Gains Network Analysis

Gains Network Analysis


Gains Network is a decentralized perpetual synthetic trading platform on the Polygon blockchain, which it accomplishes with its main product, gTrade. Though Gains Network has been around since October 2021, gTrade specifically was finalized in May 2022 in response to the LUNA/UST catastrophe causing contagion effects across the industry. Gains Network is fully decentralized, meaning that it focuses on spreading risk across each user in the system instead of a centralized entity. With regards to a decentralized exchange, this means that users make transactions directly, without having to ever give management of their funds to an intermediary. Specifically, there is no “know your customer” (KYC), complete anonymity on the user side, no credit score users need to provide, and it gives complete access to powerful financial tools to anyone with a simple internet connection and hot wallet.

Gains Network has recently become one of the most trending decentralized perpetual contracts exchanges, primarily because they boast iterative improvements over their competitors, which include increased capital efficiency, a more accurate pricing oracle, organic deflationary mechanisms, and real-yield opportunities. Gains Network hopes that the combination of these factors will be the foundation of a sophisticated and mature trading platform.


As mentioned earlier, Gains Network’s primary product is gTrade, however, it has a multitude of other products, such as GNS token and GNS NFTs to support gTrade. Perhaps gTrade’s most important aspect is its liquidity; without proper liquidity, facilitating leveraged trades would be simply impossible. Gains Network gains the vast majority of its liquidity from users who stake GNS, provide single-sided DAI liquidity, or become a liquidity provider to the GNS/DAI pool. Users who participate in these actions receive rewards based on platform trading fees, primarily because they are the ones taking on the risk if Gains Network becomes undercollateralized.

GNS Token

GNS token is integral in gTrade, as it acts as a mechanism of liquidity efficiency. Primarily, it mints rewards for stakers and other affiliates, which allows DAI to remain in gTrade’s liquidity smart contract, the DAI vault. Yet, GNS also ensures that early community users will not have their platform interest diluted by whales later on, as Gains Network plans to have GNS function as one of the primary governance mechanisms for the protocol.


On the other hand, GNS NFTs are marketed as NFTs with real DeFi use cases. These NFTs unlock exclusive benefits for users, such as reducing the spread when trading and boosting rewards for GNS/DAI liquidity providers by set percentages. There are only 1500 such NFTs and they consist of 5 varying tiers, bronze, silver, gold, platinum, and diamond. These tiers offer the benefits listed above at increasing percentages (e.g., bronze NFTs offer a 2% increase in liquidity provider/single sided staker rewards while diamond NFTs offer a 13% increase in rewards). For reference, a diamond tier NFT is currently priced at 7.6 ETH (~$9000).


gTrade currently supports 39 crypto trading pairs, 10 forex pairs, 22 stock pairs, and three different staking options that give users access to “real-yield” via their proprietary distribution of closing fees. To be specific, “real-yield” simply represents a share of a protocol’s revenue, slightly akin to a traditional dividend. On all of these pairs, gTrade offers users varying levels of leverage, essentially meaning that users can enter trades with more capital than they currently own by borrowing capital.

The primary liquidity mechanism that gTrade employs is called the DAI vault. At its core, the DAI vault is simply a smart contract, accumulating the negative PnL while paying out the positive PnL of active traders on gTrade. The liquidity that users stake also goes towards the DAI vault. Gains Network keeps the DAI vault overcollateralized, aiming for about a 30% overcollateralization rate. If the overcollateralization rate ever exceeds 30%, the excess DAI in the DAI vault is used to buy up and subsequently burn GNS token. This feature acts as a deflationary mechanism for GNS, removing supply of the token in order to maintain its value. Gains Network’s DAI vault is currently overcollateralized at a rate of ~9%.

Industry Dynamics

There are a myriad of platforms on the market that offer real-yield, mainly in response to traders’ desire for more sustainable yield opportunities following the Luna collapse. Even more recently, after the crash of FTX, the erosion of trust in a centralized exchange and entities has taken the forefront of many crypto investors’ minds, scaring many away from using an exchange or protocol in which they don’t have complete custody over their funds and trades. Gains Network and many others are taking advantage of this asset flow on-chain by transitioning control of assets to the user instead of the entity deploying transactions. gTrade highlights in their documentation that “we cannot open, close, or edit any aspects of your open trades…the trading engine is fully decentralized, and users keep custody of the funds”. Gains Network has continued to highlight that transparency, open-sourced code, and non-custodial protocols are at the center of its roadmap during a turbulent time when those factors are more pertinent than ever.


Figure 1 - How yield-farming works on decentralized applications

Customers (Target Market)

Throughout the course of 2021, over $1.1 trillion was traded across all DEXs. Yet the market for Forex trading is exponentially larger, with the daily trading volume alone averaging out to be over $6.6 trillion. Gains Network represents an incredibly small fraction of these trading volumes, with a 30-day MA of $66.77 million for daily trading volume. While it’s a testament to their small market share, it also represents the size of the potential market they have to gain. With the onset of the most recent industry events as mentioned above, it’s clear that the DEX and real-yield market could see a big uptick, and Gains Network will look to capture a portion of the new customers.


