leverage and large trades by utilizing a centralized oracle and keeper system. Meanwhile, Integral uses a very different type of oracle. Yet both protocols manage to offer zero price impact for large trades.
Further experimentation with these mechanisms will continue to bring new innovation to DeFi and let even more traders take advantage of its unique benefits.