Perpetual DEX Development like GMX | Ultimate Overview

May 21, 2024
DeFi
Perpetual DEX Development like GMX | Ultimate Overview

Introduction to Perpetual DEX Development

Perpetual DEX development is transforming the financial landscape, offering innovative ways to facilitate secure and efficient trading. Unlike traditional exchanges, decentralized exchanges eliminate intermediaries, providing a more transparent and resilient trading environment.

Perpetual DEXs, in particular, are gaining traction due to their ability to offer perpetual contracts — futures contracts with no expiration date. This lets traders hold positions indefinitely and leverage trades without the need to constantly roll over contracts. As more businesses turn to blockchain technology, perpetual DEX development can offer significant advantages, including enhanced security, lower costs, and trading flexibility.

Benefits of Perpetual DEX Development for Businesses

Continuous Trading: Perpetual DEX development offers traders unrestricted, 24/7 access to the market. This continuous trading environment ensures that users can engage in trading activities at any time, without the limitations of traditional market hours.

Leverage and Margin Trading: These platforms typically support leverage and margin trading, enabling traders to amplify their positions. By borrowing funds, traders can increase their market exposure and potentially enhance their profits, though it also comes with increased risk.

Automated Liquidation Mechanisms: To manage the risks associated with leveraged trading, perpetual DEXs implement automated liquidation mechanisms. These systems automatically close positions if account balances fall below acceptable levels, preventing significant losses and reducing the risk of cascading liquidations.

Access to Derivative Trading: Perpetual swaps facilitate derivative trading, allowing users to speculate on the price movements of various assets. This expands trading opportunities beyond spot trading, enabling more complex trading strategies.

Funding Mechanism: Perpetual DEXs use a funding mechanism to maintain price alignment with the underlying assets. This system periodically adjusts traders' positions, ensuring that the perpetual contract prices stay close to the spot prices, thereby reducing discrepancies and ensuring market stability.

Understanding GMX: A Leading Perpetual DEX

GMX is a decentralized exchange that empowers users to trade BTC, ETH, AVAX and other top cryptocurrencies directly from their crypto wallets. GMX enables users to perform spot swaps and trade perpetual futures with up to 50x leverage. According to GMX’s data, by 21 May 2024, its Total Trading Volume is $202B with total users amount more than 540,000.

GMX combines the benefits of DEX platforms with the high-performance features typically found in centralized exchanges. This makes GMX a prime example of how perpetual DEX development can revolutionize the trading experience for both individual traders and business owners looking to create a DEX solution that is secure, cost-effective, and globally accessible.

As businesses look to create a DEX like GMX, understanding its core functionalities is essential.

Tokenomics Development

Tokenomics refers to the design of the economic system around a cryptocurrency token development, encompassing its issuance, distribution, incentives, and utility within a blockchain ecosystem. Tokenomics creation plays a crucial role in DEX development, ensuring the platform's sustainability, security, and user engagement. Effective and sustainable tokenomics strategies can incentivize liquidity provision, foster user participation through staking and governance, and create mechanisms for fair value distribution among stakeholders. It also enhances the overall functionality and appeal of a DEX, ultimately contributing to its growth and long-term success.

Now let’s take a closer look at GMX’s tokenomics model.

The tokenomics of GMX is structured around four main tokens:

  1. GLP Token: The liquidity provider token
  2. GMX Token: The platform's utility and governance token
  3. esGMX Token: A synthetic premium token
  4. Multiplier Points: A synthetic reward mechanism

These tokens are integral to the platform’s functionality and are supported by various tokenomics mechanisms, including the GLP pool, staking, reward claims, compound rewards, and vesting.

🔹 LP Token in DEX Development: GLP Token

The GLP token represents a share of the platform's liquidity pool. GLP tokens give users a share of the assets in the GLP pool. This pool is crucial for perpetual DEX development as it supports high-leverage trading and swaps. Here's how it works:

  • Revenue Sharing: 70% of the platform’s revenue is distributed to GLP token holders daily. For Avalanche, the target return is 30% in AVAX real assets.
  • Additional Rewards: If actual profitability from fees is lower than the target, liquidity providers receive esGMX tokens as additional rewards. Conversely, if profitability exceeds the target, rewards are given in AVAX.
  • Minting GLP: GLP cannot be purchased on exchanges but can be minted by contributing supported crypto assets to the pool. The pool's asset basket includes high-quality crypto assets like AVAX, WETH, BTC.b, WBTC.e, USDC, and USDC.e.
  • Rebalancing Mechanism: Asset shares are rebalanced through deposit commission adjustments to maintain target ratios, thus avoiding impermanent losses common in traditional liquidity pools.

