A deep-dive into GMX ($GMX / $GLP)

5 min readSep 1, 2022

With lukewarm interest in DeFi given the current bear market, GMX has been seeing traction and interest amongst the community — given its ability to generate organic cashflow for stakers. This is a welcome change given that DeFi 1.0 was dominated by emissions driven rewards, which are often speculative.

This article seeks to understand the mechanisms of GMX, which is relatively novel compared to competitor offerings — and to explore how yields are generated.

Mechanics

GMX is a fully on-chain decentralized margin trading DEX — built with the GLP pool as a liquidity provisioning mechanism, and with up to 30x leverage. GMX is currently on Arbitrum and Avalanche.

Compared to other competitor offerings on the market like dYdX (CLOB based) and PerpFi (vAMM based), GMX uses a fundamentally different model where traders borrow assets and trade against the liquidity pool.

On the other side, LPs can deposit whitelisted assets into the liquidity pool. Depositing assets into this pool mints $GLP tokens, whilst redeeming assets burns $GLP. $GLP itself is an index asset, representing the underlying value of the pool. Profits on positions are also paid out of this pool, and conversely trading losses are paid into this pool.

Mint and redeem fees for $GLP are based on the proportion of assets in the liquidity pool. For instance, fees are higher for assets that have a higher proportion in the pool — ensuring a healthy proportion of assets. The pool target weights are currently 45% stablecoin, 28% $ETH, 25% $BTC, and 2% other assets. Actual weights may vary according to what LPs are depositing into the pool.

Bonus: Given that the target weights of the liquidity pool is 45% stablecoin and 55% volatile assets, we see that movement in value of the liquidity pool is “lagging” in both increasing and decreasing price environments — with the stablecoin portion providing a counter-balancing effect.

With these concepts in mind, we see that:

For leveraged longs: Volatile assets are borrowed by traders to give them their desired long exposure.
For leveraged shorts: Stablecoins are borrowed by traders to give them their desired short exposure.

Sources of Yield

Ahh.. the age old question. Where do yields come from for GMX, and how does it generate #RealYield?

$GMX

Receives 30% of all fees, which are converted and paid out in either $ETH or $AVAX. $GMX stakers are also entitled to emissions in the form of $esGMX, and also multiplier points which gives $GMX stakers even more $esGMX emissions.

Note that $esGMX cannot be sold, and must first be converted into $GMX to be sold. This conversion requires a “vesting”, where $GMX is vested every block and can be claimed over 365 days. The action of vesting $esGMX also locks up some $GMX, ensuring that sell pressure on $GMX is low.

$GLP

Receives 70% of all fees, which are converted and paid out in either $ETH or $AVAX. $GLP holders are not entitled to receive multiplier points.

$GLP holders are also entitled to emissions in the form of $esGMX, but only if total APR from fee share paid in $ETH or $AVAX falls below 20%. Payouts of $esGMX are thus used as a “top-up” to hit the minimum 20% APR floor.

GMX Statistics

(Full calculations in Appendix below)
Overview

Total Users: 86.8k
Open Interest: $74.2mm
Lifetime Trading Volume: $58.5bn
GMX AUM: $567mm ($304mm Staked $GMX MC + $263mm Circulating MC)
Lifetime Fees: $79.6mm ($23.9mm to $GMX + $55.7mm to $GLP)

$GMX

Max Supply: 13.25mm $GMX
Circulating Supply: 7.99 $GMX (60.3% Circulating)
Staked Supply: 6.91mm $GMX (86.6% Staked of Circulating)
Circulating MC / FDV: $351mm / $583mm
P/E (Circulating MC / Lifetime Fees): 14.7x
P/E (FDV / Lifetime Fees): 24.4x

$GLP

Circulating Supply: 292mm $GLP
Circulating MC: $263mm
P/E (Circulating MC / Lifetime Fees): 4.7x

Token Economics for GMX

$GMX is the governance token of GMX. Token utility includes:

Governance: 7 prior proposals on Snapshot, where most proposals have been related to rewards distributions or CEX listings.
Fee Accrual to Stakers: 30% of fees generated are converted to $ETH and $AVAX, and distributed to $GMX stakers.
Emissions to Stakers: $GMX stakers receive emissions in the form of $esGMX, and also earn multiplier points which gives $GMX stakers even more $esGMX emissions.

Max Supply: 13.25mm $GMX

Migration: 6mm $GMX (45%); airdrop to holders of prior protocol tokens XVIX and Gambit (more explained below)
Liquidity: 2mm $GMX (15%); liquidity provisioning on Uniswap for WETH/GMX
Rewards: 2mm $GMX (15%); Escrowed GMX rewards for $GLP holders
Floor Price Fund: 2mm $GMX (15%)
Marketing, Partnerships, Community Devs: 1mm $GMX (8%)
Team: 0.25mm $GMX (2%); distributed over 2 years

Fundraising

GMX is understood to not have raised any primary funding from institutional investors, which is further evidenced by GMX’s token economics where there is no allocation for an investor tranche.

Instead, the institutional investors that currently sit on GMX’s token cap table are likely to have received their $GMX as a result of the 45% airdrop — given to holders of XVIX and Gambit, predecessors of the current-day GMX.

Gambit — a predecessor of current-day GMX

Liquid strategy investors who are looking to buy $GMX may also find it difficult to do so, given relatively low trading liquidity — arising from existing staked $GMX holders not wanting to forfeit their Multiplier Points when they unstake their $GMX.

Risks

Given the mechanism that GMX uses, we earlier established that: 1) traders borrow assets and trade against the liquidity pool, 2) profits (losses) on positions are paid out (into) of this pool, and 3) the value of the liquidity pool is dependant on the value of the underlying assets.

We thus see three major sources of risk arises from this mechanism:

Imbalance of longs and shorts, thus draining the pool
Risk of many small traders / whale with a large position winning, thus draining the pool
Traders being net short in a decreasing price environment, which has a twofold effect: 1) decrease in value of the liquidity pool, and 2) still having to reward traders

Conclusion

GMX is perhaps one of the most innovative DeFi protocols in the market right now — by using a different mechanism compared to competitor perp DEXs, and giving stakers means to earn organic cashflows via share of trading fees and emissions.

Interested to see where GMX will be in the next 6 months.