On January 1, 2023, gTrade, a decentralized leverage trading platform developed by Gains Network for cryptocurrencies, forex, and stocks, went live on Arbitrum. It achieved a trading volume of $7,789,800 on the first day. The trading volume surged to $84,916,196 on January 3, marking an elevenfold increase in just three days. Subsequently, on January 18 and 27, the daily trading volume exceeded that of GMX. At the beginning of 2023, the market capitalization of the native token GNS was $98.23 million, and by April 27, it had nearly doubled to $189 million, demonstrating rapid growth.

Fundamental Analysis

1.1 Project Overview

Gains Network (formerly known as Gains Farm) is the development team behind gTrade, a DeFi product created by Gains Network. gTrade is a decentralized leverage trading platform deployed on the Polygon and Arbitrum chains. It enables users to trade not only cryptocurrencies but also forex, stocks, indices, and commodities. Compared to GMX, gTrade offers higher leverage options, with cryptocurrency leverage reaching up to 150x, forex leverage up to 1000x, stock leverage up to 50x, index leverage up to 35x, and commodity leverage up to 250x.

Currently, Gains Network is led by its anonymous founder Seb, and the official documentation reveals the presence of 13 core members in the team.

1.2 Business Analysis

1.2.1 gTrade (Leverage Trading)

gTrade facilitates trading by utilizing DAI as collateral. It employs a custom real-time Chainlink node operator network to obtain the mid-price for each trading order, effectively filtering out abnormal price behavior occurring on individual exchanges through the Decentralized Oracle Network (DON). Since all trades are executed using the DAI Trading Vault and synthetic leverage (rather than borrowed leverage), it significantly enhances liquidity efficiency.

The transaction fees are calculated based on the value of the total position size (leverage * collateral), excluding funding costs for collateral extensions. For instance, if a user goes long on ETH/USD with a leverage of 10x using 250 DAI, the applicable leverage amount would be 2,500 DAI. The fee would be 2,500 * 0.08% = 2 DAI, while the total value of collateral would be 248 DAI, resulting in a total position size of 2,480 DAI.

The transaction fees are allocated to the team, project fund, gDAI liquidity providers, GNS staking, referrals, and the decentralized NFT robot network executing limit orders. The transaction fees include opening and closing fees, spreads, price impact, overnight interest, funding costs, and dynamic liquidation prices. Spreads and price impact are only relevant to opening positions and not to closing positions. The use of NFTs can reduce spreads.

The following diagram provides detailed information on asset categories within gTrade:

1.2.2 gDAI Vault

The core of the gDAI Vault revolves around gDAI (or gTokens). The Vault follows the ERC-4626 standard, which optimizes and standardizes the technical parameters of yield-bearing treasury funds and plays a crucial role in the composability of gDAI.

The Vault acts as the counterparty for all trades on the platform. When a trader wins, DAI is withdrawn from the Vault to pay the trader’s profits (+PnL). Conversely, when a trader incurs losses (-PnL), the losses are sent to the Vault. The collateral in the Vault is determined by the trader’s PnL.

When the overall PnL is negative, the Vault starts creating a buffer to further protect the funds and protocol from future abnormal PnL impacts, safeguarding the stakers’ capital.

gDAI

gDAI serves as an ERC-20 token that represents ownership of the underlying asset, DAI. When DAI is deposited at the current price, gDAI is minted, and when DAI is withdrawn, gDAI is burned at the current price. The price of gDAI is determined by the unrealized trading profit and loss (PnL) value at the beginning of each epoch, along with the accumulated DAI rewards. The calculation is as follows: gDAI = 1 + accRewardsPerToken — Math.max(0, accPnlPerTokenUsed). gDAI is an additional token with a new layer of composability.

Epoch System

The Epoch system provides decentralized access to PnL data for the Vault, enabling better understanding of its collateralization ratio. The Epoch system can be in two states:

Withdrawal Window: During this period before receiving the Open PnL value, stakers can perform withdrawal-related operations, including requesting and withdrawing funds.

Open PnL Window: A period before the Epoch closes, where the protocol requests an Open PnL snapshot from oracles. Multiple requests are made to the oracle network, the median value is taken, and finally, an average is calculated over the request period. This PnL value is then used for subsequent Epochs.

To ensure the security of the Vault and prevent stakers from front-running PnL changes, DAI cannot be withdrawn immediately. Instead, it must go through the withdrawal request system. Based on the collateralization ratio of the Vault, stakers can withdraw funds after 1, 2, or 3 Epochs from the time of the request. The higher the collateralization ratio, the shorter the lock-up period. If stakers miss their withdrawal window, they must submit a new request.

1.3 Token Economy

The $GNS utility token powers the entire ecosystem. It initially started as the $GFRAM2 token on Ethereum and was later bridged to Polygon. Holders of the initial token, GFARM2, can exchange it for GNS at a conversion rate of 1 GFARM2 = 1,000 GNS.

1.3.1 $GNS Utility

a. Supports liquidity efficiency of the DAI Vault by providing rewards to NFT robots and affiliated entities, encouraging DAI to remain in the Vault and increasing stability by reducing Vault withdrawals and supporting overcollateralization.

b. When the DAI Vault requires a buffer to provide collateral extensions to DAI Vault stakers, $GNS is burned to offset inflation caused by NFT robots and affiliated entities.

c. Ensures that early supporters in the community are not diluted by whales and provides an equal competitive environment for the community.

d. Serves as a backstop for winning traders on gTrade. $GNS can be minted to re-collateralize the gDAI Vault (with a maximum annual inflation rate of 18.25%).

e. One of the primary means of governing the protocol.

