GM GMX v2.
A wild low-delta strategy appears.
Intro
Happy Friday! What better way to enter the weekend than with a new integration to look forward to? Recently we integrated Trader Joe’s Liquidity Book into DeltaPrime Blue leading to a significant increase in borrowing demand. Where we had 0.01% utilization on our pools prior to LB, this quickly changed post-integration.
This Monday we will introduce a new massively popular protocol into DeltaPrime Blue ànd Red:
GMX V2
More specifically, the Liquidity Provider tokens from GMX v2: GM. Over the next few days we dive into three reason why we’re excited for this integration.
- Simply delta neutral
- Grant proposal
- New token options
In this article we’ll explain what GM is, as well as the new strategies we are expecting to see with this integration:
Let’s dive.
a GM to you!
If you have been with us since our launch in January, you remember GLP Rush. In February / March, Prime Accounts had Account APYs over 400%, while Savers earned 50%+ on USDC for weeks on end. These numbers were the result of a massive collaboration between the highly popular perpetual derivative exchange GMX, Avalanche OG Yield Yak and, newcomer in the space, DeltaPrime.
Shortly after GMX upgraded from v1 to v2. Most notable change: No longer would traders trade only against a basket of assets (GLP). Instead, markets would be isolated in order to isolate the risks. With this change, a wider range of assets could get listed on GMX and liquidity providers could tailor to which assets they would want to have exposure on.
Until today, GM tokens have been operating on GMX without a listing on DeltaPrime. While we do still support GLP, its returns have diminished, reducing the effectiveness of its popular quasi delta neutral strategy.
Starting from Monday we will integrate GM tokens into DeltaPrime, allowing you to provide liquidity into GMX v2.
While these isolated LP tokens might seem like providing liquidity to your regular AMM — they consist of two assets, with an X percent APR — , there are important differences. Differences that give new opportunities we did not have before. Differences we will explore deeper, as we explain why we are excited about this new integration. With today the first one:
1. Simply delta neutral
About delta neutral strategies
Preemptive note: Providing GM gives you exposure to counterparty PnL and underlying weight changes. This makes a 100% delta neutral position not possible, leading to Yield Yak naming it more accurately “quasi delta neutral” in the tweet above. For sake of transparency we felt this important to mention; for sake of simplicity and as it nears neutrality, we name it delta neutral. But first:
what is delta neutral?
A delta neutral investment strategy removes price risk from the profitability equation. If you borrow 1 ETH on DeltaPrime and provide that same 1 ETH on a Yield Yak strategy, price changes of ETH won’t determine whether you are profitable or not. As long as you earn more on your ETH than you pay in interest (and nobody gets exploited etc) you will end up with more ETH at the end of it. While the exact profit will be dependent on that ETH’s value. Because you can always repay your borrowed ETH with the ETH you have in YY, a lower, or higher ETH price will not make your strategy unprofitable.
Perfect for those who do not have a crystal ball.
Delta neutral on DeltaPrime
DeltaPrime’s borrowing mechanism allows for the easy creation of delta neutral strategies. While a carry-trade as described above is a simple strategy, we have seen users create more complex strategies (due to their higher potential for profits). Think for example about hedging the index LP GLP, consisting of up to eight different assets. Keeping your delta neutral gets more challenging as every asset changes. Nevertheless, creating and managing delta neutral GLP strategies was a major strategy for many hedge funds on- and off of DeltaPrime.
On spot AMMs this is significantly more difficult. In order to stay neutral, you will have to adjust your borrowed assets to match the composition of the assets you hold on the DEX. Since this composition changes (drastically) with every trade made on that DEX, you are playing catch-up with having low delta, turning impermanent loss into permanent loss whenever you rebalance.
While more savvy users have been able to do this successfully, it can be labor-intensive & complicated for the average Joe.
Hedging GMX v2 on DeltaPrime
Which is where our excitement with GMs come in. Every GM represents your share in the composition of assets of the underlying pool. This is similar to any other AMM. Crucial difference: These assets are not used for swaps on GMX. The GM token is a synthetic asset, meaning that while profits are paid out with the underlying assets, the trade itself does not require the swapping of these assets. Ergo: no composition changes due to swaps.
For a trader this means trading without slippage. For a liquidity provider this means no impermanent loss on swaps. Juicy. While there is no impermanent loss in the sense that other AMMs have, the composition of your assets can fluctuate. The composition changes that happen are the result of the assets used to mint GM, which is why we show the exact composition of your position in the UI of DeltaPrime.
DeltaPrime’s debt-swap feature allows you to change your debt composition, to exactly match it to the composition you have in the pool within one transaction. Now that is delta control.
You decide when and what to rebalance, just like you decide everything else within your Prime Account. On GMX’s side however, they also support the stability of the composition. Through fees and discounts, target weights are incentivized, making it significantly easier for users to keep their price exposure as low as possible. While at the end you are in complete control, taking the target weights into account might help making a better informed decision, as it gives an indication to where the composition is likely to gravitate towards to.
While 100% APY on a low cap, heavily inflating and volatile asset might not mean much, 100% on an asset where price impact is reduced to a minimum might be more attractive APY.
What if I’m bullish or bearish?
We are fans of delta neutral strategies, since — if set up correctly — they perform in both bear and bull markets. However, DeltaPrime’s delta control does not force you to prevent you from taking directional exposure. By having your borrowed assets in stables you can take a more bullish stance on the market. Swapping your debt from stables to volatile assets like BTC or ETH makes you more profitable when the market turns bearish.
At the end, nobody decides how you use your Prime Account but you. All we do is provide you the tools to take reign over your capital.
How you use it is up to you.
Let’s Unlock the Blockchain.
About DeltaPrime
DeltaPrime is your prime broker on a mission to unlock the full potential of DeFi. We do this by providing secure undercollateralized loans, redistributing assets with a focus on maximum capital efficiency. Being built on the strong foundation of the Avalanche network, our Prime Account holders know they get fast and reliable transactions for their most important investments.
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