The GLP pool underpins various trading activities on GMX, including leveraged trading up to 50x, swaps, and margin trading. Traders operate against the GLP pool, which acts as a counterparty, providing liquidity and stability. The main risk for GLP holders is that the pool could run out of money if successful traders make a lot of profits. But historically, traders have lost more than they've gained, so the GLP has gone up in value net.

🔹 Utility and Governance Token in DEX Development: GMX Token

The GMX token is central to the governance of the platform. Governance tokens play a central role in DEX development by empowering the community to shape the platform's future. These tokens grant holders voting rights on key decisions, such as fee structures and new feature implementation. GMX token’s key features include:

  • Revenue Sharing: 30% of all commissions from all networks where GMX operates are distributed daily to staked GMX token holders. The annual percentage rate (APR) is around 11%, comprising ~3.7% in AVAX and ~7.3% in esGMX tokens.
  • Total Supply: The total supply of GMX is capped at 13,250,000 tokens. While the issuance of esGMX ended in December 2022, any future issuance exceeding this cap requires a 28-day hold and a community vote.
  • GMX Emission Distribution:
  • 6 million GMX for XVIX and Gambit migration.
  • 2 million GMX for Uniswap liquidity pool paired with ETH.
  • 2 million GMX reserved for esGMX vesting.
  • 2 million GMX managed by the floor fund.
  • 1 million GMX for marketing, partnerships, and developer community.
  • 250,000 GMX distributed among the team over two years
  • GMX Floor Price Fund: The GMX token is backed by a floor price fund in ETH and GLP. This fund is mainly filled through GMX/ETH liquidity provided by the protocol and commissions from Olympus bonds. It makes sure there's enough ETH around to reward staked GMX holders. If the market price of GMX falls below a certain level, the fund can buy back and burn tokens to keep the value of the tokens stable.

Staking in DEX Development

In perpetual DEX development, staking is a vital component that enhances user engagement and platform stability. On GMX, staking GMX or GLP tokens generates staked GMX or staked GLP tokens, respectively. Users can either claim their staking rewards immediately or reinvest them to compound their returns. Here’s a detailed look at the rewards for staking each token:

  • GMX: When staked, GMX tokens earn AVAX, esGMX, and Multiplier Points.
  • esGMX: These tokens, when staked, also generate AVAX, esGMX, and Points.
  • Multiplier Points: Staking these points boosts the APRs for AVAX.
  • GLP: Staking GLP tokens automatically earns AVAX and esGMX.

Thirty percent of the commissions earned from swaps and leveraged trading on GMX are converted into AVAX and allocated to staked GMX holders. These commissions are calculated after deducting referral fees and network costs of the keeper, which are typically around 1% of the total fees.

🔹 Multiplier Points: Enhancing Returns

Multiplier Points (MP) are additional rewards given in AVAX and esGMX. These points can either be burned when collecting rewards or compounded to further boost returns. Staking MPs increases the boost percentage, enhancing the staking rewards in AVAX.

🔹 Escrowed GMX: A Unique Staking Reward Mechanism

esGMX is a special form of GMX staking reward that can be used in two ways: staking or vesting. When staked, esGMX functions similarly to regular GMX, earning AVAX and esGMX rewards.

Vesting in DEX Development

Vesting development refers to the gradual release of tokens over time for project contributors like founders, advisors, and investors. It acts like a commitment mechanism. Overall, vesting acts as a safeguard for DEX development, preventing immediate token dumps and ensuring parties stay invested in the project's long-term success.

esGMX can be vested over a one-year period to yield regular GMX tokens. During the vesting period, the amount of GMX or GLP used to earn the esGMX is reserved. For instance, if a user decides to vest 100 esGMX tokens earned from staking 1000 GMX tokens, those 1000 GMX tokens will be reserved for the duration of the vesting cycle.

While esGMX is being vested, it does not earn rewards, but the staked tokens reserved for vesting continue to earn rewards. The conversion of esGMX to GMX occurs every second and is fully completed over 365 days. Users can claim the converted GMX tokens at any time.