Gains Network occupies the leveraged trading space for decentralized exchanges and

competes with the major DEX dYdX. dYdX is a DEX based on the Ethereum blockchain and has been around since 2017, focusing on facilitating perpetual trading, lending, and borrowing. They tout lower than average fees, with “free” trading of up to $100,000 every month, and maker and taker fees never exceeding 0.05%. dYdX also recently rolled out a platform on Layer 2, which will allow them to scale much better long-term (with more transactions per second, reduced gas costs, and increased throughput). While dYdX is overall a much larger DEX than Gains Network, with a fully diluted market cap of around $2 billion (compared to Gains Network’s market cap of ~$113 million), they offer much lower leverage as a trade-off (25x on their Layer 2 platform vs. 150x). Finally, in terms of staking, dYdX’s current APY for stakers sits at around 12.41%, while Gains Network’s APY for stakers is currently estimated to be ~7%.

In terms of a competitor on a more level playing field, GMX started around the same time as Gains Network in September of 2021, launching as a decentralized trading platform for spot and perpetual trading contracts on Arbitrum, a Layer 2 project. GMX has also since launched on Avalanche, a blockchain platform known for its speed and scalability. GMX’s fees are larger than both dYdX and Gains Network, coming in at 0.1% for opening and closing along with swap fees reaching 0.8%. Yet despite these higher fees, they only offer leverage up to 30x. Though Gains Network seemingly has an advantage over GMX in terms of pure offerings, GMX has a larger fully diluted market cap of just under $400 million, perhaps due to its unique liquidity model, utilizing a token called GLP as a form of liquidity provision (which uses a decentralized counterparty clearing house structure) and allowing users to enter positions without impacting price.

Competitive Advantage:

Gains Network’s trading experience and engine are its two primary points of differentiation. Gains Network’s advantage lies in its ability to use much higher leverage than its competitors. GMX maxes out at 30x and dYdX supports a mere 25x on Layer 2, whereas gTrade tops at a 1000x leverage for Forex and 150x for crypto. High leverage continues to be a driving force in crypto, resulting in higher liquidity and more value accrual to its token, creating a flywheel effect that can take off quickly. Gains Network has a clear path to take market share from dYdX because the revenue from staking, pools, and transaction fees flows directly to the token holders. This can be the edge when deciding to use different protocols, highlighting that dYdX rewards with its token and fails to follow the “real-yield” narrative that has taken decentralized finance by storm.

Gains Network also has a powerful trading engine that relies on synthetic leverage, real-time custom chainlink decentralized oracle network, and no order books or liquidity for each pair. Instead of being matched with a specific buyer, all trades are backed by the DAI vault, the GNS/DAI liquidity, and the GNS token. This mechanism decreases the chances for slippage and altered prices due to thin markets. gTrade also uses one of the first customized decentralized oracle networks that retrieves the median price for each order based on various simultaneous API calls.

Overall, Gains Network has a variety of user experiences and technical improvements relative to the competitors that can give it the edge when scrapping over liquidity, especially during a deep bear market. Strong support for a variety of different pairs, hyper-accurate pricing models, and revenue that goes downstream to the user should allow Gains Network to gain ground in the market share battle with dYdX and GMX.


Figure 2 - gTrade’s Unique Pricing Oracle

Weaknesses (Risks)

Though gTrade has many mechanisms which reduce the potential risk of its system (such as the deflationary mechanism of the DAI vault), there are still many risks inherent in the platform. If gTrade’s trading volume were to decrease to a critical point, gTrade’s fees would decrease in kind, meaning that stakers would have no incentive to stake their DAI with gTrade, ultimately leading to a severe loss of liquidity in the DAI vault. In the worst case, this would result in gTrade’s inability to pay out the winners of trades and prevent Gains Network from acting as a levered trading exchange.

gTrade’s reliance on DAI also warrants some attention. In the battle of stablecoins, DAI’s market cap is just below $6 billion, while Tether and USD Coin have a combined market of approximately $110 billion. If DAI ever becomes obsolete, Gains Network must make serious changes to their smart contracts. Along this same vein, smart contract risk exists in any smart contract, as the potential for hacks is ever-present. Though Gains Network has gotten all of their smart contracts audited by CertiK, their safety scores are only slightly better than the average, which doesn’t mean very much when supposedly safe smart contracts are hacked so frequently.

However, the most potentially dangerous risk of gTrade occurs when there is a high percentage of “wins” on the platform. Given that a trader’s profits on gTrade are paid out directly from the DAI vault and a trader’s losses are sent to the DAI vault, if traders in general keep “winning” (i.e., making profit) there is a constant outflow of funds from the DAI vault, but no influx of funds. Such a situation occurred during the Terra/Luna collapse, when traders on gTrade consistently won by shorting Luna. Gains Network had a mechanism in place which minted more GNS to help pay out profits, however, it was quickly removed since it would have caused a death spiral in the GNS token price. Gains Network has since implemented rollover fees which adjust to market volatility, however, this mechanism has yet to be tested in a similar market situation.


