Competition in the on-chain perpetual contract market is becoming increasingly fierce. After Synthetix, Vertex and others dominated the market by relying on trading rewards, the trading volume of the former leader GMX V1 declined. As of October 7, the amount of funds in GLP on Arbitrum was US$360 million, but the APR had fallen to 5.65%. Considering that GLP may incur losses as a trader's counterparty, GLP is no longer competitive from the perspective of gaining returns, and funds continue to flee. At the same time, the open interest and trading volume of GMX V2 are both rising. As the perpetual contract with the highest TVL, GMX is still worthy of attention. Below, PANews will interpret the updates of GMX V2 and compare the data of V1 and V2 as well as the overall competitiveness of GMX.
GMX V1 Defects and V2 Updates
Although GMX V1 provides a relatively complete on-chain derivatives solution and is the on-chain derivatives market with the highest TVL, with many projects wanting to fork GMX and multiple projects built on top of GMX, some user experiences may not be very good: transaction fees are high, both long and short parties may pay high borrowing fees resulting in high holding costs, a serious deviation in the long-short ratio may cause losses to GLP holders, and risks in a single asset may cause all GLP holders to face losses.
GMX V2 has been significantly updated and can almost be considered a completely different solution. The updates are as follows.
By replacing the single liquidity pool GLP with multiple risk-isolated GM pools, the liquidity of each asset is independent and can support more long-tail assets. When the price of an asset is at risk (such as the AVAX price manipulation attack), all liquidity providers will not be at risk.
Introducing funding fees and deciding whether longs pay shorts or shorts pay longs based on the open positions of long and short positions is conducive to achieving a balance between long and short positions through arbitrageurs.
The method of charging borrowing fees has been changed from charging both long and short positions to charging only long or short positions based on the amount of open long and short positions.
Reduce transaction fees from 0.1% to 0.05% or 0.07%, depending on whether the transaction tends to balance the long and short positions or makes them more unbalanced.
Introducing price impact so that trades that tend to be balanced between long and short positions will receive more favorable prices, while unbalanced trades will receive negative price impact.
Add other functions, such as adding limit orders, etc.
The above functions mainly isolate risks between liquidity providers, and at the same time, through different fees, incentivize arbitrageurs to balance long and short positions, thereby reducing the risks of liquidity providers. Transactions that balance long and short positions have lower transaction fees than before, favorable price impacts, no need to pay for borrowing currency, and additional funding fee income.
GMX V1 and V2 data comparison
Trading volume
Transactions in GMX can be simply divided into three categories: transactions entering or exiting the liquidity pool (GLP or various GM pools), spot transactions, and perpetual contract transactions. According to GMX official data, on October 7, the total transaction volume of V1 was 20.99 million US dollars, and the total transaction volume of V2 was 15.01 million US dollars. Among the major perpetual contracts, the transaction volume of V1 and V2 has not differed much in recent days; but the spot transaction volume of V1 is several times that of V2; the transaction volume of V1's GLP pool is also significantly higher than that of V2's GM pool.
cost
The fees generated by GMX V1 are still significantly better than those of V2. In the past week, the fees generated by V1 on Arbitrum were $557,000, and the fees generated by V2 were $110,000, which is 5 times that of the latter. It can also be seen from the fees generated by each transaction in the figure below that the fees generated by V1 perpetual contracts usually account for more than 50% of the total fees. V1 perpetual contracts have higher trading volumes and higher transaction fee ratios than V2. The recent total fees are still far from the highs of the past 3 months.
TVL
In terms of TVL of V1 and V2 (considering only GLP and GM pools), as of October 8, TVL of V1 (Arbitrum + AVAX) was $396 million, and TVL of V2 (Arbitrum + AVAX) was $41.57 million, with the former being 9.5 times the latter. However, TVL of V1 showed a clear downward trend, while TVL of V2 showed an upward trend, and the sum of the two still showed a downward trend (probably because the yield of GLP has dropped to around 5%).
Open Interest
From the perspective of total open interest, the sum of open interest of V1 and V2 is still on a downward trend, but has increased in the past 20 days. As of October 8, the sum of open interest of V1 and V2 is 134 million US dollars, of which V1 is 107 million US dollars and V2 is 27 million US dollars, and the former is about 4 times the latter. The perpetual contract trading volume of the two is relatively close recently, indicating that V2 has higher capital efficiency.
User number
The number of GMX users shows that since September 26, there have been many new users in GMX V2's perpetual contracts and spot transactions. The data has dropped sharply in recent days, which may be related to Arbitrum's restart of the Odyssey event. The new Odyssey event will start on October 26 and last for 7 weeks. The first week's task requires leveraged trading on GMX V2. On October 7, the total number of users of V1 was 901, and V2 was 942, which was equivalent. But before September 26, the number of users of V1 was significantly higher than that of V2.
Overall competitiveness
According to data collated by Dune @shogun, the total transaction volume of on-chain perpetual contract projects has dropped compared to June and July. The transaction volume changes cyclically and is usually lower on weekends.
Competition in this field is fierce. Four months ago, the transaction volumes of on-chain perpetual contract projects from high to low were: GMX, Kwenta (Synthetix), Level, GNS, ApolloX (dYdX is not included, and dYdX's transaction volume is still the highest). But the current situation has completely changed. Taking the data on October 7 as an example, the transaction volumes from high to low are: Vertex, ApolloX, Kwenta, GMX, HMX.
In terms of the proportion of transaction volume, GMX has fallen to around 10%. The impact of transaction mining on transaction volume is very obvious. Vertex, ApolloX, Kwenta, etc. all have transaction mining rewards. At the same time, GMX also faces competition from new projects such as HMX, which is disadvantageous for projects like GMX that no longer have tokens for transaction mining.
But the situation may change in the near future (refer to Optimism's trading incentives for Synthetix/Kwenta). GMX applied for 12 million ARB through the Arbitrum short-term plan. The proposal has now met the conditions for approval, and GMX plans to use the funds to incentivize the liquidity and trading volume of V2, as well as build other projects on GMX.
In terms of fees, GMX still has the highest proportion of fees, accounting for about 30% of all fees recently, which may be due to the higher transaction fee ratio and additional loan fees compared to other projects. However, it should also be noted that different projects have different ways of allocating fees. For example, the fees generated by Kwenta/Synthetix are all allocated to SNX stakers in the early stage, while the fee ratio allocated by GMX to GMX/esGMX stakers is only 30% at most.
summary
GMX V2 replaces the GLP pool with an isolated GM pool, and encourages a more balanced long-short ratio through funding fees, loan fees, transaction fees, price impact, etc. However, in the case of less volatile market conditions, competitors with trading mining incentives and lower transaction fees have occupied more market share.
The total funds in GMX are continuously flowing out. Although the liquidity in GMX V2 is increasing, more funds are withdrawn from GMX V1, and the yield of GLP in GMX V1 is only 5% recently. The outflow of V1 funds may not stop.
But the situation may change in the near future. GMX has applied for 12 million ARB in Arbitrum's short-term incentive plan. V2's liquidity and trading volume will be incentivized, and V2's higher capital efficiency may bring about a change for GMX.
