What is GMX?

GMX is a decentralised perpetual and spot exchange, primarily offering margin trading to anyone without the KYC or Professional Investor requirements you might find on a CEX. Margin trading is the practice of borrowing capital to trade with, utilising collateral as the debt for this transaction. The borrowed capital is then used to long or short an asset, with the leverage being the relationship between the position size and the collateral (margin) size. This leads to higher profit or loss than could be achieved by purchasing a spot asset.

The main features of the protocol are as follows:

  • Leverage up to 30x (with 50x in alpha)
  • Reduced risks of liquidations (price oracles prevent ‘scam wicks’ seen on CEXs)
  • Lower costs (minimal spread and zero price impact on orders)
  • Simple interface without the confusion surrounding margin, debt, collateral, etc.
  • Multi-chain presence on low-fee networks
GMX User Interface
GMX Trading User Interface.

What Networks is GMX Available on?

GMX is currently live on Arbitrum and Avalanche, two low-fee chains. Arbitrum is the leading Layer 2 on Ethereum, itself being an Optimistic Rollup. Avalanche, on the other hand, is its own EVM Layer 1 chain with a unique 3-chain architecture — currently the second largest L1 behind BSC.

What Assets are Tradable on GMX?

Due to the unique multi-asset pool design of GLP (GMX’s liquidity pool), traders can only trade assets that exist in the basket on each chain. See below for these assets and their target weights in the pool.

Arbitrum

  • WETH (30%)
  • WBTC (20%)
  • LINK (1%)
  • UNI (1%)
  • USDC (39%), USDT (2%), DAI (5%), FRAX (2%)

Avalanche

  • WAVAX (7%)
  • WETH (20%)
  • BTC.b (16%)
  • WBTC (7%)
  • USDC (33%), USDC.e (17%)

As you can see, the only non-native altcoins available for trading are UNI and LINK, which have had their target weights reduced and are planned to be phased out of the GLP pool altogether in anticipation of GMX’s next product, Synthetics.

How can I Earn Yield with GMX?

One of the main reasons GMX has gained so much attention and traction is due to its policy of distributing 100% of protocol revenue back to token holders — an inspiration for the #RealYield narrative.

GMX & GLP

Of the total revenue, 30% is distributed to GMX, the utility and governance token —currently providing 18.8% APR (11.3% ETH/AVAX, 7.5% esGMX). The remaining 70% from each chain is distributed to chain-specific GLP, the liquidity token for the pool — currently providing 28.9% APR in ETH on Arbitrum and 23.7% APR in AVAX on Avalanche.

Although GLP holders earn the lion’s share of the revenue, there are a few key features of the pool you must be aware of. Firstly, as GLP is a basket of assets, you can look at it as an index of sorts, where the overall price is the sum of the weighted price of each asset. Therefore, as BTC, ETH, and other volatile assets make up the index, the GLP token itself has a directional bias on the market. It will increase in price with BTC and ETH, and it will decrease in price with BTC and ETH. Secondly, GLP acts as the ‘house’ in the GMX casino, whenever a trader wins or loses, GLP holders are on the other side of the trade — they are the counterparty to the traders. Therefore, as a GLP holder, you are betting on traders to lose money over time. If you want to invest in GLP and earn fees, you need to be sure that your income outweighs any losses.

Trader PnL on Arbitrum since launch.

Escrowed GMX

As you can see above, esGMX is also distributed to stakers of GMX, and to GLP when the APR falls below 20%. Escrowed GMX, are a locked form of the GMX token. A holder has two options, stake them to earn a higher share of the fee distribution to GMX holders (equivalent to 1 GMX), or vest them linearly by converting to GMX over a year period, by which forfeiting their earning potential. GMX or GLP are required to be locked in order to vest (in equal amounts to what earned you the esGMX in the first place).

Multiplier Points

In addition to esGMX, Multiplier Points (MP) are also distributed to GMX stakers in order to reward long-term holders without creating inflation of the token supply. MPs are earned at 100% APR against staked GMX and earn fees as an equivalent to staked GMX, just like staked esGMX. Upon unstaking of GMX, MPs are burned, the amount of which is based on the unstake size and the total MPs earned.

GMX Fees

Fees on GMX have been steady for most of the year, with lulls in some months but generally, Arbitrum at least is returning $1-3M in fees per week. Fees are particularly high in times of volatility as liquidations occur, traders make mistakes on large market moves and then continue to revenge trade to make it all back. This is evident from the figure below, showing fees over the last three months, with the FTX insolvency fallout ramping fees up considerably over the past few days. Fees on Arbitrum for the past quarter now sit at $31M (https://stats.gmx.io/)

Evident from the chart, margin trading makes up the majority of the share of fees, with swaps also chipping in as large volume swaps are often cheaper routed through GMX due to the avoidance of slippage.

GMX Trading Fees
GMX Trading Fees.

Closing Thoughts

GMX has been one of the most outstanding projects in the space this year, and one should not expect this to change moving forward. Having created a product with a unique liquidity pool design, they achieved product-market fit very quickly and have set a massive trend as forks are appearing on many a chain. Compound this with the amount of protocols building on top of GMX and you have a real blue chip in the making with one of the strongest narratives out there.

All eyes are will be firmly on the protocol and their anon team moving forward, as they attempt to deliver their Synthetics product, branching out from the GLP model of restricted pairs and opening up a whole world of possibilities for degens.