Figure 3 - DAI Vault Balance with Terra/Luna crash marked


Gains Network’s two primary sources of investment are DAI stakers and Polygon. Though Gains Network has only been around for a year, no staker has ever left at a loss, making it attractive to yield farmers who are risk-averse. Currently, Gains Network sits at around $21.71 million total value locked (TVL).

Gains Network has also received a $250,000 grant from Polygon for hitting target metrics, specifically, sustaining $30 million in daily trading volume for 10 days straight, having $2 million TVL, and having $20,000 maximum per-trade collateral. Gains Network will receive another grant of $500,000 for hitting long-term targets of sustaining $100 million in daily trading volume for 10 days, $10 million in GNS/DAI LPs, $5 million TVL, and $50,000 maximum per-trade collateral.


Figure 4 - TVL and Market Cap of Gains Network over time


To date, Gains Network has not released any official financial statements, however, we know that their one and only revenue stream originates from the fees they charge on each trade. Though they’ve recently modified their fee system to make it simpler, they charge 0.08% upon the opening of the trade, 0.06% on the close of a trade, 0.015% for updating a stop-loss, and any rollover and funding fees while the trade remains open. It’s important to note only 37.5% of the opening trade fees go to the Dev Fund, while the rest is split between a project fund, the DAI vault, GNS/DAI LPs, and GNS Single-Sided Staking. These fees are calculated on the total value of the position size (leverage*collateral). As of November of 2022, Gains Network has collected around $14.58 million in fees, experiencing an average daily trading volume of around $60.29 million. Most recently, Gains Network had a total profit from fees of $895,000 in the month of October 2022.


Figure 5 - gTrade’s Fee Breakdown over time


To understand the regulatory environment around Gains Network, one must first understand the regulation against Decentralized Exchanges (DEXs) in general. Back in 2019, Robert Cohen, the then Chief of the Cyber Unit of the SEC, spoke out against DEXs escaping the regulation of traditional exchanges simply because there was a lack of “central operations”. More specifically, he claimed that the focus of regulation should be on the function of the platform, rather than the label of the technology. In essence, he thought that if a platform acted like an exchange, it should be regulated like one.

Cohen’s sentiment aligns with the SEC’s previous actions and may also determine the direction of future regulation against DEXs. Back in November of 2018, the CEO of EtherDelta, a DEX, was charged by the SEC for operating an unregistered national securities exchange. Even more recently, in July of 2022, the SEC proposed changes to the definition of an exchange under the Securities Exchange Act. These proposals would broaden the definition of an exchange, and encompass “systems which offer non-firm trading interest and communication protocols to bring together buyers and sellers of securities”.

Based on the facts above, it seems as though the SEC intends to have all DEXs registered as national securities exchanges, which would include Gains Network. However, because Gains Network’s trading is all synthetic, meaning traders on Gains Network never actually hold the asset nor a token representing the asset, it may be exempt from securities trading regulation.

Ultimately, it remains to be seen whether the SEC intends to implement regulations that are more specific to DEXs like Gains Network, however, since Gains Network’s market share is small compared to other DEXs, this regulation may be a while off.

Future Outlook

In considering the future outlook of Gains Network, it becomes readily apparent that the decentralized aspect of their exchange may fall victim to governmental regulation in the foreseeable future. Growing uncertainty following the downfall of FTX and the lack of oversight which allowed such a catastrophic event to occur raises concerns for legislators who were already skeptical of the transparency of these exchanges. While their market cap pales in comparison to that of other DEXs, the implementation of legislation that would enforce sweeping regulations over said exchanges may require them to adapt to the relevant restrictions sooner or later. With that being said, given gTrade’s synthetic nature, it may not be subject to the securities regulations that other perpetual trading DEXs are, which would represent an immediate advantage. Ultimately, Gains Network utilizes iterative innovation as the driving force behind their growth, with long-term plans to apply their technology to both the Metaverse and Casino gaming. As long as Gains Network remains persistent in the implementation of new and exciting DeFi products which generate revenue for their $GNS staking pool, the future seems bright for Gains Network despite turmoil in the industry as a whole.


Recent events have sparked major controversy in the world of decentralized finance, shaking many investors to their very core and diminishing the public’s overall confidence in the reliability of DEXs given their current regulatory state. Even so, despite having a lot of ground to make up in terms of market share, Gains Network seems better primed to take advantage of the market’s uncertainty. Their consistent return for yield farmers, extremely high leverage rates, and seeming “immunity” to the current regulatory environment given their synthetic nature, all make Gains Network incredibly attractive when compared to their DEX competitors.

Future obstacles are inevitable and only time will tell how Gains Network chooses to respond to potential adversity. If they continue to provide transparency to their investors and ensure that innovation fuels their desire for growth, then Gains Network will posture themselves for success.


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