Twitter @godotsancho, this article was written on July 23, 2022
1. Project Introduction
Gmx is a DEX platform that supports spot and perpetual contracts. Its current main business focuses on derivatives trading. It was formerly the BSC chain project Gambit, which later migrated to Arbitrum and supports the Avalanche (AVAX) chain.
Different from dYdX and Perpetual Protocol, Gmx does not adopt the order book or AMM model, but adopts the global liquidity model.
The so-called "global liquidity" means that when users provide liquidity to Gmx, they no longer provide two tokens in a 1:1 ratio, such as ETH/USDT. Instead, they directly purchase and pledge the liquidity token GLP issued by the Gmx protocol. Staking GLP means participating in Gmx market making.
GLP itself represents a basket of tokens, with weights as shown below:
In fact, when a trading user opens a long position in ETH, it is equivalent to lending ETH assets to the GLP pool. Opening a short position is equivalent to lending stablecoin assets. In other words, the counterparty of the user who opens a position on Gmx is actually the user who pledged GLP.
Therefore, the price of GLP will fall or rise as the trading users make profits or losses.
The advantage of global liquidity is that the depth can be integrated. In theory, as long as there are surplus assets in the GLP pool, the depth is infinite. Secondly, the transaction fee is low and there is no slippage.
Users can directly buy or sell GLP on the Gmx platform. GLP is backed by real assets, and users can also choose to redeem other assets with GLP.
By staking GLP, you can share 70% of the platform's fee income. The current APR is 30.9%.
For trading users, they can open a position after depositing a margin. Gmx currently supports four varieties: ETH, BTC, LINK, and UNI. It supports users to use ETH, wETH, BTC, LINK, UNI, USDC, USDT, DAI, FRAX, and MIN to open positions in the above four varieties, with a maximum leverage of 30 times.
In addition, it should be noted that the assets represented by GLP have a target ratio. When the actual ratio deviates too much from the target ratio, the opening fee for using the asset will also increase, thereby correcting the asset ratio.
2. Project data
As shown in the above figure, Gmx's cumulative trading volume on Arbitrum and Avalanche exceeds 45 billion US dollars, the total fee income exceeds 60 million US dollars, and the total number of users exceeds 48,000. The number of open positions on the Arbitrum network exceeds 14 million US dollars.
The total transaction volume in 24 hours exceeded US$110 million, and the transaction fee income in the past two days exceeded US$310,000.
According to Delphi data, the GLP pool has continued to rise since August 21 last year.
According to tokenterminal data, Gmx's 30-day protocol revenue ranks 14th, surpassing old DeFi and public chains such as Sushi and Avalanche, and its 180-day revenue growth rate reached 183.1%.
Transaction volume data source: Tokeninsight, dYdX, Gmx
In the data above, Gmx trading volume is the sum of spot and derivative trading volumes, while other platforms only record derivative trading volumes.
If we compare horizontally, we will find that the current Gmx trading volume is equivalent to the derivatives trading volume of second-tier trading platforms such as Kraken, and there is a big gap from first-tier platforms such as Binance and the derivatives DEX leader dYdX.
3. Stablecoin Trading
Global liquidity GLP brings an unexpected benefit, which is low slippage in stablecoin exchange. As shown in the figure, Gmx's slippage in large stablecoins is not only smaller than Traderjoe, but even surpasses Platypus, a project in the Avax ecosystem that specializes in stablecoin exchange.
Token Economic Model
The total number of GMX issued is 13.25 million, the current circulation is 7.7217 million, the number of tokens pledged is 6.627 million, the pledge ratio is 85.8%, and the actual circulation is 1.0948 million. The current price is $17.24, the actual circulation is $18.8743 million, and the FDV is $228 million.
6 million tokens migrated from XVIX and Gambit (predecessor of GMX)
2 million and ETH form LP in Uniswap as initial liquidity
2 million for GMX staking rewards
2 million managed by the reserve fund (used to support GMX price)
1 million for marketing, partnerships and community
250,000 will be distributed linearly to the team within 2 years
GMX usage scenarios:
1. Participate in protocol governance
2. Pledge GMX and share 30% of the platform's fee income, which will be distributed in the form of ETH or AVAX
3. Stake to get GMX rewards
4. Get Multiplier Points
Reserve Price Fund:
1. The liquidity of the GMX/ETH trading pair on Uniswap is added by the Gmx protocol. The fee income generated by this trading pair will be converted into GLP and deposited into Gmx as a reserve fund.
2. 50% of the sales revenue of Olympus bonds will be deposited into the reserve fund, and the other 50% will be used for marketing.
The reserve price fund is used to maintain the liquidity of GLP, or to repurchase and destroy GMX to ensure the value of GMX.
