The year 2021 saw the rise of Layer 1 blockchains like Solana and Fantom, which experienced significant growth in valuation. However, in 2023, the focus seems to be shifting towards Zero Knowledge Proof (ZKP) technologies like Scroll and Starkware, as well as Layer 2 solutions like Optimism. Despite this trend, Arbitrum, a Layer 2 blockchain, appears to be leading this new generation of blockchain technology.
Arbitrum is a layer2 solution built on top of the Ethereum blockchain that enables greater scalability while maintaining the security of the underlying network. Although the Arbitrum ecosystem is relatively new, it has already seen the creation of numerous decentralized applications that operate within or across multiple blockchains. The purpose of this article is to solely focus on technological projects and innovations found on the chain, rather than discussing prices and speculation.
Arbitrum's advanced technology and innovative Dapps have positioned this ecosystem as a strong contender against other layer solutions.
We can't present Arbitrum ecosystem without talking about this giant.GMX is a decentralized exchange that offers spot and perpetual trading on both Avalanche & Arbitrum. There are low swap fees and zero impact on prices. Its unique multi-asset pool generates revenue for liquidity providers from market making, swap fees, and leveraged trading. The pricing is determined dynamically with the help of Chainlink Oracles and an average of prices from high-volume exchanges. Collected fees are among the biggest in DeFi.
You can therefore legitimately ask yourself that there are many decentralized trading protocols (Dydx, Kwenta, Level) so why talk about this one. Let me explain.
There are 2 tokens on GMX :
$GMX is an utility and governance token for governance.
$GLP token for liquidity.
$Gmx is the main token, it allows stakers to receive 30% of the fees collected from the decentralize exchange. You access this cashflow by 3 different types metrics:
Escrowed GMX (esGMX)
They can be converted into GMX tokens through 1 year vesting, and with a minimal GMX staking amount.
The more you stake, the more your multiplier point increase. It rewards long term holders and incentive them to keep staking instead of unstaking and loosing their multiplier point.
$GLP is an asset index that is utilized for both swaps and leverage trading. It can be created by using any of the assets within the index, and can be redeemed for any of the assets in the index by burning it. The index gain or lose in value thanks to the underlying assets.
Holders of $GLP place themselves as counterparts to the traders and profit from the traders' losses or suffers from the gains. The pool of $GLP bring by liquidity providers fluctuates depending on the result of the traders.
$GLP yields come from :
70% of platform fees distributed in ETH or AVAX (it depends on the blockchain you are)
Losses or gains from traders
GMX provide between 10% and 50% of real yields for both $GMX or $GLP stakers.
Let's pause for a minute to explain what real yield is. Real Yields results from a well-designed token economy that rewards all stakeholders with revenues generated from the protocol. This leads to sustainability. This contrasts with inflation yields where cashflow come from a token inflation. Seeing more tokens but being diluted by the same amount, does not actually bring any added value for the holders.
If we combine a smart tokenomics that redistributes 100% of its revenues (called real yields), a team that is carefully releasing roadmap while listening to the community, a protocol that makes one of the largest volumes in DeFi, we find the giant that is GMX.
Premia is a multi-chain decentralize option protocol with a pool-to-peer architecture.
Options are financial products with a contract between a buyer and a seller. The option buyer obtains the right, not the obligation, to buy (call) or sell (put) an underlying asset at a pre-determined price (strike), during a given time or on a set date. Sellers earn a "premium", which is the cost that the buyer pays for the contract.
Option is a huge market in traditional finance which allows investors to hedge against a market downturn. This is why many protocols are trying to position themselves in this sector with different innovations.
Order book : it’s the classic process where supply meet demand. It’s a list of orders that the exchange uses to record the interest of buyers and sellers in a particular financial instrument (option).
Automated market makers (AMMs) : They are a key feature of the decentralized finance (DeFi) ecosystem. They enable digital assets to be traded in an automated and permissionless manner, without the need for a traditional market of buyers and sellers. Instead, AMMs rely on liquidity pools, where users can supply crypto tokens and the prices are determined by a mathematical formula.
Structured Products : They offer different option strategies to optimize returns and capture yield from market volatility in different market conditions. These strategies simplify the various possible strategies on the options.
One of the biggest advantage of Premia is UX/UI, which greatly simplifies the understanding of these products, which are often complex for investors.
To purchase a call or a put on the platform, users need to select their desired token, a strike price and an expiration date. The costs will be automatically calculated, and users can then click on the "buy" button. A 3% fee is charged for this transaction, and along with the 2.5% fee charged to liquidity providers. It offers a smooth execution and comprehension of the products.
On the other side, underwriters can choose to write either calls (bearish view) or puts (bullish view). They receive premiums and $premia emissions but are exposed to the risk of capital loss if the buyer exercises their options in-the-money (ITM). Additionally, a pro rata interest rate of 2.5% is charged on the liquidity provider (LP) side.
Recently the protocol released is V3. It innovates even more with the arrival of a mix between CLOB (Central Limit Order Book) and AMM (Automated Market makers) that allow a huge efficiency of the liquidity.
In the recent version, Premia use European options. The main difference between European options and American options is that European options can only be exercised on the expiration date, while American options can be exercised at any time before the expiration date. Another feature that will be available is the ability to place range orders for buying and selling options. It brings much more efficiency for the protocol.
Premia uses a token called vxPREMIA for voting. This token is created by minting it based on the amount of PREMIA tokens you deposit, and its value is determined by a voting-escrow model inspired by Curve's veCRV, along with custom sustainability mechanics. The longer you lock your tokens, the higher your "Boost" modifier, which increases your overall "Influence" (your balance of vxPREMIA multiplied by your Boost modifier). Your wallet's Influence is an important metric that determines the rewards you receive, such as fee distribution, trading fee discounts, and the ability to vote for the flow of PREMIA token emission.
By locking your $Premia you are eligible at :
Discount on protocol fees
80% revenue generated from the protocol (20% left go to the protocol)
The emergence of Arbitrum as a scaling solution for Ethereum has paved the way for exciting new developments in the world of DeFi. Premia and GMX are two projects that are leveraging the power of Arbitrum to create innovative solutions that address some key challenges facing decentralized finance. From providing more efficient options for options trading with Premia, to offering a more secure and scalable platform for synthetic assets with GMX, these projects are pushing the boundaries of what's possible on the blockchain. With the Arbitrum ecosystem continuing to grow and attract new developers and projects, we can expect to see even more use cases in the months and years ahead. As the DeFi space matures and evolves, Arbitrum is sure to play a critical role in shaping its future.