gTrade: A Decentralized Trading Experience
gTrade uses an incentivized token mechanism to achieve overcollaterization and has facilitated a total of $13.17 billion in cumulative trades.
The platform marks prices using a custom oracle. This oracle creates synthetic prices, a process that differentiates gTrade from other decentralized non-custodial exchanges such as dYdX.
As the number of decentralized alternatives to traditionally centralized products heats up, we should begin to look for promising emerging protocols that help to decentralize offerings that are traditionally centralized in nature. One such protocol is gTrade, a decentralized trading platform enabled by the Gains Network.
A Brief Overview of the Platform
Gains Network launched gTrade in its current form in January 2021, when its V2 launch went live after a short hackathon. gTrade was initially based on Ethereum as an ETH pool, and the GFARM2/ETH pair.
The token was then bridged to the Polygon network to take advantage of lower fees and a faster trading experience. On Polygon, GFARM2 was deprecated in favor of the new ERC-20 token, GNS, which was split at a ratio of 1:1000.
How Do the GNS Tokenomics Work?
gTrade relies on a novel mechanism to regulate its trading activity. An ERC-20 token, GNS, is issued by Gains Network, which creates a GNS/DAI liquidity pool that collateralizes a DAI vault. Every time a trader closes a profitable trade, GNS is minted. Likewise, every losing trade results in GNS being burned. The platform charges trading fees on every trade and those fees are given entirely to holders of the GNS token. This incentivizes users to hold the token over the long term, as they are being rewarded with an ongoing stream of user-generated trading fees for holding the token.
gTrade’s Novel Pricing Model
gTrade relies on a novel pricing mechanism, developed by Gains Network, which is the first of its kind on a mainnet. gTrade uses a Chainlink oracle to create a network of exchanges that stream current prices to the oracle. This Decentralized Oracle Network (DON) then calculates the average price across all eight networks to arrive at a synthetic price.
This pricing mechanism provides several immediate benefits to traders. First, the oracle filters out sharp, single-candle spikes in price which can liquidate a position even though there was not a material directional move in price in the underlying asset.
Second, the gTrade smart contract is set up in such a way that gTrade cannot open, close, or alter your position in any way. This creates a trustless environment for traders, who no longer have to worry about platform interference in their trades. The only situations in which the smart contract can take action on your position are if you have granted explicit permission by setting a stop loss or a take profit, or if you reach the position’s liquidation price. The platform does reserve the ability to pause new trades, but this would not affect any open positions.
Third, because of the decentralized nature of the platform and its pricing mechanism, gTrade does not require a login or deposit to open trades. Users take sole custody of their funds at all times, the platform only works to facilitate trades—so gTrade does not require any user information to use the platform.
Gains Network has integrated NFTs into its platform as well. Users can purchase these NFTs, which total 1500 and come in five tiers. These NFTs confer platform benefits to the user who holds them in their trading wallet, as indicated below:
These NFTs can also be staked into the GNS/DAI pool contract, which adds an additional percentage to the staking rewards the user would have otherwise received. These rewards are detailed in the “LP Boost” column in the chart above. As of this writing, the floor price for the Bronze NFTs is 0.73 ETH, while the price for the Diamond NFTs is 6.5 ETH.
Opportunities for Gains Network
Gains Network plans to launch stock trading and forex trading on gTrade. As of writing, 23 stocks have been launched for trading. Including:
$AMZN, $MSFT, $TSLA, $SNAP, $NVDA, $V, $MA, $PFE, $KO, $DIS, $GME, $NKE, $AMD, $PYPL, $ABNB, $BA, $SBUX, $WMT, $INTC, and $MCD.
This is possible because of gTrade’s synthetic pricing using their custom DON. Theoretically, the DON can derive any asset price given steady information flows from exchanges, potentially giving the platform the ability to host trading for any liquid asset that has sufficient price information.
If gTrade can continue to develop its vision of decentralized synthetic trading
Risks to Consider
Of course, these experimental new features are not without risk. The main risk to platforms like gTrade is regulatory crackdowns on decentralized synthetic exchanges like these. The platform does not at any point own the underlying asset, regulators may find these synthetic platforms to be too inherently risky for the average trader, and ban their use.
The other risk to consider is the incentive structure of the GNS minting/burning mechanism. Unlike other platforms that have tried to create to regulate a vault or treasury by implementing a minting/burning mechanism, gTrade has real revenue streams in the form of trading fees that it can use to incentivize people to hold GNS. This structure is inherently more stable than other projects that use new liquidity to provide rewards to previous stakers—a system that many have critiqued for being too Ponzi-like.
The platform also lags other similar decentralized trading protocols such as dYdX in users, as seen below. gTrade has had 4,851 unique users, compared to dYdX’s total user count of 57,077.
The Path Forward
Gains Network has real intellectual property with its DON. The network has a compelling model for incentivized token rewards based on real revenue streams. It has a small but loyal user base that has remained steady over time and throughout various market conditions. If the network can continue to execute on its vision, and navigate the changing regulatory environments in the locations where its users live, then it may be able to continue to grow and capture additional more and more of the market for decentralized leveraged trading.
Disclosure: This is not financial advice. This analysis is for informational purposes only. Experimental, unregulated platforms can carry unknown risks, including the risk of loss and potential legal risks. Users should understand the scope of any potential risk before engaging with any platform. The past performance of any asset does not dictate future performance. The risk of loss is possible with any investment. Do your own research and work with a registered financial advisor if necessary.
I do not own any GNS, nor do I have any stake in Gains Network or gTrade. I do not and will not receive any financial incentive to write about Gains Network or gTrade.
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