A Deep Dive Into GMX
Tech Deep Dives

A Deep Dive Into GMX

2 months ago

CoinMarketCap Alexandria takes a deep dive into GMX — a spot and perpetuals decentralized exchange on Arbitrum and Avalanche.

A Deep Dive Into GMX


In November 2022, the catastrophic and rapid collapse of one of the largest crypto exchanges in the world, FTX, took the crypto world by storm. The fallout and subsequent fear of insolvency in other centralized exchanges (CEXs) resulted in crypto users flocking in masses to decentralized exchanges (DEXs) for increased transparency and control over their funds.
DEXs allow users to trade as if they were on a traditional CEX, but with their funds safely in the custody of their personal crypto wallet. Many DEXs also permit trading without requiring users to complete the Know Your Customer (KYC) process, which attracts many traders looking to preserve their anonymity. One of the DEXs that have surged in popularity due to the shift towards decentralized trading solutions is GMX, with the platform seeing its total value locked (TVL) rise from $108M to 501M in 2022, with $90M of this increase in just the last month alone.

Source: DeFiLlama.com

What Is GMX?

GMX is a fast-growing spot and perpetuals DEX on the Arbitrum and Avalanche networks. GMX supports low trading fees and zero price-impact trades for assets on their exchange. Just like many CEXs would, GMX allows leveraged trading too, supplying traders on their platform with up to 50x leverage.
GMX is known for its model which aims to maximize efficiency of capital locked in the protocol to facilitate spot and perpetual trading. Unlike most DEXs which use multiple single-asset pools, GMX utilizes a single multi-asset pool to facilitate all of their trades. This multi-asset pool is known as GLP and consists of several large cap tokens and stablecoins.

How Does GLP Work?

GLP is a pool consisting of approximately 50% in a variety of stablecoins with the remaining 50% in large cap tokens. On Arbitrum, the large cap tokens consist of Bitcoin, Ether, Chainlink’s token (LINK) and Uniswap’s token (UNI). On Avalanche, Bitcoin, Wrapped Bitcoin, Wrapped Ether and Avalanche’s token (AVAX) make up the non-stablecoin portion of the pool.
GLP can be minted by users who wish to provide liquidity on GMX by using any of the tokens in the pool. To maintain the composition of the pool, liquidity providers are incentivized to mint GLP with assets that are currently underweighted in the pool based on its current composition. Similarly, when redeeming GLP for any of the index assets, liquidity providers are rewarded for selecting to receive assets which are currently overweight in the pool: GLP is constantly being rebalanced by GLP minters and redeemers.

At the point when this screenshot was taken, GLP on Avalanche was underweight on the AVAX and overweight on WBTC.e. As such, the fees are adjusted to incentivize minting GLP with AVAX and to disincentivize minting with WBTC.e.

Source: GMX.io

Traders opening positions on GMX trade against the pool, with GLP functioning as the counterparty to traders on the platform. While this poses a risk to liquidity providers in GLP, historically, traders have lost more than they have profited, which results in a net increase in GLP value.

Source: GMX Analytics Dashboard

How Does Value Accrue to GLP and GMX?

GMX operates on a dual token model with GLP, the liquidity pool token, and GMX, the platform’s governance token.

GMX generates revenue through swap fees, borrow fees on leveraged trading, liquidations, and the minting and burning of GLP. These fees are split between GLP and GMX stakers.

Since GLP stakers bear the risk of trades on the platform, 70% of platform fees are distributed to liquidity providers and the remaining 30% is given to GMX stakers. This reward is distributed in ETH on Arbitrum and in AVAX on Avalanche, making GMX unique to most DEXs, which distribute liquidity provision incentives in their native token.

Due to the high leverage on the platform, liquidity provided on the platform is highly capital efficient. This creates relatively high APRs on GMX for GLP stakers, with the current APR hovering around 20%.

Source: GMX Analytics Dashboard

Escrowed GMX and Multiplier Points

Beyond ETH/AVAX rewards, GMX also distributes two other forms of rewards: Escrowed GMX (esGMX) and Multiplier Points. GLP stakers used to earn esGMX too, but now, only GMX stakers earn both esGMX and Multiplier points.

EsGMX is a special form of locked reward on GMX and can be utilized in two ways: staking or vesting. When staked, esGMX functions the same way as regular staked GMX, earning ETH/AVAX rewards and esGMX.
EsGMX can also be vested over a one year period to yield regular GMX tokens. What makes this mechanism effective is that when esGMX is selected to be vested, the amount of GMX or GLP that was used to earn the esGMX is reserved. This means that if the user chooses to vest 100 esGMX tokens which they had earned from staking 1000 GMX tokens, the user will have to stake the 1000 GMX tokens through the vesting cycle. This reduces selling pressure on GMX and GLP as users are forced to stake their tokens through vesting.

Multiplier Points are used to reward long-term holders without inflation. When Multiplier Points are staked, they boost the yield from staking GMX at the same rate as if the user was staking the same number of GMX tokens. However, when GMX or esGMX is unstaked, a proportionate amount of Multiplier Points are burnt. This further incentivizes users to keep their GMX and esGMX tokens staked rather than selling them or unstaking.

The Future of GMX

Even as GMX takes the lead in the spot and perpetuals DEX space, the GMX team continues to build and develop new features for the platform.

In the coming months, GMX is expected to launch several new features including synthetic assets and X4. Synthetic assets bring a brand new market to GMX, allowing any synthetic asset supported by Chainlink’s oracles to be traded. This includes stocks, commodities, forex, and more. X4 is an automated market maker (AMM) expansion from GMX, introducing functionalities such as fully customisable liquidity pools for new projects, greater composability and aggregation of liquidity across other DEXs.
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