Elevator Pitch
GMX is a decentralized spot and perpetual futures exchange that live on Arbitrum and Avalanche. Their claim to fame is zero impact price swaps completely obliterating other DEX’s and AMMs that can only provide low slippage.
Tech
GMX uses an OTC-based model for trades leading to less impact on the price to benefit users during swaps. And in order to fulfill these OTC trades, GMX acquires large sums of liquidity by letting people deposit assets in exchange for their tokens. This leads us to their tokenomics!
Tokenomics
GMX uses a two-token system, GMX, and GLP. GMX is the native token with a current circulating supply of 7,538,141 and a forecasted max supply of 13,250,000. The max supply isn’t fixed and depends on how much gets vested as well as how much gets used for marketing. This supply only gets increased if liquidity mining is needed and more products are launched. The most interesting part about GMX is how staking allows users to receive 30% of fees generated by the platform and looking at the cumulative fees being accrued this is a large value prospect. So far GMX has accrued around $32 million in fees, which are being paid out in native ETH if you're taking on the Arbitrum network and AVAX if you're staking on the Avalanche network.
esGMX
Escrowed GMX tokens can be staked for rewards similar to regular GMX tokens or they can be vested to become actual GMX tokens over one year. When you vest the average amount of tokens used to earn the esGMX rewards will be reserved. This is a little confusing but their white paper uses this example;
For example, if you staked 1000 GMX and earned 100 esGMX tokens, then to vest 100 esGMX tokens, 1000 GMX tokens will be reserved. To vest 50 esGMX, 500 GMX tokens will be reserved. Note that this is an example and the actual ratio depends on the average staked amount and rewards earned for your account.
This leads into multiplier points, so for every GMX token staked you earn these multiplier points which increase the yield you get. So if you have staked $10,000 worth of ETH with an APR of 10% you would receive $1,000 in rewards. Then you’d potentially have an additional 10% in multiplier points from the initial amount staked that would boost your yield $100. So, the total reward for the year would be $1,100, allowing DAOs to bootstrap their treasury.
GLP
GLP is the platform’s LP token, consisting of a basket of assets that are used for swaps and leverage trading. Depending on which chain you use this basket differs.
GLP incentivizes users to provide liquidity through very significant rewards. And when you take GLP you earn 70% of the fees generated by the protocol (if you stake the esGMX rewards). A little more than 50% of these rewards are paid out in ETH while the rest is paid out in esGMX. This esGMX can be staked for additional yield or vested. It’s important to note that the GMX token gives you governance rights while the GLP token doesn’t. GLP holders basically act as “the house” in a casino so all of those degens take a loss on 30x leverage GLP profit and vice versa. And of course, the data shows that the house usually wins more often than the traders do.
Potential Problems
Obviously, this market is tied to the success of BTC, ETH as a whole etc. But aside from the obvious risks, the few major pitfalls within the protocol are few. Maybe traders all grow giga brains and having the position of the house as GLP token holders may be the losing side. But, with fees also coming from trading and interest, GLP token holders should see profits in the long run.
Decision
GMX was able to take the somewhat incoherent DAO structure and shift it into what could be a perfect token system. The tokenomics are one of a kind and allow for liquidity bootstrapping which hasn’t been seen before. The most popular alternative at the moment is CVX mostly because of the Curve wars, but it doesn’t pay out rewards in native ETH. And with the perpetual market flooded with centralized leaders like FTX or Binance, the need for a decentralized platform is immense. And honestly, GMX doesn’t even have that many assets available for leverage at the moment so the potential growth for the protocol is immense.
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