Written by
Kiernan Geoghegan
Date published
September 13, 2022

In hindsight, many Defi tokens were dead on arrival. But what about the one protocol that's beat the bear market? @GMX_IO is nearing new all-time highs.

Here's how the protocol works, and a breakdown of the architecture 🧵👇


1/ $GMX is a spot and perpetual decentralized exchange, similar to other protocols like dYdX or Perpetual Protocol. These other protocols typically use mechanisms such as a central limit order book (dYdX), or a vAMM (Perpetual).

2/ While these other designs have merit, there are tradeoffs.dYdX utilizes off-chain computation for their order book, trading efficiency for a lack of decentralization. Perpetual conversely lacks during times of high volatility and experience inefficient price discovery.

3/ GMX is different in that it utilizes a single, multi-asset pool feature.LPs can stake their assets and receive GLP in return.Everything operates out of this single pool - gains, losses, shorts, longs, and swaps, all coming from the same place.

4/ The fees to mint GLP or redeem GLP into another asset are determined based on the asset proportion of the pool.A higher pool proportion corresponds to a higher fee. Current asset allocation: - 45% stables

- 28% ETH

- 25% BTC

- 2% others (LINK, UNI)

5/ Although this unique DEX Design is interesting, there are two other factors that GMX's recent price action that can be attributed:

1. Arbitrum's recent growth

2. GMX's unique tokenomics structure

6/ GMX was an early bettor on @arbitrum, launching in mid-2021.

With the recent release of Arbitrum Nitro, fees have dropped to minuscule amounts.

Arbitrum has yet to release a token, many are increasing their trading volume in hopes of receiving a future airdrop.

7/ But the choice of network is not the only reason for the surge to near-ATHs. The other factor to consider is the novel token model:GMX has designed the protocol around two assets:

- GLP, the aforementioned liquidity token

- GMX, the governance token

8/ GLP receives 70% of the protocol's fees and acts as an index of the underlying pool for LPs to receive their funds back.

Although these LP positions are not delta-neutral, they do have a lower % crypto exposure compared to if they had simply HODL'd their coins.

9/ GLP is the counterparty for all trading activity, thus they're betting against platform users. Profits/Losses for traders, as well as the fees they pay, are all taken away/granted to the general liquidity pool. PNL & fee accumulation is a great metric to gauge LP performance

10/ We can see from the graphs below (image from GMX stats) that LPs are somewhere in the range of 12.5m net profit over the long term.

However, LP'ing is not consistently profitable in short-term spans.


11/ The other protocol token, GMX, is not only a governance token but ALSO a revenue-sharing token.GMX receives:

1. 30% of the protocol's fees

2. The vested GMX rewards

3. A multiplier based on how long the token has been staked

12/ GMX holders are granted access to emissions in the form of esGMX.These tokens can either be staked to serve the same governance and reward utilities just like GMX, or holders can vest their tokens and convert them to GMX. This process occurs linearly over 365 days.

13/ The reward multiplier mechanic is built in to incentivize long-term holders and participation in the protocol's governance.These points entitle GMX holders to a larger amount of esGMX rewards.

14/ Although these tokenomics mechanics might be a bit tough to understand for the non-Defi native. Holders are essentially being rewarded with protocol fees and additional vested GMX tokens. These rewards increase the longer they are staked.

15/ These tokenomics structures have helped create an asset that is generating "real-yield". Additionally, many holders are reluctant to remove their stake and give up rewards, leading to low liquidity.

These two factors have led to tremendous price action.

16/ GMX is once again nearing its ATH, while many other tokens for similar protocols are continuing to drop lower and lower (retrieved from CoinMarketCap).


17/ Interestingly, GMX has a completely anonymous team and is not known to have received any institutional funding. This may conclude that likely the entirety of tokens are owned by at least somewhat involved community members.

18/ This anonymity can of course have tradeoffs.Many in the broader community have grown weary of anon founders.The unmasking of those behind projects like Olympus DAO or some of Solana's biggest Defi protocols(Cashio, Sunny), has left a sour taste in the mouths of some.

19/ What does the future look like for GMX and are there any risks moving forward?As all of the derived trader profit from the protocol comes from the Liquidity Pool, there is a chance for it to run dry if there is a prolonged period of asymmetric PNL.

20/ For example, if many traders or even one very large whale is able to pull off a series of highly profitable trades there is a risk for the protocol. Certain imbalances in net long/short positions of traders, or too many shorts in a bear market, can drain the pool too

21/ In conclusion:

- GMX is experimenting with new tokenomics and DEX designs

- Some of recent price action is attributed to this, and growth of Arbitrum

- Yield from protocol is generated from trader activity

- There are certain existential risks from long-term trader PNL

23/ For a unique, more in-depth look at how GMX operates I'd recommend checking out this thread as well:

24/ Thanks for reading. This is one of my favorite Defi protocols out right now.Thanks to @yb_effect@varunshenoy_, and @JackLipstone for edits on this piece.