A comprehensive interpretation of Gains Network: Approaching the dark forest of decentralized leverage trading

Author: Xiaona & Bee (Twitter:@llamabee1 )
Editor: Ashley &Sarah
gTrade is the first product launched by Gains Network. It is a decentralized leveraged trading platform currently deployed on Arbitrum and Polygon.
1. Core features of gTrade 1. Synthetic liquidity pool
Synthetic liquidity pools are essential for the efficient operation of liquidity pools. Currently, gTrade uses a synthetic liquidity pool based on DAI (gDAI pool) to play the role of counterparty to leveraged traders. The design of this liquidity pool has several features: First, its synthetic mechanism can make the use of funds more efficient.
Secondly, its synthetic mechanism can make trading more flexible. Because through the synthetic liquidity pool, gTrade can provide more leveraged trading pairs, which means that traders can choose trading pairs more flexibly and can trade according to market conditions.
Finally, gTrade's synthetic liquidity pool can control risks through different synthetic mechanisms, such as reducing risks by adjusting the leverage ratio or limiting the size of the synthetic liquidity pool. This allows traders and liquidity providers to participate in transactions with greater peace of mind.
DYDX adopts the orderbook mechanism, which requires the orderbook to be stored off-chain and requires market makers to provide liquidity. Therefore, the degree of decentralization is not high and the capital efficiency is low.
In contrast, gTrade's gDAI pool avoids these problems and does not need to set up a liquidity pool for each trading pair. Compared with GMX, although they both use liquidity pools to provide liquidity, gTrade has shown extremely high capital efficiency.
Taking the data of the past 7 days as an example, gTrade's 50m gDAI pool TVL achieved a trading volume of 913m, and Volume/TVL was 18. GMX achieved a trading volume of 2.2b with a GLP pool TVL of 466m, and Volume/TVL was 4.7. Obviously, during this period, gTrade's capital efficiency was more than 3 times that of GMX.
However, higher capital efficiency also brings some risks, so gTrade has taken a number of protective measures.
2. Rich trading pairs
Another important feature of gTrade is that it supports multiple trading pairs and high leverage. It is currently the only on-chain leverage trading platform that supports 91+ trading pairs, covering three aspects: cryptocurrency, foreign exchange and stocks. The leverage of foreign exchange on the gTrade platform can be as high as 1,000 times, and the leverage of crypto assets can be as high as 150 times, which are currently not possible for GMX.
3. Homemade Oracle
The oracle DON used by gTrade is the bottom layer built by the founder using Chainlink. DON has 8 nodes, which obtain prices through the APIs of 7 different exchanges and feed prices to gTrade in real time. This effectively prevents price manipulation and ensures the accuracy of prices.
Centralized exchanges may have plug-in problems, but this will not happen on gTrade. Because the data they obtain and the subsequent execution are all completed on the chain, 7 APIs and 8 nodes will also minimize the possibility of malicious behavior.
(IV) Transaction Fees and Protection Mechanisms
1.Fixed Spread
In addition to the basic opening and closing fees, gTrade will also charge an additional fixed spread. For assets that are more difficult to manipulate, such as large-cap cryptocurrencies such as BTC and ETH, Forex and US stocks, gTrade sets a fixed fee.
2.Price Impact
Price Impact has a good protection effect on the security of gTrade, which is not available in GMX. Because of this, GMX cannot allow users to trade small currencies. If the Open Interest of a transaction on the on-site platform is high, but the liquidity of other over-the-counter exchanges is not high, the Price Impact may be greater.
When the Luna incident occurred, the gTrade team adhered to the principle of decentralization and insisted on not interfering with Luna's trading and delisting. In the end, the market emptied the platform's liquidity and the project was almost in despair.
After the Luna incident, the platform added a lot of protection mechanisms. In fact, with the Price Impact fee, the impact of the Luna incident on gTrade is relatively limited, because traders have to pay high Impact fees.
