GMX, a cryptocurrency exchange startup, will receive $4 million in AVAX tokens. The funding comes from Avalanche‘s incentive program, which aims to expand the platform’s DeFi ecosystem.
These incentives are part of Avalanche Chase, a $180 million liquidity incentivization campaign designed to attract new consumers and improve decentralized finance (DeFi) applications built on the platform’s smart contracts.
The Avalanche Foundation has stated that the distribution of the $4 million in AVAX tokens will take place over the course of several months and in addition with partner platforms developing on top of GMX. YieldYak, Dopex and TraderJoe are just a few of the exchange platforms that are partners.
GMX reports losses
Since GMX caused over $100 million in losses for LPs in October alone, it is becoming increasingly concerned that it uses a token model different from other DEXs in an effort to reduce temporary loss for liquidity providers.
The problem with GMX’s concept is that instead of temporary loss, liquidity providers assume the risk of capital loss if GMX traders are successful. In the event of a trader’s insolvency or liquidation, fees are paid to liquidity providers who took the other side of the deal. On the flip side, if traders are successful, the liquidity providers will bear the loss.
The incentive scheme allows partner protocols to create unique sorts of products on top of the exchange’s revenue model while mitigating some of the risk associated with providing liquidity on GMX. If customers know they’ll be receiving $4 million over the course of a few months, they may be more motivated to contribute liquidity to GMX and use the new products that partner platforms are developing.
It is noteworthy that multiple sectors and establishments are making inroads into the digital assets ecosystem as recently in September, KKR & Co. moved the HCSG II fund to the Avalanche blockchain. Last year, Avalanche reached a new record by smashing its own previous record.