Kwenta State Log

A living document defining the state of Kwenta

Kwenta State Log

Kwenta Improvement Proposals

KIP-133: Kwenta GMX Integration

Summary

This proposal is to enable Kwenta to integrate its GMX V2 on Arbitrum into its front end, creating a growth opportunity for both and adding the deepest open interest markets to Kwenta.

Background: GMX V2

GMX V2 was set in motion through discussions on the GMX governance forum about the next iteration and direction of GMX, starting in mid-2022. Over time, the constraints of a product like GLP (the GMX V1 Liquidity Pool Token), designed for a particular set of assets and size, limited its ability to leverage its potential at scale.

V2 was a more ambitious concept, reflecting on the successes and limitations of the GMX V1 and GLP experiments, instead of simply iterating a new protocol was built from the ground up.

GLP proved that there was a desire for community liquidity to support and earn from the utility of creating deep perp markets on-chain. This innovation suggested there was no need to rely on professional market makers who, on CEXs and even in DeFi, would do so mainly based on preferential deals, extracting value from the ecosystem. GMX helped pioneer the idea that Oracles could:

  1. Effectively support price discovery of assets
  2. Be utilized to provide liquidity providers with a more equitable return on capital, by not bleeding excess value to MEV.

GMX’s results over the last two years show a fundamental demand from traders for sovereignty over their assets, control of their positions, transparent pricing, assured protocol solvency (always 100% backed, verifiable on-chain), and isolated risk (as traders only have the funds of a specific position exposed to the GMX protocol, while they continue to have the flexibility to interact with the rest of the vibrant DeFi ecosystem on Arbitrum.)

Arbitrum is an environment built to support the best of Ethereum DeFi. One protocol after another integrated with GMX, showing a strong need for yield-generating assets, capital-efficient trading, hedging on-chain, and supporting a wide range of strategies.

V2 is powered by new low-latency Oracles designed over the last year working with Chainlink, and launched first on Arbitrum to power GMX V2. They provide a whole range of additional data streams and exceptionally low-latency trading, giving GMX real-time price updates and faster on-chain execution. The result is strengthened protocol performance and data security, plus help with mitigating frontrunning risks.

The traders can deposit as margin: the backing token of specific markets can be used as collateral e.g. gmBTC: BTC/USD market uses (wBTC and USDC), gmETH: ETH/USD uses (ETH and USDC). Synthetic markets are mainly ETH/USDC backing. Single Sided pools have one token as collateral gmBTC+ (wBTC).

The current markets are available, and which markets broadly can be supported BTC/USD, ETH/USD, SOL/USD, LINK/USD, DOGE/USD, ARB/USD, GMX/USD, NEAR/USD, LTC/USD, XRP/USD, UNI/USD, AVAX/USD, ATOM/USD, AAVE/USD, BNB/USD, OP/USD, BTC/BTC, ETH/ETH.

Chainlink timestamp oracles, but for other new assets v2.1 supports other oracle price sources besides Chainlink.

V2 liquidity pools (GM pools) are isolated to each market/asset, allowing GMX to support a multitude of markets without adding collective risk. This provides more flexibility for liquidity providers to support the markets they want, and for market forces to scale up new markets that traders are interested in by committing liquidity (since liquidity providers can earn with enhanced trading volumes relative to the asset base).

New assets can be suggested for the GMX V2 by posting on the GMX governance forum here, any new asset on V2 will be reviewed by GMX’s risk manager Chaos Labs (Example: Single Sided Pool Initial Risk Parameters ). With sufficient support voted on by the community and a clearance from Chaos Labs a new asset can be added to the protocol.

For traders and protocols, in addition to lower trading fees, GMX V2 has a robust set of market parameters that encourage more balanced open interest. These parameters include differential trading fees based on pool balance, the ability to configure borrow fees for over-/underweight open interest, and the opportunity to also earn funding fees. This results in more liquid markets, allowing trades of substantial size in any market conditions, and making GMX a preferred venue to trade, hedge and earn.

Abstract

This proposal seeks to have Kwenta, a decentralized derivatives trading aggregator, integrate with GMX, a leading decentralized derivatives trading platform on Arbitrum.

The integration aims to leverage Kwenta’s trading interface with GMX v2 deep, liquid markets to create a seamless and efficient on-chain trading experience. By combining the strengths of both platforms, this integration will enhance liquidity, improve user experience, and increase the overall trading volume on Arbitrum.

Motivation

The integration of Kwenta with GMX is motivated by several key factors:

  • Enhanced User Experience: By integrating Kwenta’s intuitive and user-friendly trading interface with GMX's robust trading infrastructure, Kwenta users benefit from aggregating some of the deepest on-chain liquidity in DeFi, lowering order slippage, allowing for larger trade size, and lower fees for traders.
  • Increased Liquidity: The integration will allow traders on Kwenta to access the deep liquidity pools of GMX, improving market depth and reducing slippage for larger trades.
    • E.g: .35% slippage on a 24M order on ETH currently,
    • .20% slippage on a 20M BTC order
    • This will vary on how the pools are balanced
  • Expanded Market Reach: Combining the user bases of Kwenta and GMX will increase the number of active traders on both platforms, achieving a larger and more dynamic trading community on Arbitrum.
  • Strengthening the Arbitrum Ecosystem: As both Kwenta and GMX operate on the Arbitrum network, their integration will further solidify Arbitrum’s position as a leading hub for DeFi activities. This synergy will attract more projects and users to the Arbitrum ecosystem, contributing to its growth and success.

Specification

To achieve this integration, a team of experienced developers from both Kwenta and GMX will work together to ensure a smooth integration. GMX contributors will commit to updating Kwenta on any changes that may impact the integration. The process will involve updating the Kwenta UI to accommodate GMX's trading functionalities, integrating GMX's liquidity pools into the Kwenta platform, and facilitating the seamless integration between the two protocols.

GMX will whitelist Kwenta as a Tier 3 partner (highest level) and assist in configuring fee splits in the manner that Kwenta prefers. This program includes the ability to retain up to 25% of all open & close fees from referred traders (paid in the tokens of those positions, USDC, BTC, ETH, etc) plus an additional 5% of fees distributed in the form of esGMX.

As GMX continues to decentralize the protocol including supported front ends, the GMX V2 smart contracts have been provisioned with the ability for such integrations to collect an additional front end fee, which would be natively added to transactions.

The terms of programs and parameters of the GMX contracts including front end fee, referral, and partner fees are set by the GMX DAO and are subject to future change. Historically changes, if any, involve consultation with integration as key stakeholders in the GMX ecosystem, the tier 3 esGMX distributions provide integrations an opportunity to also have an active voice in GMX governance directly or through delegation to others.

By implementing this integration, Kwenta and GMX will create a more dynamic and versatile trading environment that leverages the strengths of both platforms. This collaboration will drive user growth, enhance liquidity, and contribute to the overall development of the Arbitrum DeFi ecosystem.

We invite the community to consider this application for the Kwenta front end to integrate GMX v2 and welcome suggestions in this direction and any related feedback.

*This proposal is provided for informational purposes only and does not constitute any form of legal commitment or agreement between GMX, Kwenta, or any other parties. The listing and parameters for such allocation are subject to the approval and discretion of Kwenta DAO. GMX or any other parties makes no warranties or representations regarding the accuracy, completeness, or suitability of the information presented, and will not be liable for any losses, damages, or adverse consequences that may arise in relation to this proposal. All parties are advised to conduct their own due diligence and seek independent legal advice before making any decisions or commitments based on this proposal.