GMX Staking
As shown in the figure, after users stake GMX, they will receive the following rewards:
1. Fee income, issued in the form of ETH or AVAX
2. GMX Rewards
3. esGMX, which stands for hosted GMX
4. Multiplier Points
5. Users can stake their multiplier points and get Staked Multiplier Points
1.esGMX
esGMX is the abbreviation of Escrowed GMX, which means escrowed GMX. esGMX is not transferable and can be used in two ways: Stake and Vest.
Staking esGMX is the same as staking GMX, and can also share the platform fee income. Vest converts esGMX into GMX, which takes 1 year. During the 1 year, esGMX will be converted into GMX in proportion every second. During the Vset process, users still need to continue to stake GMX or GLP.
2. Multiplier Points
The main purpose of MP is to reward long-term holders. When users stake GMX, they will receive MP points every second. If you stake 1,000 GMX for a year, you can get 1,000 MP points.
Users can continue to stake multiplication points, and each multiplication point can obtain the same staking income as GMX. Once the user cancels the pledge of GMX, the corresponding proportion of multiplication points will be destroyed.
That is to say, when a user initially stakes GMX, he or she can obtain esGMX and multiplication points MP. esGMX and MP can be staked again to increase the APR. The larger the amount of GMX staked and the longer the time, the higher the proportion of protocol income that can be shared.
On the contrary, once the user cancels the pledge of GMX, the income of esGMX and MP will also be affected.
5. The future of Gmx: X4
Gmx founder X is a serial entrepreneur, and his previous projects were called X1, X2, and X3.
X1 is XVIX, X2 is leveraged tokens, X3 is Gambit, and GMX is an improved version of Gambit. X4 will be designed around Gmx.
X4 is a custom AMM that allows fund pool creators to define any contracts or functions that are called when adding or removing liquidity, or when users buy or sell tokens through smart contracts. For example,
Dynamic Fees: The creator of the fund pool can set the handling fee, set different handling fees for buying and selling, and specify tokens as Gas, etc.
Access to all Tokens. Trade special tokens such as GLP that represent appropriate assets.
Greater composability. For example, LP Tokens can be used as tradable tokens, minted when purchased, and redeemed when sold.
Aggregation: Similar to 1inch, it aggregates liquidity from multiple DEXs.
In other words, in the future Gmx will become a spot aggregation DEX + derivatives DEX platform, and may even give birth to scenarios such as ICO and LBP.
6. GMX Token Value and Potential Risk Analysis
1/How big is the market for Gmx? What is the current market situation?
According to data from TokenInsight and Coinmarketcap, as of 8:00 (UTC) on July 2, the total market value of global crypto assets was US$864.01 billion, the total trading volume was US$225.08 billion, the derivatives trading volume was US$122.88 billion, accounting for 54.6%, and the DEX open interest value was US$285.96 million, accounting for only 1.01%.
(1) Trading is the most important activity in the crypto market. This track has broad prospects but also fierce competition.
(2) The total amount of derivatives transactions gradually exceeds that of spot transactions, which is consistent with traditional financial markets. As the crypto market develops, derivatives transactions are expected to grow further, with transaction volumes multiples of spot transactions.
(3) In terms of 24-hour trading volume, DEX accounts for only 1.19%. However, in terms of specific projects, dYdX has a certain scale, and its 24-hour trading volume and open positions have exceeded those of mainstream trading platforms such as Bitfinex and Kraken. Gmx's 24-hour trading volume is basically the same as Bitfinex and Kraken, but its open positions are lower than the two.
In summary, Gmx is in the largest industry with the most intense competition. At present, the competitiveness of the project has initially emerged, and it is necessary to focus on whether the competitiveness of the project can be sustained and how strong its substitutability is.
2/What is the core competitiveness of this project? Are there any barriers? What are the competitors?
Macro narrative:
As a trading platform, its competitiveness is reflected in the security of funds, a stable trading system, and a good trading experience, including good depth, low slippage, low fees, multiple order placement methods, convenient operation, and a rich variety of tradable assets.
On the other hand, trading platforms are more likely to experience the Matthew effect. The better the depth and the less slippage, the more trading users there will be, the larger the trading volume will be, and then the depth and slippage will be more optimized, forming a positive cycle. At the same time, more market makers can be attracted, and the number of online assets will also increase.
As the platform's revenue increases, investment in security and system development increases, and the security and protection become stronger.
Comparative advantages of DEX and CEX:
Compared with DEXs such as dYdX and Gmx, mainstream CEX platforms such as Binance, first of all, have OTC business and are a more upstream capital entry point. After users deposit fiat currency, they can trade directly on the CEX platform, which is more convenient.
Secondly, the first-mover advantage is obvious, and the depth, slippage, asset types, and order placement methods are sufficient to meet the needs of most users.
More importantly, as a centralized platform, users can directly contact customer service staff to handle any funding or transaction problems, and the centralized platform can conditionally compensate users based on stable and continuous cash flow income.
