Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
Previously, we have studied the rise of decentralized perpetuals trading platforms on Ethereum L2s like GMX on Arbitrum. In this same family of DeFi products, the breakout star for perpetuals and synthetics trading on Polygon is called gTrade by Gains Network. On the gTrade dApp, anyone can leverage trade on crypto, stocks, and forex. To date, gTrade has built up over $18M TVL and an average daily spot trading volume ranging between $500k to $3M over the last few months. What clearly stands out for gTrade is offering the most leverage of any decentralized, permissionless trading platform.
- 40+ crypto pairs at leverage up to 150x
- 20+ stocks at leverage up to 100x
- 10 forex pairs at leverage up to 1000x
Like any true DeFi application, users are 100% in control of their funds, with no sign-up or KYC required. On Gains, traders trade against Chainlink decentralized oracles with real-time spot prices on-chain. Similar to the DeFi pioneer Synthetix, there are no order books or isolated liquidity for each trading pair.
In order to place a trade on the Gains Network, traders are required to deposit DAI collateral regardless of the trading pair. The leverage is synthetic and backed by the DAI vault, the GNS/DAI liquidity pool, and the GNS token. DAI is taken from the DAI vault to pay traders when they close a position in profit or the DAI vault receives DAI from traders when their position closes with a loss. Somewhat similar to the composite pool GLP on GMX, those who are in the DAI vault are at risk of losing principal if the net PnL of traders on gTrade is in profit. However, historically since fall 2021, gTrade traders have closed positions with a loss more often than in profits, which is why those in the DAI vault, GNS staking, and GNS/DAI LP staking have consistently been able to earn yield collecting profits from traders. I would liken any one of these to owning a piece of a casino, with a better performance over the long term and a real risk of losing some principal in the short term.
Source: Gains Dune Analytics
My focus for this article is on the DAI vault because it doesn’t require me to be exposed to GNS or any other volatile cryptoassets. Anybody can stake DAI in the vault and earn DAI rewards from fees based on the platform’s volume. While DAI stakers are rewarded, they bear real risk associated with platform function, that is “a loss if the vault became undercollateralized and did not return to sufficient collateralization.” Here’s how we calculate the yield for DAI stakers.
Vault Balance = Staked DAI Value + Platform PnL
Vault Collateralization % = (Staked DAI Value + Platform PnL) / Staked DAI Value * 100
One protection in place to ensure the DAI vault remains overcollateralized enough to settle trades is DAI stakers can only withdraw a maximum of 25% of their holdings (based on the last time they staked) every 24 hours, meaning if I have 1000 DAI in the vault, I can only withdraw 250 DAI every 24 hours and will need 4 days in total to withdraw all my DAI. The goal is for the DAI vault to always remain overcollateralized, which…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