1.3.2 Supply

The maximum supply of $GNS is 1,000,000,000 GNS (serving as a fail-safe mechanism that may never be reached). The initial supply is 38,500,000 GNS. The following diagram shows the supply data, with 20% of the initial supply already burned.

1.3.3 Staking

Users have the option to stake $GNS tokens to earn platform rewards. A total of 40% of market order fees and 15% of limit order fees are allocated to $GNS staking. As 70% of the trades are market orders, it means that 32.5% of the platform’s revenue is distributed to $GNS stakers.

1.4 GNS NFT

GNS NFTs serve as the primary keys to the ecosystem and have real use cases in DeFi. There are a total of 1,500 NFTs, which are categorized as follows:

Users can purchase any NFT through OpenSea. During the transaction, simply place the NFT in the corresponding trading wallet. Running robots earn rewards from executing liquidation and limit orders.

1.4.1 NFT Utility

NFTs can enhance the level of single-sided staking for $GNS. When a user does not have NFTs, the APR displayed on the staking page is based on the average APR of the previous week’s rewards. However, when a user stakes NFTs, they will receive a larger share of the rewards. Users can stake up to 3 NFTs to increase their earnings. For example, if a user stakes 1 Diamond NFT, 1 Platinum NFT, and 1 Silver NFT, the rewards will increase by 13% + 8% + 3% = 24%. The user will receive rewards that are 24% higher than the displayed APR.

1.4.2 Allocation Rules

All NFTs are claimed by liquidity providers who contribute at least 1% of the total liquidity. They receive NFT points as a reward, which allows them to mint NFTs. Diamond NFTs require the highest number of points, while Bronze NFTs require the fewest.

1.4.3 gNFT

gNFTs have a separate purpose and are ERC-721 tokens that represent ownership of locked gDAI shares. The locked gDAI is purchased at a discounted price based on the duration the lender is willing to lock their funds and can be unlocked after the lock-up period. The locked gDAI accrues fees like any other stock.

2. On-chain Data Analysis

ChainAegis conducted statistical analysis on Gains Network’s TVL, daily active users, fees, PnL, APR, earnings, token holders, and $ARB trading volume, and made the following findings:

(1) With the launch of gTrade on Arbitrum, Gains Network’s TVL more than doubled.

(2) The daily active users nearly doubled in January, with an increase in daily new users. The daily active users in the past two months reached 400–500.

(3) The accumulated transaction fees generated in the past year amounted to $17.388M, nearly doubling in growth.

(4) Compared to GMX, gTrade offers higher leverage, making it more suitable for large holders. The APR on Arbitrum is higher, and the APR of gDAI Vault surpasses Staking. Gains Network has shown steady development, with a cumulative annual profit of $10,802,895.

(5) The distribution of $GNS token holders is relatively concentrated, with the top 100 holders owning approximately 93% of the total token supply. Retail investors hold a smaller portion of the chips.

2.1 TVL (Total Value Locked)

On December 15, 2022, Gains Network’s TVL was $22.487M. On April 28, 2023, the TVL increased to $56.90M, marking a growth of 153%. Gains Network’s TVL on the Arbitrum chain is $40.15M, accounting for 70.56% of the total TVL.

2.2 Daily Active Users

On January 1st, the number of daily active users increased from 166 to 271, marking a growth of 63.25%. Since then, the user count has consistently reached 400–500, remaining relatively stable. As of now, the cumulative number of trading users has reached 13,169. There has also been a slight increase in the number of new users compared to before.

2.3 Transaction Fees

The growth in transaction volume and user count has led to a continuous increase in transaction fees. The accumulated transaction fees over the past year have reached $17.388 million. Prior to August 2022, transaction fees were primarily provided by LP stakers. However, starting from August, they have been provided by GNS stakers. By January 2023, with the launch of gTrade, transaction fees had more than doubled compared to before.

2.4 PnL (Realized Profits and Losses) & APR (Annual Percentage Rate)

Compared to GMX, gTrade offers higher leverage, making it more suitable for large account holders. However, over an extended period of time, retail traders may experience losses. The accumulated PnL over the past year amounts to -$3,061,572 USD.

In January, the gDAI Vault on gTrade had a higher APR, reaching a maximum of 32.53%. On Arbitrum, the average APR for the gDAI Vault was 16.69%, while on Polygon, it averaged at 10.52%. For Staking, the average APR on Arbitrum was 8.25%, and on Polygon, it was 5.44%.

It appears that GMX has performed well in terms of TVL and trading volume, but its overall profitability has been quite volatile. From April last year until now, although there has been some improvement, the cumulative earnings still amount to -922,499 USD. On the other hand, Gains Network has shown steady development, with modest monthly earnings that have been consistently increasing since January this year. The cumulative annual earnings for Gains Network have reached 10,802,895 USD.

2.5 Token Holder Distribution

Based on the data from Polygonscan, GNS currently has 12,013 token holder addresses. The top 10 addresses account for 82.52% of the total tokens, while the top 100 addresses account for 93% of the total tokens. Looking at the data from ArbiScan, GNS has 13,337 token holder addresses. The top 10 addresses account for 95.87% of the total tokens, and the top 100 addresses account for 98.77% of the total tokens. Overall, the token holder distribution indicates a relatively concentrated state.

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