DeFi Insight — Leveraged Trading on Gains
by Christian Viehof on Mar 10, 2023 2:00:00 PM
According to Gains Network, gTrade is a “decentralized leveraged trading platform” that’s “liquidity-efficient, powerful, and user-friendly.” Its unique characteristic is its synthetic architecture, where users never take ownership of the asset or borrow funds to access leverage and multiply potential returns. All trades are over-collateralized, and users trade straight from their wallets without going through KYC identification procedures. The platform revolves around the ecosystem’s ERC20 utility token (GNS) and ERC721 utility token (NFTs), which offer increasing levels of boost to the LP rewards and Single Sided Staking. Gains Network plans for gTrade to become the most adopted decentralized leveraged trading platform and transition into a DAO, where $GNS will transform into a governance token. The DAO’s goal is to create great DeFi products that bring revenue, which can be distributed in a $GNS staking pool.
Authors: Christian Viehof, Valentin Kalinov
What is the gTrade/Gains?
Contemporary trading platforms that offer leverage suffer from centralization and low leverage limits. However, gTrade offers a different approach. Traders do not need to create an account or deposit funds on the platform. Instead, they only need to connect their wallet to start trading, and their funds remain in their wallets until they authorize a transfer. The platform uses smart contracts to ensure secure transactions. The asset prices are provided by a modified version of Chainlink’s Decentralized Oracle Network (DON).
gTrade offers a variety of tradable assets, including cryptocurrencies, company stocks, and forex. The platform offers up to 150x leverage on crypto assets, 100x on stocks, and 1000x on forex trades. Platform users contribute to a pool that serves leverage requests and generates profits for contributors.
To enable this approach, Gains Network has introduced four tools that work together: a decentralized vault and liquidity pool, a multi-functional token, a protocol that aggregates other facilities and controls their functioning, and unique NFTs that provide holders with certain advantages and incentives on the platform.
gTrade’s DAI Vault
The DAI vault is a crucial component of gTrade’s operations, as it provides funds for traders to execute trades with greater capital. Stakers contribute to the DAI vault by depositing DAI and earning interest, which is based on the profits generated by the vault. The vault is both overcollateralized and decentralized.
Traders deposit DAI into the DAI vault, regardless of the asset they are trading. The vault is overcollateralized to ensure that there are sufficient funds for traders, and measures are taken to maintain this collateralization level if it falls below 30%.
The DAI vault’s profits come from losses incurred by traders, and these profits are paid out to winning traders. If the collateralization level exceeds a certain threshold, the excess DAI is used to buy back and burn the GNS token. The vault has grown to over $17 million, and its structure was developed based on the fact that most derivative trades result in a loss.
Relationship between GNS and the DAI Vault
The Gains Network relies heavily on its utility token, GNS, which has an interesting history. It was initially distributed in an ETH pool and a GFARM2/ETH LP pool as the GFARM2 token on Ethereum. Later, it was bridged to Polygon and underwent a 1:1000 split to become GNS. The token has been net deflationary over its lifetime.
The gTrade platform, which is a decentralized leveraged trading platform, operates on a similar principle to an algorithmic stablecoin like UST, except that it uses GNS and DAI. When a user wins, the prize is taken from the DAI trading vault, and when a user loses, $GNS is bought and burned when the trading vault is overcollateralized. Unlike UST, $GNS is no longer minted when the DAI vault is undercollateralized. The maximum supply cap for $GNS is 100,000,000, with the initial supply being 38,500,000 GNS. The issuance schedule depends solely on the users’ performance on the gTrade platform.
The classification of GNS according to the ITC
Economic Purpose (EEP): GNS is listed as a Settlement and Governance Token (EEP22TU03) due to its design as a means of collateral combined with governance functionality.
Industry Type (EIN): The issuer of GNS is active in the field of Decentralized Derivatives, Synthetic Assets and Insurance (EIN06DF03).
Technological Setup (TTS): GNS is an Other Application Layer Token (TTS42ZZ).
Legal Clam (LLC): GNS does not entitle its holder to any legal claim or rights against the issuing organization, therefore, it is listed as a No-Claim Token (LLC31).
Issuer Type (LIT): The dimension “Issuer Type” provides information on the nature of the issuer of the token. GNS’s platform is built by a team of programmers and engineers that make up the core contributor community. Its Issuer Type is an Application Layer Protocol (LIT62AL).
Regulatory Framework (EU) (REU): The dimension “Regulatory Status EU” provides information of the potential classification of a token according to the European Commission’s proposal for a Regulation on Markets in Crypto Assets (MiCA, Regulation Proposal COM/2020/593 final). GNS qualifies as a Utility Token (REU52) according to the definition provided in Article 3 (5) of Regulation Proposal COM/2020/593 final.
Consensus Mechanism (TCM): The dimension describes the mechanism that is deployed to achieve consensus on the token’s distributed ledger. GNS tokens are issued on Polygon and Arbitrum; therefore, they are listed as Proof-of-Stake (TCM71PS).
Type of Maximum Supply (EMS): The dimension describes the token’s type of maximum supply. GNS has a maximum supply of 100,000,000; however, the supply of GNS depends on the collateralization of the DAI vault. Therefore, GNS supply is listed as Discretionary (EMS82DC)
Primary Mode of Origination (EMO): All GNS tokens are distributed through yield farming. This means no private or public pre-sales took place. A maximum supply of 38,500,000 GNS is allocated for farming. Therefore, the token is listed as Reward (EMO91).
Taxes (RTA): One common distinction can be drawn between crypto-assets: those crypto-assets that resemble ‘conventional’ assets, like securities, and which are merely recorded on DLT systems (Conventional Asset Tokens DTA71), and those assets and activities that raise new regulatory challenges such as virtual currencies (New Asset Tokens DTA 72; OECD 2020). GNS is listed in the Tokenbase as a New Asset Token (RTA72).
The International Token Standardization Association (ITSA) e.V.
The International Token Standardization Association (ITSA) e.V. is a not-for-profit association of German law that aims at promoting the development and implementation of comprehensive market standards for the identification, classification, and analysis of DLT- and blockchain-based cryptographic tokens. As an independent industry membership body, ITSA unites over 100 international associated founding members from various interest groups. In order to increase transparency and safety on global token markets, ITSA currently develops and implements the International Token Identification Number (ITIN) as a market standard for the identification of cryptographic tokens, the International Token Classification (ITC) as a standard framework for the classification of cryptographic tokens according to their inherent characteristics. ITSA then adds the identified and classified token to the world’s largest register for tokens in our Tokenbase.
- The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
- The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to market capitalization of classified tokens.
- ITSA’s Tokenbase currently holds data on over 4000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers. Third-party data of several partners is already integrated, and API access is also in development.
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Christian Viehof is an Executive Director at the International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database including a classification framework and unique token identifiers and locators. He completed his Bachelor in Economics at the University of Bonn, the Hong Kong University and the London School of Economics and Political Science with a focus on Behavioral Economics and Finance. Currently pursuing his Master of Finance at the Frankfurt School of Finance and Management, you can contact him via email@example.com and connect with him on Linkedin, if you would like to further discuss ITSA e.V. or have any open questions.
Valentin Kalinov is an Executive Director at International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database, including a classification framework and unique token identifiers and locators. He has over five years of experience working at BlockchainHub Berlin in content creation and token analysis, as a project manager at the Research Institute for Cryptoeconomics at the Vienna University of Economics and token analyst at Token Kitchen. You can contact Valentin via firstname.lastname@example.org and connect on Linkedin if you would like to further discuss ITSA e.V. or have any other open questions.