Referral Programs in DEX Development

In DEX development, referral programs leverage the power of network effects to attract new users. By incentivizing existing users to share the platform with their network, DEXs can expand their reach organically. GMX’s referral program allows users to earn additional rewards and receive discounts. By creating a referral code and link, users can benefit from their referrals' trading activity. The referral program has three tiers:

  • Tier 1: 5% discount for traders, 5% rebates to referrers in esGMX.
  • Tier 2: 10% discount for traders, 10% rebates to referrers in esGMX (requires at least 15 active users and $5 million in weekly volume).
  • Tier 3: 10% discount for traders, 15% rebates to referrers in AVAX, 5% in esGMX (requires at least 30 active users and $25 million in weekly volume).

Rebates and discounts apply to both the opening and closing fees for leverage trading.

Trading Mechanisms in DEX Development

GMX's trading mechanisms make GMX a prime example of advanced decentralized exchange development, appealing to businesses looking to create a DEX and succeed in the dynamic DeFi market.

Trading on GMX is streamlined and efficient, thanks to innovative technologies used in DEX development. Here, we explore the four main components integral to trading on GMX: Order Managers, Vault, Price Feeds, and Keepers

  1. Order Managers: Order Managers are periphery contracts such as Router, PositionRouter, and OrderBook. They serve as the API (application program interface) for GMX, receiving user orders, transferring funds, and storing on-chain order information. Users submit their orders to these order managers, which then work with other components to execute trades.
  2. Vault: The Vault is the contract that holds liquidity and handles trading functions such as swaps, opening/closing positions, and liquidations. It is the core component that ensures trades are executed efficiently, using price data from Price Feeds.
  3. Price Feeds: Price Feeds are contracts that aggregate prices from multiple sources, including centralized exchanges (CEX), on-chain pools, Chainlink, and off-chain oracles. These price feeds ensure that trading is based on accurate and up-to-date price information.
  4. Keepers: Keepers are off-chain components that update prices to Price Feed contracts and check if the conditions of user orders are met. Once conditions are met, Keepers submit execution transactions to Order Managers, ensuring that trades are executed at the right time.

🔹 Trading Mechanics

When users submit orders, Order Managers and Keepers work together to ensure the conditions are met before executing trades. Here's a breakdown of the trading processes:

  • Opening Positions (Spot or Leveraged)

Users can perform swaps or open long/short positions with or without leverage. To do so, they select the order type in the interface and set stop-loss and take-profit triggers if needed. Trading is limited to assets included in the GLP pool.

Swaps are spot orders executed at the current market price. For example, if ETH is priced at $5,000, a user can swap 1 ETH for $5,000 USD using the Vault's swap function.

Long Positions profit when prices rise and incur losses when prices fall. Conversely, Short Positions profit when prices fall and incur losses when prices rise.

Users can trade with leverage by specifying it in the interface. For leveraged positions, traders borrow funds from the GLP pool and pay borrowing fees in addition to opening and closing fees.

  • Managing Positions

Users can manage their orders by increasing or decreasing the margin on open positions, which adjusts the liquidation price. When a position is opened or collateral size changes, a snapshot of the collateral price in USD is taken and remains fixed regardless of price fluctuations.

PnL (Profit and Loss) for long positions depends directly on the rate change, with profits or losses matching the percentage change in the exchange rate. For short positions, the reverse applies.

For long positions, a 0.3% commission is applied when converting currency into USD to prevent free swaps. No commission is applied for short positions or collateral withdrawals.

  • Order Execution

Order execution is managed by contracts like Router and PositionRouter, which handle the transfer of tokens and wrapping/unwrapping of native tokens if necessary. The PositionRouter manages two-part transactions to reduce front-running risks:

  1. Users send a request to PositionRouter to adjust their position.
  2. Keepers request the index price from multiple exchanges.
  3. Keepers fill the position at the current index price, or cancel the request if the slippage is too high.

Users can independently execute positions if three minutes have passed since the request transaction. The protocol functions effectively even without Keepers, providing flexibility and robustness in decentralized exchange development.

  • Closing Position

Closing positions can be done partially or completely. For long positions, PnL is paid out in the opening currency, while for short positions, PnL is paid in the stablecoin used as collateral. Price spreads between Keeper and Chainlink prices are managed to ensure fairness: the higher price is used for opening long positions and the lower for closing, and vice versa for short positions.

🔹 Market and Limit Orders

Market orders and limit orders are fundamental in decentralized exchange development, providing traders with flexibility and control over their trades.