3.Rollover Fee
The Rollover Fee will cause users to pay fees during the holding process, and this fee is related to the volatility of the market, that is, the greater the market volatility, the higher the fee will be. Because the greater the volatility, the greater the impact it will have on gTrade, and the ultimate goal is to allow users to close their positions quickly.
Recently, the team increased the Rollover Fee. The reason is that the team calculated that if there are some large positions that are being hedged, without increasing the Rollover Fee, they can hedge and hold positions for a long time at a very low cost on gTrade, which will cause their Open Interest to become very small, and few people will be able to actually trade with leverage. Therefore, they increased the fee so that these people cannot hold positions for a long time or hedge on gTrade in a very cheap way, which is another protective function of the Rollover Fee.
4.Funding Fee
The biggest difference from GMX is the Funding Fee. The trading method on GMX is that users must pay a loan fee to the liquidity provider of GLP when conducting leveraged transactions. On gTrade, it uses the Funding Fee to balance short and long traders, so the party with more positions will pay less. It is precisely because of the Funding Fee that balances long and short traders that leveraged transactions on gTrade are more balanced and fair.
In addition, gTrade has other protection measures, such as a maximum profit of 900%, a maximum profit of 900% on a transaction, and automatic liquidation when a profit of 900% is obtained; if the user's collateral or principal loss reaches 90%, it will also automatically help the user to close the position. These protection measures can ensure that users do not take excessive risks when conducting high-risk leveraged transactions.
Ordinary users can generally use the following functions when participating in gTrade:
gTrade is a leveraged trading platform that provides a good trading environment for users who are good at trading. At the same time, it also provides many other DeFi gameplays. Since it is a breakthrough platform, you can earn income by providing liquidity for its liquidity pool.
The gDAI pool has many characteristics. Most leveraged trading platforms that provide liquidity with single-currency collateral often face the risk of losing money when traders make a lot of money. However, gTrade has adopted a variety of mechanisms to reduce the risk of loss in the gDAI pool, making it almost close to 0.
In addition, Gains Network also has its own token GNS, which is a widely used token that will empower the governance function of the platform in the future. Currently, holders of GNS tokens can deposit them into Gains Network and share the platform's revenue. In addition, all types of transactions on gTrade are performed through decentralized NFT bots. Therefore, if you want to perform the corresponding operations, you must hold the corresponding NFT.
gTrade's target users are those who want to trade. If you have the corresponding resources, you can also try to apply for the Referral Program.
2. gToken Liquidity Pool
Regarding the gToken liquidity pool, gDAI is only its first collateral. In the future, it will also add gETH, gBTC, gFrax, gLUSD and other collateral.
The risk of USDC has indeed caused some panic, which has also inspired the team to prioritize this demand. We are currently working hard to launch the next more decentralized liquidity pool. If the next one is gETH, traders can use ETH as collateral, and those who provide liquidity can get ETH as income.
It is worth noting that the biggest difference from other similar protocols is gTrade's settlement method. If you use one ether to open an order, if your trading pair increases by 10%, your profit is 10%, calculated in ether. In contrast, GMX's leveraged trading settlement method is based on USD prices, but the profit paid to traders depends on whether the trader is long or short. If the trader is long: GMX will pay the profit in the asset they are long trading; if the trader is short: GMX will pay the profit in the form of stablecoins.
The liquidity of gToken works like this: if you are a depositor who wants to deposit DAI, the receipt you get is gDAI. You put this DAI in and get a receipt (this is actually an ERC20 token that you can use on other DeFi protocols). If you withdraw money, you take the gDAI back, it burns the gDAI, and you can get your DAI.
Currently, gTrade only has one trading pair, gDAI, but it is worth noting that even though it only has $50 million of gDAI now, it has already processed 18 times the trading volume. If the team adds more collateral, the trading volume can be expanded even more, so gTrade has greater expansion potential than GMX.
What’s special about gToken?
As mentioned earlier, its gDAI pool is the trader's counterparty, which means that if the trader makes a profit, he will take DAI from the gDAI pool. If the trader loses money, the trader's DAI will enter the liquidity pool.
