GMX: The Decentralised Perpetual Exchange For People, By People

SMUB Research
Published in
6 min readSep 20, 2022


By Evanarp, David Sim, Kaydon, and Russell

Nothing following this constitutes financial advice, please do your own research!


Our research on GMX was done in May 2022 and the report was originally posted on another Medium Account (No Signboard Crypto).


With financial markets nearing their 52-week lows, it is sensible for investors to allocate their risks accordingly. During this period, investors may have lower risk appetite and choose to allocate their capital towards more defensive tokens. One such project that fulfils the aforementioned is GMX, an on-chain decentralised spot and perpetual trading platform.

Currently live on 2 EVM chains (Arbitrum and Avalanche), GMX offers a range of products to cater to investors with vastly different risk appetites. There are 2 main parties that utilise GMX, namely traders and liquidity providers. With low swap fees and zero price impact, traders are able to take on leveraged positions with ease. This is in turn made possible by liquidity providers that purchase $GLP, a liquidity token that represents GMX’s unique multi-asset pool.

Against the backdrop of a bear market, we believe that GMX presents itself as a defensive play in such conditions. $GLP is able to reduce an investor’s overall risk exposure due to its diversified pool of assets that includes stablecoins like USDC. Moreover, it generates passive income for $GLP holders through trading fees.

Project description

How does GMX work?

GMX is a vital platform in the DeFi ecosystem because it allows users to perform leveraged trading without KYC procedures (ID verification, proof of address) mandated by Centralised Exchanges (CEXs — FTX, Binance).

Traders Perspective

On GMX, traders are able to open positions, both long and short, with up to 30x leverage. Prices are dynamically determined by Chainlink’s price oracles as well as an aggregation of prices from leading volume CEXs. This allows GMX to offer zero price impact trades to traders and prevent liquidation wicks as price is not dependent on liquidity pool or exchange order books.

As for total transaction fees, it comprises trading fees and borrowing fees. Trading fees are fixed at 0.1% of the position size and are incurred when opening and closing the leveraged position. Borrowing fees are incurred hourly and vary based on the utilisation of assets in the GLP Pool.

Liquidity Providers (LP) perspective

To qualify as a LP, investors can mint $GLP by exchanging various currencies available on GMX’s multi-asset pool. By doing so, they provide for the entire liquidity on GMX. The exchange fees for the various currencies fluctuate in accordance with the current and target weights in the multi-asset pool. Minting $GLP with an asset that is over represented incurs a greater exchange fee, and vice-versa. Such a model incentivizes prospective LPs to deposit under represented assets.

Current distribution of multi-asset pool:

Arbitrum — Currently, the 3 assets with the highest weightages are Ethereum, USDC and Bitcoin at 33%, 31% and 11% respectively. However, both Bitcoin and USDC are under their target weight while Ethereum is overweight. (Source: GMX)
Avalanche — Currently, the 3 assets with the highest weightages are Ethereum, USDC and Bitcoin at 16%, 53% and 17% respectively. However, both Bitcoin and USDC are over their target weight while USDC is close to it. (Source: GMX)

Relationship (How they Interact):

There exists a semi-symbiotic relationship between traders and liquidity providers on GMX. Simply put, LPs serve as the counter-party to traders. When traders make a winning trade, their realised profits are drawn from the liquidity pool; for losing trades (where traders are liquidated or make losses), their losses accrue to the liquidity pool. Historically, we can see that traders have been net losers, contributing to the price appreciation of $GLP.

On the side of the traders, their PnL have mostly been in the red. Their losses generally continue to increase, and have doubled in the span of 6 months (December 2021 to late May 2022) from 7.2M to more than 14.7M. (Source: GMX)
Similarly, on Avalanche, traders’ cumulative losses have stayed mostly the same till early April 2022, where their losses increased drastically to almost 5M. (Source: GMX)

$GLP; uniquely positioned for a crab/bear market

One thing to note is the high correlation between Traders PnL and $BTC price action. During periods of bullish price action, we see traders making net gains, and during bearish price action, we see traders making net losses. This implies that traders have a tendency to position themselves net long, which punishes traders in a crab market (due to having to pay funding fees throughout the trade) and in a bear market (due to being directionally wrong).

Aggregated from GMX, Coingecko

Recall that when traders are net losers, the value of the $GLP asset pool increases, resulting in $GLP price appreciation. To date, traders have lost a combined sum of $17,615,843 over the 2 chains. This value accrues back to $GLP as unit price appreciation.

As for the trading and borrowing fees incurred by traders, they constitute protocol revenue and are distributed between $GLP and staked $GMX holders. $GLP holders receive 70% of the chain’s trading fees, while staked $GMX holders receive 30% of all trading fees, across the 2 chains.

Benefiting from human behaviour (propensity to trade) rather than external capital mining mechanisms, $GLP is positioned to enjoy above par upside during upcoming volatile market conditions that have now become unquestionable.


Tokenomics of GLP and GMX
A simplified diagram which summarises how Liquidity Providers (LP), Investors and Traders interact on GMX and the flow of GMX, GLP and capital between them.


Liquidity providers can stake $GLP to earn 2 different types of rewards (70% of fees on respective chain):

  • Escrowed GMX (esGMX)
  • ETH fees (Arbitrum) and AVAX fees (Avalanche)

Investors can stake $GMX and earn 3 different types of rewards (30% of all fees):

  • Escrowed GMX (esGMX)
  • Multiplier Points
  • ETH fees (Arbitrum) and AVAX fees (Avalanche)

Escrowed GMX (esGMX)

There are 2 ways to use esGMX: through staking or vesting.

  1. Staking esGMX rewards liquidity providers a similar amount of esGMX and ETH/AVAX fees as a $GMX token
  2. Vesting esGMX converts it to $GMX tokens over a year. In order to vest $esGMX over a year, stakers need to deposit the average amount of $GMX used to earn the $esGMX into the vesting contract.
A breakdown of how the revenue from GMX, which consists of Traders’ cumulative losses and emissions, is distributed amongst GLP holders and those with staked GMX.

Multiplier Points

  • $GMX stakers will receive multiplier points every second at a flat rate of 100% APR.
  • Unstaking $GMX or $esGMX will burn a proportional amount of multiplier points.
  • Each multiplier point will earn a similar amount of ETH / AVAX rewards as a $GMX token.
  • Multiplier points allow stakers “boost” their earnings by a certain APR.

Future of GMX

A common gripe among users is the lack of trading pairs beyond crypto majors on GMX. In their roadmap, GMX plans to introduce a second, riskier basket of assets. This plan works to further enhance GMX’s trading platform by enabling riskier assets to be traded against, which in turn may encourage higher trading volume which benefits LPs.


Other notable decentralised perpetual exchanges include dYdX and PERP. These perpetual exchanges differ in various aspects such as the distribution of trading fees and rewards for the native token holders. Most notably, GMX outshines the other 2 protocols by offering zero price impact trades to traders because of their unique liquidity pool system. This helps improve the traders’ experience as zero price impact trades ensure that they do not suffer from slippage when trading with size and prevents any liquidation wicks that is associated with low liquidity.


GMX is a novel concept that actively involves both traders and investors through their platform. From both perspectives, we believe that GMX will continue to remain as an attractive project and play a crucial role in the L2 ecosystem. With plans to further diversify their trading pairs, this points to more opportunities for leveraging traders, potentially translating into more revenue for holders of its native token.



SMUB Research

Blockchain, DeFi and NFT