  • Market Order: This order type is executed immediately at the current market price. It’s placed in the order book and matched against the best available price.
  • Limit Order: This order is placed in the order book but only executes at a specified price or better. It waits in the order book until the market price reaches the specified level, ensuring precise entry points.

🔹 Stop-Loss and Take-Profit Orders

Stop-loss and take-profit orders are essential tools for risk management in perpetual DEX development, automatically closing positions at predetermined price levels.

  • Stop-Loss Order: Designed to limit potential losses, it triggers a market order when the price reaches a specified level below the current market price.
  • Take-Profit Order: Aimed at securing profits, it triggers a market order when the price reaches a specified level above the current market price.

Both types are placed as pending orders and work in conjunction with open positions to close them at specified prices.

🔹 Liquidation

Liquidation is a crucial process in perpetual DEX development, ensuring that positions meet margin requirements and mitigating risks for the platform.

  • Margin Call: Traders must deposit additional funds to maintain their position if their collateral falls below the required margin level. Failure to do so results in automatic liquidation of their position.
  • Liquidation Price: Calculated as the price at which (collateral - losses - borrow fee) is less than 1% of the position size. If the token's price crosses this threshold, the position is automatically closed.
  • Liquidation Fee: The platform charges a $5 fee per liquidation event, ensuring the process is economically sustainable.

🔹 Pricing

Accurate pricing is vital in decentralized exchange development, ensuring fair and transparent trade executions.

  • Price Feeds: The PriceFeed contract receives data from keepers which calculate prices using the median from multiple exchanges like Binance, Bitfinex, and Coinbase.
  • Keepers: Two types of keepers ensure accurate pricing:
    • Price Feed Keeper: Regularly updates prices for swaps.
    • Position Keeper: Updates prices when a position is filled.
  • Watcher Nodes: These nodes verify the accuracy of prices provided by keepers, ensuring no manipulation. If discrepancies are detected, watchers can enforce a spread between the keeper's price and Chainlink's price.
  • Stablecoin Pricing: In case of depegging, spreads are applied to maintain fair collateral and prevent front-running issues.

🔹 Fees

Fee structures in DEX development ensure the platform's sustainability while providing cost transparency to traders.

  • Position Fees: A 0.1% commission is charged for opening and closing positions.
    • Execution Fee: Paid to the blockchain network for processing the transaction.
    • Liquidation Fee: A flat $5 fee is applied per liquidation event.
  • Swap Fees: Ranging from 0.2% to 0.8%, based on the swap's impact on the pool's currency composition.
  • Collateral Requirements: Long positions require the token to be traded, while short positions can use stablecoins like USDC, USDT, DAI, or FRAX. Swap fees apply if conversions are necessary.

Governance Mechanisms in DEX Development

Governance mechanisms are the lifeblood of DEX development. GMX governance is a dedicated platform for the GMX community, fostering engagement and participation. This platform allows users to create topics, pose questions, and make suggestions, encouraging community-driven development. The platform is not related to web3 social media. Registration on the platform is done via email.

  • Platform Features:
    • Topic Creation: Users can initiate discussions by creating new topics.
    • Commentary: Community members can engage in discussions by commenting on topics.
    • Profiles: Each user has a customizable profile.
  • Profile Customization:
    • Username: Users can set and change their usernames.
    • Email: Users can edit or add alternative email addresses and choose a primary email.
    • Profile Picture: Users can upload a profile picture.
    • Activity Log: Users can export their activity logs.
    • Account Deletion: Users have the option to delete their accounts.

Statistics Implementation in DEX Development

Providing users with access to statistical data is crucial in DEX development. This transparency allows users to make informed decisions, fostering trust and a data-driven approach to the platform's growth. GMX Stats offers insights into trading and financial metrics, essential for understanding platform performance and user behavior.

🔹 Key Statistics

  • Total Volume: The aggregate volume of all transactions since the platform's inception.
  • Total Fees: The cumulative fees collected over the platform's operational period.
  • GLP Pool Size: The current size of the GLP pool.
  • Total Users: The number of registered users.
  • Open Interest: The total amount of outstanding loans for open positions.