The first advantage of DEX over CEX is the ownership of funds. Large funds are worried that CEX platforms will restrict withdrawals or conduct so-called "targeted blasting" price manipulation, which will lead to fund security issues.
Secondly, the advantages of trading algorithms, such as global liquidity without slippage, AMM or native token incentives, etc.
Third, based on token economic models, such as native token incentives, attract users to trade.
Gmx core competitiveness:
As for Gmx alone, its core competitiveness is mainly reflected in the ownership of funds and the large amount of no slippage advantage brought by the global liquidity model.
Gmx can currently accommodate a maximum ETH position of approximately US$41 million, a maximum BTC position of approximately US$25 million, a maximum LINK position of US$300,000, and a maximum UNI position of US$50,000 without slippage (actual slippage is 0.3%).
Taking the ETH trading pair as an example, after dYdX accommodates 4 million USDT depth, the transaction slippage is still less than 1%. If it exceeds 4 million USDT, the transaction slippage is greater than 1%, and gradually increases with the increase in funds.
When Perpetual accommodates a depth of 100,000 USD, the slippage has reached 5.5%.
Taking LINK as an example, when dYdX accommodates 200,000 USDT, the slippage reaches 50.78%.
When Perpetual accommodates a depth of 100,000 USD, the slippage has reached 10.6%.
On the other hand, due to the global liquidity model, traders are actually borrowing coins from GLP, so in addition to paying transaction fees, they also have to pay additional borrowing fees on an hourly basis.
Gmx is more suitable for large-scale, short-term transactions. This is also the reason why the trading volume of Gmx is basically the same as that of Kraken and Bitfinex, but the gap in open positions is large.
4/ What is the future direction of the project? How is the business scalability? Can business expansion increase the market value?
From a macro perspective:
There is still room for the development of crypto market transactions. At present, if the price is $1,800 per ounce, the total value of gold in the world is about $10.87 trillion. The current total market value of the crypto market is $865.07 billion.
About Gmx:
Gmx currently has three foreseeable expansion directions:
(1) More derivatives trading products are available. Currently, only BTC, ETH, LINK, and UNI are supported.
(2) Spot Swap transactions.
(3) Based on the characteristics of global liquidity without slippage, large-amount stablecoin exchanges are combined with other DEXs to provide basic liquidity.
Based on the GMX token economic model, the above business expansion and increased transaction fee income will increase the GMX and GLP pledge APR, encouraging more lock-ups. The increase in GLP lock-ups will further increase the value of large-scale openings, forming a positive cycle.
5/Team situation?
The founder of the project has a Twitter nickname of X (https://twitter.com/xdev_10). He is a serial entrepreneur who has created XVIX, leveraged tokens, Gambit, and GMX projects. Other information is unknown.
6/Social media situation?
7/Who are the potential replacements?
A better way to make markets
8/Under what circumstances can barriers be broken? How to judge whether barriers are broken? What are the indicators?
(1) Security issues
(2) GLP liquidity is withdrawn
(3) Replaced
(1) GLP total volume decreases and prices collapse
(2) Sharp drop in trading volume
9/Who and what are the motivations for selling and buying tokens? Can the demand for token purchases continue? Can it offset the token selling? Can business expansion increase the demand for tokens?
According to the GMX token model:
6 million tokens migrated from XVIX and Gambit (predecessor of GMX)
2 million and ETH form LP in Uniswap as initial liquidity
2 million for GMX staking rewards
2 million managed by the reserve fund (used to support GMX price)
1 million for marketing, partnerships and community
250,000 will be distributed linearly to the team within 2 years
Considering the 85% pledge rate and the GMX managed by a 2 million reserve fund, the selling pressure on GMX mainly comes from pledge and liquidity rewards.
The motivation for buying GMX mainly comes from the pledge APR and the expectation of the future development of the protocol. In addition to the GMX issuance reward, the pledge APR will also share the protocol fee in the form of ETH or AVAX. Currently, the GMX APR is 22.75%, and users can continue to compound their income to further increase the APR.
The green curve in the above figure represents the price against USD, and the yellow curve represents the price against BTC. It is not difficult to see that the performance of GMX token is much better than DYDX, especially in the past half month, it has outperformed BTC.
The reason is that DYDX is currently unable to effectively capture protocol revenue, and uses tokens to reward market makers and users for providing liquidity, which increases selling pressure. The GMX token economic model is much better in comparison, not only capturing the value of protocol revenue, but also not using tokens themselves to incentivize liquidity, and there are also a large number of lock-up scenarios.
A pledge rate of over 85% also illustrates the success of the GMX token model.
And from the data, although the net worth of dYdX users is higher than that of GMX, due to the token economic model, the circulating market value of DYDX is almost the same as that of GMX.
10/RISKS?
Systemic risks:
(1) Security issues
(2) Substitutability risk
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