💡GemaX Solution & Architecture Overview

The GemaX Solution: Bridging Liquidity On-Chain

Having provided the market context and background of existing on-chain derivatives solutions, let's delve into the distinctive advantages of GemaX and its innovative intent-based approach. In summary, considering the broader perspective of the derivatives market: CEXs have liquidity but no security, and DEXs have security but no liquidity.

GemaX, with its intent-based architecture, solves the liquidity dilemma and can effectively “bridge” CEX liquidity on-chain through the solver network.

This approach gives traders the best of CEX trading:

• Deep Liquidity

• Seamless Execution

• Tight Spreads

• Low Fees

While execution on-chain provides traders the best of DEX trading:

• No Trust Assumptions

• Immutable Positions

• Counterparty Insolvency De-risked

• Permissionless access

In this way, GemaX solves for both liquidity and security with no compromise.

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GemaX's Intent-Based Architecture and Order Flow

The conventional Request for Quote (RFQ) process starts when a trader indicates their desire to go long or short on a specific derivative contract at a designated price and size. Market makers then provide customized quotes tailored to the trader's request. The trader can assess the quotes and select the one that aligns best with their preferences. This personalized approach enhances the trading experience and contributes to more effective price discovery.

GemaX introduces a novel approach to this process by continuously streaming quotations in advance, showcasing the best available quote at any given moment. Consequently, users are automatically presented with the optimal price quotation, empowering them to make well-informed trades. This eliminates the cumbersome and intricate procedures associated with traditional RFQ systems, facilitating a swift and efficient trading experience for users.

With this crucial innovation, GemaX is an entirely new type of intent-based exchange: an “automatic market for quotations” (AMFQ) exchange.

1. Upon reaching GemaX, a trader inputs the specifics (intent) of their desired trade, such as going long on 1 BTC with 10x leverage.

2. The solver (market maker) promptly generates an offer through GemaX, outlining the conditions for the trade, including price, slippage, fees, funding rates, collateral, etc. This process occurs automatically and in real-time, with no capital commitment from the solver at this stage.

3. Subsequently, all the pre-agreed conditions required to initiate a trade are streamed to the trader as a "quote," empowering them to decide whether to execute the trade. This streamlining eliminates a crucial and intricate step in the RFQ process, where bids are received and evaluated to choose the most favorable one. GemaX automates this procedure, delivering the best quote to the user instantly. Consequently, GemaX operates not as a conventional RFQ exchange but rather as an Automatic Market for Quotations (AMFQ) exchange.

Note: Steps 1 - 3 happen off-chain through the GemaX exchange.

1. Upon being content with the trade conditions, the trader submits a "Request to Trade" to the solver, accompanied by the locking of their necessary collateral.

2. The solver reviews the request and decides whether to accept it, committing an equivalent collateral into the contract.

3. This establishes a "bilateral agreement" between the solver and the trader—a self-contained and entirely symmetrical contract. Depending on the price movement of the position, one party becomes obliged to compensate the other party for the Profit and Loss (PnL). This bilateral agreement remains in effect indefinitely until either (1) the trader decides to close the position or (2) one of the parties undergoes liquidation, an automatic process triggered by a neutral third party based on margin health.

Note: Steps 4 - 6 happen on-chain where the quotation and bilateral agreement live.

1. The solver has the option to "hedge" their position exposure (in this scenario, being long 1 BTC) through various sources such as a centralized exchange (CEX), another decentralized exchange (DEX), an over-the-counter (OTC) desk, non-linear options, or even spot holdings. The solver can also net his positions with other positions or with other solvers in the network (future implementation).

Note: Step 7 occurs off-chain, and the solver is entirely accountable for overseeing their hedging strategy. Since the collateral is secured within the Bilateral Agreement and completely insulated from external influences, users are not required to make any trust assumptions regarding the solvency of the solver on the blockchain.

This groundbreaking architecture fundamentally transforms the functioning of on-chain derivatives, presenting numerous distinctive advantages and solutions to prevailing issues as outlined in The Advantages of GemaX.