Under the impact of the collapse of FTX, GMX stood out and became a DeFi representative in the array of perpetuals competing with centralized exchanges. “Opportunity creators” also took advantage of the opportunity to jump on the bandwagon and create clones of GMX on other blockchains.
The GMX “fork” project’s token has experienced impressive growth. Many questions arise from here, such as:
Are these projects currently overvalued?
What metrics are important when tracking these platforms?
How to invest in such trendy tokens?
All will be answered one by one through articles.
GMX becomes a new force in the derivatives field
FTX bankruptcy creates boost
GMX is under development starting in the second half of 2021. The project uses an innovative perpetual trading approach that brings many benefits to users in terms of liquidity and limited slippage.
GMX has been on the market’s radar since before the FTX incident (TVL data shows steady growth over time).
But it wasn’t until FTX went bankrupt that GMX really became the focus of the market. The platform offers a more optimized solution than dYdX or Perpetual Protocol, causing the GMX token price to break through ATH.
In addition to the statement that the perpetual trading platform will have more territory when FTX collapses, the keyword "Real Yield" widely spread by the media has also attracted investors' attention to GMX.
GMX 'fork' project jumps on the bandwagon
In the past, the cryptocurrency market has also seen a series of “forks” of a well-known project. Some examples can be mentioned like Solidlly with tick(3,3), Reserve Currency wave with OlympusDAO,…
GMX is no exception and we can see many clones such as Gains Network, Level Finance, Vela Exchange, El Dorado Exchange…
Especially since Gains Network, like GMX, is also a project born in 2021 (in a few months). Gains was originally developed on Polygon, but it wasn’t until January 2023 (a period when Layer 2 started to heat up) that the project’s TVL took a leap.
The remaining projects will be launched between December 2022 and January 2023. This period was one of “right time, right place, and harmony”, and stories related to decentralized derivatives exchanges, GMX or Layer-2 were widely circulated.
The tokens of these projects have also increased dozens of times.
Operation status of the above projects
Today's GMX still has a TVL that surpasses other platforms.
The TVL gap between GMX and Gains Network (the second-ranked project) is as high as $600 million.
This is a very important point, because with an operating model like GMX, having a large TVL can ensure that investors have sufficient liquidity. Sufficient TVL will also have a positive impact on increasing transaction volume and bringing revenue to the platform.
However, it can be seen that GMX’s TVL growth rate starting from 2023 is not equal to that of other platforms.
The remaining projects have all seen TVL growth of over 100% since the start of 2023. Even Vela Exchange and Level Finance grew over 10x.
Judging from the transaction volume, from the beginning of 2023 to the present, the two "OG" projects of Gains Network generally have no increasing trend. Spikes in trading volume only occur on certain days.
On the other hand, recently emerging “fork” projects (Level Finance, El Dorado, Vela Exchange) have seen a surge in trading volumes.
GMX still outperforms other platforms in terms of the number of fees charged.
Gains Network, although a long-standing project, has been “overshadowed” (in terms of fees collected) by other fork projects since mid-February 2023.
Overall, the three newly launched projects have the common characteristics of high TVL, transaction volume and fee growth. Gains Network has a higher TVL growth rate because it scales through the Arbitrum ecosystem (which receives a lot of attention from the community).
The reason for this is the liquidity mining program with huge yield.
By cleverly combining new elements in the story related to the GMX model, the keyword "Real Yield" and liquidity mining in the 2020 "DeFi Season", the GMX "fork" project has attracted market attention. Their token has also seen impressive growth.
However, using liquidity mining on derivatives platforms has proven to be unprofitable in the long run. dYdX is a classic example.
Therefore, if fork projects want to be as successful as SushiSwap in 2021, they will need to have other strategies to ensure long-term development.
Are these projects overrated?
Choosing a point of purchase for a popular “fork” project depends heavily on keyword and social media influence, plus a factor that builders have applied since 2020 – liquidity mining – and one corollary: the more you The earlier you enter, the greater advantage you have.
“Sometimes all we need to do is find popular keywords, choose a fork project and buy it as soon as possible.”
However, finding effective profit-taking points relies heavily on analyzing fundamentals and finding exit points when potential is no longer high.
Before analyzing and evaluating the valuation of a token, I myself will make the following assumptions:
Projects that are not primarily active in Arbitrum (where GMX holds the majority of the market share) will have better prospects.
A slowdown in TVL growth signals the end of growth.
GMX will be used as the baseline for the project.
Arbitrum will not launch a token (guaranteed TVL growth rate and stable GMX trading volume).
The news that the market is creating a new wave for derivatives platforms is not going to happen.
GMX transaction volume is growing steadily (due to the nature of users coming to GMX, not because of liquidity mining)
GMX’s TVL is currently still trending upward, but trading volume is not.
Actual data shows that trading volume only peaks in the initial stage and then fluctuates around a certain level.
This means that volume growth (which directly affects revenue) will only explode in the early stages. This is the golden age for these platforms to attract users and get them used to them.
After that, it will be very difficult to get through old users and attract new users. The increase in TVL is not that important at this point, as the increase in the number of TVL must serve a corresponding increase in transaction volume.
So from GMX I have conclusion:
An increase in TVL does not necessarily lead to an increase in transaction volume.
Volume will only increase initially.
Absent a big hit (like Gains Network switching to Arbitrum), it's common for trading to move sideways or down in the following periods. This directly affects pricing.
This is especially important when considering the valuations of platforms that use liquidity mining to attract users, such as Vela, El Dorado, and Level Finance.
P/E valuations (subjective estimates) show that the above platforms are overvalued compared to GMX.
This means that investors expect transaction volumes and fees for “fork” projects to triple, or even six times current figures for Vela.
As is the current situation with Level Finance, the number of LVL tokens used for liquidity mining is decreasing, and the growth rate of TVL is also lower than before.
Combined with the assumptions and conclusions of the above-mentioned GMX research, Level Finance’s golden period of hot growth seems to be coming to an end.
Of course, if there's a big push to break these assumptions, or an event that revitalizes GMX and the GMX "fork" platform, then we'll need to rethink the entire model.
Some tips for investing in fork project tokens
In a wave, we may not be the leader and not be in a good position to lead the token. However, the opportunity for x accounts is always in the trending token.
Therefore, if investors miss out on GMX or any of the trend-setting coins, they can definitely find opportunities to get into other coins, such as LVL, EDE or VELA above. When the trending leading currency remains strong, subsequent currencies will rise even higher.
In addition to following Twitter to “catch trends”, you can also use Lunacrush to track popular keywords.
in conclusion
Investing in these tokens also comes with significant risks. Therefore, it is necessary to consider allocating an appropriate amount of funds so as not to affect the entire portfolio in adverse situations.
Additionally, "follow-on" tokens tend to be produced over a shorter period of time, so sometimes the development team doesn't think it through enough, leading to smart contract vulnerabilities. In addition, new projects also present potential fraud risks. .
Therefore, the best approach when dealing with such coins is to create a new decentralized wallet to reduce the risk of hacking, exploits, security breaches, etc.
It is also very important that the project is deployed on any ecosystem. As is the case above, the above statement about a vibrant ecosystem like BNB or Arbitrum is more likely to reach users.
Liquidity is also a factor to consider. We need to choose tokens with sufficient liquidity (not too large to make it difficult to skyrocket, nor too small to easily cause price slippage), and optimize returns based on this.
Finally, when we have a good position, we always need to carefully analyze the parameters of the project and combine it with the operating model to find the most effective profit point.
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