🔹 Charts and Graphs

  • Volume: Daily trading volume, broken down by trade types (Swap, Mint GLP, Burn GLP, Liquidation, Margin Trading) and cumulative totals.
  • Fees: Daily volume of commission fees, displayed in USD and percentage, and cumulative totals.
  • AUM & GLP Supply: Daily volume of the GLP pool and the amount of tokens in circulation.
  • Pool Composition: Daily volume of the GLP pool for each currency.
  • GLP Performance: GLP price percentage, considering commissions relative to the purchase price, indicating the efficiency of entering the pool.
  • GLP Price Comparison: Daily GLP purchase prices for different currencies, comparing AUM/GLP Supply and esGMX rewards.
  • Traders Net PnL: Cumulative and daily PnL (Profit and Loss) for closed trades.
  • Traders Profit vs. Loss: Cumulative and daily profit and loss, displayed in USD and percentage.
  • Open Interest: Daily open loans for short and long positions.
  • Borrowing Rate Annualized: Daily interest rates on loans for each currency, annualized.
  • Unique Users: Daily unique users by operation type (Swap, Margin Trading, Mint/Burn GLP).
  • New Users: Daily new users by transaction type.
  • Swap Sources: Swap volumes by contract addresses over the last two weeks.

🔹 Time Periods for Charts

  • Last Month
  • Last 2 Months
  • Last 3 Months
  • All Time
  • Custom

Create a Perpetual DEX with Rock’n’Block

Perpetual DEX development like GMX requires a deep understanding of various critical components, including staking mechanisms, advanced trading functionalities, tokenomics, and automated systems for liquidation and pricing. Each feature contributes significantly to the platform's overall efficiency, security, and user experience.

Here is a step-by-step overview of the perpetual DEX development with Rock’n’Block.

Step 1: Initial Consultation and Requirement Gathering

We start with an in-depth consultation to understand your vision, goals, and specific requirements for the perpetual DEX development. Our team analyzes the gathered information to outline the technical specifications, desired features, and overall project scope.

Step 2: Conceptualization and Planning

Based on the initial consultation, we conceptualize the DEX framework, including key functionalities such as continuous trading, leverage and margin trading, and automated liquidation mechanisms. We also create a detailed technical blueprint, including the architecture design, technology stack, and development milestones.

Step 3: Tokenomics Development and White Paper Creation

We create a detailed tokenomics that outlines your token's utility, supply, distribution, and staking mechanisms. We also create a compelling white paper that explains your DEX's vision, features, and value proposition, catering to both technical and non-technical audiences. Tokenomics development and white paper creation provide a cohesive framework for communicating the project's economic structure and operational strategy, laying the groundwork for a successful launch and long-term viability.

Step 4: Front-End Development

Our design team creates intuitive and visually appealing user interfaces that ensure a seamless trading experience. This includes the design of dashboards, trading screens, and management tools. We ensure the platform is fully responsive and accessible on various devices, including desktops, tablets, and mobile phones.

Step 5: Back-End Development

We create smart contracts to handle the essential functions, like order management, trading, and liquidity provision. We set up a solid and scalable server infrastructure to support the DEX operations, including data storage, user authentication, and transaction processing. Ensuring the back-end systems are optimized for performance, reliability, and scalability to handle high volumes of transactions is our top priority.

Step 6: Testing and Quality Assurance

At this stage our QA experts verify all features and functionalities of the DEX work as intended. They conduct extensive security testing to identify and mitigate potential vulnerabilities.

Step 7: Deployment and Launch

After thorough testing and satisfaction with the results, we finally deploy your perpetual DEX on the chosen blockchain network, ensuring everything is set up correctly and securely. Now it’s available to the public.

Step 8: Post-Launch Optimization and Maintenance

We continuously monitor the DEX's performance, making necessary optimizations to improve speed and reliability. Our experts regularly update the platform to address any new security threats and vulnerabilities, keeping your DEX secure. We work on adding new features and improvements based on user feedback and evolving market trends, ensuring your DEX stays ahead of the curve.

At Rock'n'Block, we understand the complexities and challenges involved in developing a high-performing perpetual DEX. With over 300 expert blockchain solutions delivered, more than 15 years of custom blockchain development experience, and 50+ innovative Web3 technology services, our team of blockchain experts is equipped to assist you in every stage of your project. Whether you are looking to integrate advanced trading features, create tokenomics, or ensure robust automated systems, our expertise in decentralized exchange development, including perpetual DEX development, makes us your ideal partner. Turn your vision into a reality and create a DEX that stands out in the competitive DeFi landscape with Rock'n'Block!

Contact us today and let’s discuss your future project!

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