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Aligning Incentives For DeFi’s Long-Term Sustainability

In April, GMX, the largest decentralized perpetual exchange operating on Arbitrum and Avalanche, announced it will become a launch partner in integrating Chainlink’s low-latency oracles to support perpetuals, swaps, and liquidity in the upcoming GMX V2 protocol. Johann Eid, VP of Go-To-Market at Chainlink Labs, described the economic alignment between Chainlink and GMX as an important step toward building a more sustainable DeFi ecosystem.

During a recent fireside chat, Eid and GMX core contributor, Coin, further explored how incentive alignment between DeFi protocols like GMX and infrastructure providers like Chainlink can help build a superior alternative financial system for the future. 

“Partnering with Chainlink was really about saying, ‘As a protocol, we want to have immense resiliency,’” said Coin. “We want to make sure that oracles, which are an important part of our protocol, are something that are handled by the best in the industry.”

“In our view, the way crypto evolves is teams are going to have to work together in order to create the best protocols,” said Eid. “In order to grow, we need to grow together, and we need to work together because the task to accomplish is so vast.”

Coin explained why integrating Chainlink’s industry-standard oracle network, which has so far enabled more than $7.9 trillion in transaction value throughout the DeFi economy, is advantageous for all DeFi protocols, especially those that are just getting off the ground.

“I think models like this can actually be quite democratizing,” he said.  

Integrating Chainlink’s low-latency oracles along with technical support will allow GMX to boost performance, improve data security, and minimize frontrunning risks. In exchange, Chainlink service providers will receive 1.2% of the total fees generated by GMX V2 and subsequent versions of the protocol. 

Eid highlighted how the transparent fee structure between GMX and Chainlink pioneers a model that promotes DeFi’s mass adoption.

“I think it’s an approach that will reward good actors in the space,” Coin agreed. He pointed to recent failures in traditional finance stemming from uncertainty, opacity, and misaligned incentives.

“What DeFi and the blockchain allows us to do is to take an approach that’s entirely built on transparency,” he said.

“The beauty of DeFi and the beauty of what we’re doing here is everything is on the table,” Eid agreed. “You know the incentives. It’s fully transparent.”

He explained how working with innovative protocols like GMX informs Chainlink’s forward-thinking approach to building web3 infrastructure that enables critical new use cases. 

“It’s really been about working with super creative minds in the space, with pioneers, with leaders, to try to understand what they need today, but also to work with them on understanding what will be needed in the future.”

Looking toward the future, Eid ended the discussion on an inspiring note.

“We have such a huge opportunity as a space and as an ecosystem to bring this world forward. The world is basically asking for crypto today. It’s asking for an alternative and we have a unique possibility to foster this new world.”   

To learn more about GMX, visit their website, Twitter, Telegram, Discord, GitHub, and Substack.

Watch the full fireside chat.

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