Thread by @WinterSoldierxz

1/ @GMX_IO has surpassed @Uniswap in daily fees, a stunning feat during 1 of the worst months in #crypto history.

But at the same time, $GMX FUD is on the rise due to certain design "flaws".

For #GMX to continue its meteoric growth, here are a few things they must change. A 🧵

2/ There are 3 key areas of improvement for @GMX_IO, which are:

i) Slippage
ii) Funding
iii) Scalability

Allow me to explain.

3/ One of GMX’s key differentiators is zero slippage. This is achieved through swapping in/out from the GLP pool based on an oracle price from CEXes.

When traders open a leveraged position, the same oracle price is used to determine their execution price.

4/ While attractive for traders, this feature opens up the platform for potential exploits through manipulation of CEX prices.

This risk is limited as assets in the $GLP pool are generally blue chip tokens with higher liquidity, but this doesn’t eliminate it completely.

5/ On a low liquidity weekend back in Sep 2022, one trader was able to successfully manipulate AVAX prices on CEXes, while simultaneously capitalizing on it on GMX by opening large positions at zero slippage, resulting in a ~160K loss for GLP holders that day.

https://twitter.com/joshua_j_lim/status/1571554171395923968

6/ This same strategy would not be possible on a CLOB model, or even a #DEX with price impact features, as the same order size (200k $AVAX) would have moved prices from 17.95 to 20.25, incurring ~13% slippage.

7/ In other words, the slippage would have more than netted out the potential profits of this exploiter, and invalidate any potential for this kind of trade.

8/ Another factor that affects the risks of $GLP holders is market skew, or the ratio between longs and shorts. Most derivative exchanges have a funding rate mechanism in place to balance out market skew.

@GMX_IO does not.

9/ Since launch, there were 273 (~59%) days where the skew was >65% in either direction.

Periods like these often present the greatest tail-risk, where traders could realize a large gain and at the expense of $GLP holders.

https://twitter.com/Chinchillah_/status/1599857198519095297

10/ A simple fix to both of these issues is to simulate the actual cost of liquidity in GMX through the inclusion of slippage and funding rates, better protecting $GLP holders.

11/ @xdev_10 and team have already begun working on this, but more details would have to come to determine its effectiveness.

https://twitter.com/xdev_10/status/1597494441614643202

12/ Last but not least there is scalability.

13/ Undoubtedly GMX has gained a significant amount of traction from FTX collapse, integrations & for kickstarting the #realyield narrative.

But a big limitation for GMX's scalability is that its liquidity and supported underlying assets are only limited to GLP’s composition.

14/ This has always been a known issue, but the fact is that the $BTC / $ETH trading market itself has been so large that this wasn’t a big concern in the early innings of the protocol.

Now that the platform has achieved product market fit, it’s time to think about scalability.

15/ Synthetic markets is an upcoming item on the roadmap, which will finally allow for assets outside the GLP pool to be traded.

16/ @GMX_IO's synthetic markets allow for permissionless listings via isolated LP pools.

Each pool consists of long collateral (volatile tokens e.g. ETH), short collateral (Stablecoins), and reference index price for the underlying.

17/ Traders can deposit either long or short collateral to open synthetic leverage positions, which are traded against the LP pool.

18/ The main difference between this model and GLP is that LPs only bear the risk for the underlying market they provide liquidity for, and in turn only gain fees from traders of that asset.

19/ This has been a long awaited upgrade to @GMX_IO, which can introduce new crypto assets and potentially new asset classes to its trading ecosystem, which competitors like @synthetix_io and @GainsNetwork_io have already introduced.

20/ Note: A drawback to the isolated markets model is the need to bootstrap liquidity for each new asset. The GMX team has always been great at designing incentives, so I’m confident they’ll be able to come up with something creative

21/ Be on the lookout for these opportunities. It pays to be early in crypto.

22/ TLDR; @GMX_IO’s next round of updates fully addresses systematic risks and opens the floodgates for future growth. #RealYield is about to get realer.

23/ Also, some threadoors who provided great narratives on @GMX_IO

@rektdiomedes
@ViktorDefi
@safetyth1rd
@DefiIgnas
@OnChainWizard
@defi_mochi
@ThorHartvigsen
@milesdeutscher
@the_advisor_btc

24/

@VentureCoinist
@0xCrypto_doctor
@crypthoem
@Dynamo_Patrick
@TheDeFinvestor
@JackNiewold
@alpha_pls

25/ Like RT & follow if you enjoy my content.