How do you value convenience? For example, at some amusement parks, you can pay an extra $10-$20 to park closer to the entrance. I never understood that because you will probably walk most of the day anyways. But, on the other hand, sometimes paying extra for the convenience of valet parking at a busy restaurant or hotel is well worth the cost. So, I guess convenience’s value is situational and subjective.

There’s a lot to be said for convenience in the crypto world. Constantly going into DeFi apps to compound rewards, collect rewards, convert rewards, or withdraw rewards can waste time and gas fees and be exhausting. This is why auto-compounding aggregators have a viable business model. Platforms like Beefy Finance and Plutus DAO take out the busy work and provide convenience for investors.

But what if there’s a platform that auto-compounds your rewards for you and hedges the risk of another platform? This is exactly what the GMD protocol on Arbitrum is trying to do. I discovered the GMD protocol today and am so impressed with how it works and its convenience that I’ve already staked some of my ETH in its vaults.

How Does GMD Protocol work, Part 1 Describing this GMD protocol could be tricky, detailed, and confusing. Or, I can simplify it and avoid getting too in the weeds or particulars. But, because I feel a bit overwhelmed understanding it, I’ll try to give a simple explanation.

To understand GMD, you first need to understand GMX. GMX is a perpetual swaps protocol on Arbitrum. Traders (or gamblers) can speculate on various crypto assets on GMX and trade with up to 100X leverage. These traders can go long or short and have to pay various fees to the platform to access the hundreds of millions it has in liquidity.

The traders on GMX are trading against a pool of crypto assets funded by liquidity providers. The liquidity pool mainly comprises 50% in stablecoins, 35% in ETH, and 15% in BTC. So, if a liquidity provider supplies BTC, they are now diversifying into this index of 50% stablecoins, 35% ETH, and 15% BTC. The name of this liquidity pool is GLP.

GLP’s value fluctuates due to two factors: 1) the underlying value of the assets in the pool (if ETH and BTC go up in value, GLP will go up in value and vice versa), and 2) how GMX leverage traders perform against the pool. Additionally, if liquidity providers stake their GLP tokens, they get a large share (70%) of the fees paid to the platform by traders. The staking percentage varies and is updated weekly.

Thus far, GLP stakers have outperformed the underlying liquidity pairings when including yields. And depending on when the liquidity provider added assets to the pool, the value of the GLP may be higher or lower.

The GLP pool is valued at $435 million, and the staking APR at the time of writing is 19.42%. GMX has the highest total value locked of any platform on Arbitrum, and over $80 billion in trading volume has occurred on GMX!

But, in this article, we are discussing the GMD Protocol, so what does all of this have to do with GMX? Keep reading.

How Does GMD Protocol work, Part 2 From their whitepaper, GPD Protocol describes itself as:

“GMD Protocol is a yield optimizing and aggregating platform built on top of existing applications and GMD’s reserve token on Arbitrum. GMD employs delta-neutral or pseudo-delta-neutral strategies to aggregate yields from an index pool or an LP to its constituent individual assets, eliminating their risks of impermanent loss or exposure to unwanted assets.”

Uhhmmmm….what?

When I see pseudo-delta-neutral, my brain shuts down. I’m just beginning to tackle the meanings of gender pronouns, which has taken me much longer than it should have. So, for now, let’s put the jargon aside.

Here’s a simplified version of what liquidity providers can do with the GMD protocol. You can supply USDC, ETH, or BTC via a vault on the GMD protocol. The protocol will apply your funds toward the GLP pool on the GMX protocol. However, your funds will not become a part of an index like it does with GLP.

For example, if you deposit BTC in the GLP pool, it is now spread to the index of 50% stablecoins, 35% ETH, and 15% BTC. On GMD, your BTC remains BTC. If the value of BTC goes up more than ETH and outperforms the USD stablecoins, you can appreciate the full upside. However, you can experience more downside if BTC underperforms ETH and USD stables.

Further, you will earn rewards paid in kind. With GMD Protocol, you can supply liquidity for only BTC, ETH, or USDC. If you stake BTC in the vault, your BTC will increase in time as your rewards are automatically compounded in BTC.

Additionally, the GMD protocol automatically hedges your exposure to GMX traders outperforming the GLP liquidity pool. It does this via a protocol-funded and owned reserve fund that insulates GMD vaulters from this volatility.

Finally, you don’t have to deal with claiming rewards, compounding rewards, or dealing with any escrow tokens, as the GMD Protocol handles all of this, providing you with much-needed convenience.

In return, the GMD Protocol charges a performance fee automatically taken out of the rewards your liquidity provides on GMX. For example, today, the GLP APY is 19.42%.

Meanwhile, the ETH vault on GMD Protocol pays 14% APY.

You will notice a 0.5% deposit fee for putting ETH in the vault. However, there is no withdrawal fee, and the vault is 100% liquid meaning you can withdraw at any time. There is a cap on how much of each component can be deposited in the vaults. As you can see, the maximum is nearly reached on ETH. It has already been reached on BTC, and there is still room in the USDC vault.

How I staked my ETH in the GMD Protocol vault Staking is pretty straightforward. First, I connect my wallet to the app https://gmdprotocol.com/. Then I gave the application permission to access my ETH and staked the amount of ETH I wanted to deposit in the vault.

As mentioned earlier, the weekly APY varies, and you can access past payouts via the GMD Protocol dashboard, https://stats.gmdprotocol.com/. Since its November inception, the APY has ranged from 7% to 26% for ETH.

The gas fees are low because it’s on Arbitrum and is arranged as a set-it and forget-it vault, so you don’t have to claim, compound, or withdraw your rewards manually.

Risks with the GMD Protocol You don’t earn a 14% annual yield on ETH without assuming some risks. The primary risks of the GMD protocol are typical smart contract risks and if the reserve doesn’t buffer against trader wins on GMX. Since the funds are being used on GMX, you are assuming smart contract risk for two protocols- GMX and GMD.

For these reasons, I am approaching the investment with caution. All contracts have been audited, and GMX has been functioning for over a year, but exploits happen in DeFi, so you always need to prepare for this potential outcome.

Key Takeaways The Arbitrum ecosystem is hitting on all cylinders. With creative projects like GMX, PlutusDAO, and GMD Protocol, investors are getting new and convenient ways to earn a yield on their digital assets.

If you are interested in learning more about the GMD Protocol’s native token, GMD, be sure to clap for this article. This way, I can know that you found value in this piece and want to read more articles related to this platform.

Also, if you have an opinion about GMD, GMX, or anything else on Arbitrum or in DeFi, share it in the response section. Finding great new projects isn’t easy; everyone likes to hear about new opportunities.

This article isn’t financial advice, and I am not a financial advisor. It is strictly my opinion. Crypto assets involve tremendous risks. I am someone who wants to maintain and grow my wealth so that I can provide a good livelihood for my family and myself. So do your research before making any investments.