When a user deposits DAI, he or she can get a receipt gDAI from the pool, which represents the depositor's share in the pool. There are two factors that can affect the price of gDAI. The first factor is the transaction fees accumulated by the transaction. The transaction fees are the opening and closing fees mentioned above, and this part will only increase forever. The second factor is the profit and loss of the user's counterparty, but it will only affect the price of gDAI when there is insufficient collateral, because it also has a buffer protection layer.
The calculation method of gDAI price is relatively simple. Assume that there are 100 DAI in the initial pool, and the total gDAI issued is 100. Now the value of one gDAI is one DAI. If the platform earns $150 in revenue, there are 250 DAI in the gDAI pool, but the issuance of gDAI is still only 100. At this time, the value of one gDAI is 2.5 DAI.
What is buffer? To explain buffer, we must understand the collateral ratio of its gDAI pool. Its collateral ratio will be affected by the profit and loss of traders. Each Epoch will settle the profit and loss of traders. As long as the fees earned are greater than the expenses of the trader's profit and loss, then this Epoch will have a positive return income.
If we go to their website, in the Vault and CR section, we can see a lot of numbers when we pull down the data, but there are two numbers, one is TVL and the other is Collateration. The difference between these two numbers is quite large, and the difference is its buffer, its protection layer. To calculate its CR, we divide the total value of collateral by TVL, and this percentage is its buffer.
In Dune Analytics, we can see that the 100% part is below the gDAI pool, and the extra 4% is the buffer. Its balance is actually higher than TVL. What is its role? Its main role is to absorb the impact of traders’ profits and losses.
When the collateral ratio is greater than 100%, the trader's profit and loss will have no effect on gDAI. Only when the collateral ratio is less than 100%, the trader's profit and loss will have a short-term impact on gDAI. It must be emphasized here that it is short-term. Because at this time, the protocol will start to mint GNS and sell it into DAI in an OTC manner to make up for the losses of the gDAI pool.
The gDAI liquidity pool basically has three protection layers. The first protection layer is the buffer. With the buffer, the profit and loss of traders have no impact on gDAI holders. The second protection layer is its TVL. When the buffer disappears, the profit and loss of traders will begin to affect the price of gDAI, but at this time GNS has already started to be minted to make up for the losses of this pool. The third layer is that while GNS is being minted, the platform is still operating normally. On the one hand, the protocol has income, and on the other hand, traders may lose money to make up for the liquidity pool. Ultimately, these three methods will bring the pool back to 100%.
The gDAI pool is an iteration of the previous DAI pool. Compared with the DAI pool, the biggest feature of the gDAI pool is that you can do a lot of things with gDAI. It becomes an ERC20 token with automatic compounding. With it, you can play various Lego combinations in Defi.
All shares in the gDAI pool share profits and losses. Because it is a homogeneous token, it is impossible for the situation to occur like the previous FTX incident where you can withdraw money earlier but may not be able to withdraw money later, and you will have to bear all the losses.
As mentioned earlier, there are two factors that can affect the price of gDAI. The first factor is the platform's fees, which will never change. It will only drop slightly in the short term when there is insufficient collateral, but this is short-term. When its pool is replenished and the collateral rate returns to above 100%, the income you earned before will still belong to you.
Then, there is a very interesting point here, which is the incentive mechanism described in the third item in the figure. When the mortgage rate is insufficient, it will provide you with a very good opportunity to buy gDAI. Why is this so? Because at this time, what you buy is actually helping the gDAI pool, so you can get corresponding benefits. In addition, in the incentive mechanism, it will have a discount. Normally, the mortgage rate is kept above 100%, and it decreases linearly between 100 and 150%. The higher the mortgage rate, the lower the discount rate. If it reaches 150%, there is no corresponding discount rate.
gDAI is highly composable. It is an ERC20 token. Users can also get a corresponding discount by locking positions, that is, promising not to exit the pool for a period of time through time limits. However, in this case, user positions will be expressed in the form of ERC721 tokens. It is a very high-quality collateral first choice because its value is steadily increasing unless a very extreme black swan event occurs.
In addition, it has a time lock for withdrawals. When the mortgage rate is less than 110%, users need to wait for three Epochs, one Epoch is 72 hours, or 9 days.
The Epoch system is actually very safe. An Epoch lasts for three days, and the first 48 hours is the only time you can apply for a withdrawal or go to withdraw money. The last day will execute the trader's profit and loss settlement. Therefore, throughout the Epoch, when users withdraw or apply for a withdrawal, they actually don't know whether the Epoch protocol is making money or losing money. In this way, front-running or cash grabbing will not happen.
3. Application scenarios of GNS
GNS is an application token, and the relationship between GNS and the gDAI pool is very close. When the collateralization rate of DAI is less than 100%, GNS will be minted and then sold to fill the gap in the gDAI pool. When over-collateralized, 5% of the trader's profit and loss income will be used to repurchase these GNS.
In addition, there is another situation where GNS is minted. This situation involves NFT robots and referral programs. Why are they willing to participate? Because there is income, and this income is the minted GNS. But these GNS are not minted out of thin air. Their minting is entirely derived from actual income - the actual income of the gTrade platform, that is, DAI.
However, the incentivizers will receive GNS instead of DAI, which means that these DAI will enter the buffer, thereby increasing the assets of the buffer and enhancing the protection of the gDAI pool.
In short, the actual amount of GNS is completely dynamic. Its minting volume depends on demand. It will be minted when it needs to be minted, and it will be destroyed when it needs to be destroyed. As long as its destruction volume is greater than its minting volume, GNS will be deflated. Its minting volume has a daily cap of 0.05%. Therefore, the maximum annual inflation rate is only 18.25%. Unless there are extreme circumstances, it is unlikely to reach this cap. After all, the mortgage rate cannot be less than 100% every day. Because the gTrade platform is still making money, traders are still losing money, and these incomes are calculated every day.
Currently, the inflation of GNS is negative, which means that its burning is greater than its minting.
4. NFT bots
The NFT bots mentioned just now are used to execute all automatic functions on gTtrade, including settlement, liquidation, adding new orders, taking profit, stop loss and other functions.
Another function is that for large traders, it can reduce the spread of transactions, which is actually quite considerable, so its NFT is very expensive now. If these holders have staked GNS, they can increase their GNS staking income. A wallet can stake up to three NFTs. If you hold Bronze, Silver and Gold NFTs, you can add them together, 2%+3%+5% is 10%, that is, if you have staked GNS, you can increase your income by 10%. If you are a trader, you will get a discount of up to 25%.
5. Dividends by Agreement
GNS now has two sources of income, one from Market Order and the other from Limit Order. Roughly 70% of the income comes from its Market Order. Through calculation, it is found that GNS pledgers can get 36% of the platform income, gDAI liquidity providers can get 18% of the platform income, and the rest is given to project development expenses, NFT bots and alliance rewards. For comparison, GMX pledgers can get 30% of the platform income, and liquidity providers can get 70% of the platform income.
For GMX, liquidity providers bear greater risks, and LPs must bear the impact of traders' profits and losses. However, on Gains Network, the ones who bear the greatest risk are GNS pledgers, and of course their returns are also higher, earning twice as much as liquidity providers.
 Summarize
By introducing gToken tokens, Gains Network provides users with a new liquidity pool solution and handles a large amount of trading volume, demonstrating the efficiency and sustainability of its liquidity solution.
Gains Network's success lies in its keen perception of user needs and quick response to market changes. The platform continues to launch new solutions to meet the different needs of users and continuously improves its existing services to provide users with a more complete DeFi experience.
DeFi derivatives are a track with greater business opportunities than the spot market. Gains Network has been continuously iterating in a bear market environment and has grown into a leading player in the decentralized leveraged trading track. It has won market recognition in terms of both trading volume and trading experience. It is believed that with the continuous addition of gToken pools, gTrade will capture a larger market share in the increasingly competitive derivatives track.
 
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data source:
https://dune.com/unionepro/Everthing-Gains-Network
https://gains-network.gitbook.io/docs-home/
https://twitter.com/GainsNetwork_io