The GMX Lego
Composability is a core feature of DeFi, enabling developers to integrate existing protocols to create new services. One such protocol is GMX, which enjoyed a fantastic 2022 and consistently delivered more than 20% APR in $ETH through its LP token GLP, setting off the trending "real yield" narrative.
As a result, developers began building new projects on top of GMX, resulting in more than 20 such projects today. This guide provides a comprehensive review of all these projects, which can be divided into five categories, vaults, lending, social trading, options, and others.
Vaults are the biggest category with 13 projects. They range from basic auto-compounding farming pools to complex structured products aiming to enhance yield.
Einstein believes that compound interest is the eighth wonder of the world. If you are like me, who always forgets to compound GMX/GLP gains, we are all leaving money on the table.
If you do not compound with an annualized 20% APR, your $100 becomes $120 at year's end. However, if you compound twice a day, your $100 becomes $122.14. The return is even higher if you take into account the boost from compounded multiplier points, a unique feature of GLP that rewards long-term users.
Quite a few products offer auto-compounding service to GLP holders so that they do not miss out on the juicy auto-compounded yield.
Abracadabra is the largest auto-compounding GLP farm with a TVL of $15.47 million. Users deposit GLP to receive magicGLP, which auto-compounds returns back to the pool twice a day. With magicGLP, the ETH yield generated from GLP farming is automatically reinvested into magicGLP, which maximizes returns. Like other vault tokens, the value of magicGLP will increase over time due to the auto-compound, causing the magicGLP: GLP ratio to rise.
Abracadabra charges 1% on the yield for the service and no entry/exit fees, the lowest pricing among auto-compounding pools.
Plutus is the second largest with a TVL of $7.86 million, where users deposit GLP for plvGLP. It auto-compounds every 8 hours and charges an exit fee of 2% and a vault fee of 10%.
In exchange, plvGLP holders receive 15% of PLS liquidity mining emissions, which amounts to 2,250,000 $PLS distributed to plvGLP holders over 2 years. The emissions are weighted towards the early months, meaning the first few months will have the highest emissions. $PLS can be locked to earn yield generated by the Plutus Treasury and receive control over veTokens locked within Plutus. In addition to plvGLP, Plutus has a line of governance aggregation and liquidity-related products.
Yield Yak is a GLP farm on Avax with a TVL of $7.31 million. Similar to Abracadabra and Plutus, Yield Yak auto-compounds $AVAX rewards back into GLP and stake earned esGMX to boost rewards. Yield Yak takes a 9.5% fee on yield and no entry/exit fees.
Beefy Finance is on Arbitrum with a TVL of $1.36 million. Its vaults compound at minimum once per day and on every deposit. As a result, compounding happens 10-20 times per day. It takes a 9.5% fee on yield and no entry/exit fees, which is exactly the same as Yield Yak.
Redacted adds a little bit of variety to the mix. Pirex, the product released by Redacted, creates liquid wrappers that allow for auto-compounding and the tokenization of future yield. It has two modes, Easy Mode and Standard Mode.
The Easy Mode is the same as the auto-compounding pools mentioned above. The cool thing is that they have a GMX vault too. Users deposit GMX or GLP to receive apxGMX or apxGLP. Easy Mode charges a withdrawal fee of 1% which goes to vault token holders. In addition, it charges a 10% platform fee and a 0.3% compound incentive.
The Standard Mode provides a liquid wrapper for staked GMX and staked GLP. Users deposit GMX and GLP for pxGMX and pxGLP that earn yield as if the underlying tokens were staked on GMX natively.
The difference is that pxGMX and pxGLP are liquid tokens. Users can sell them at any time. pxGMX has a liquid pool paired against $ETH on Camelot for Arbitrum and Trader Joe for Avalanche. pxGLP can be redeemed directly against Pirex.
When staked normally through the GMX protocol, earned esGMX is non-transferable. By depositing through Pirex, earned esGMX is tokenized as pxGMX and is made liquid. Additionally, earned multiplier points are never lost with pxGMX, because the underlying GMX is still staked while users sell pxGMX on the open market. As a result, users are not penalized for being late to the GMX staking party or for selling.
The Standard Mode charges a 1% redemption fee and 10% on the rewards.
The Redacted/Pirex GMX vault is an interesting innovation, while the GLP vault is similar to other auto-compounding options with more fees. As a result, the Pirex GMX Vault TVL is $404,555, while the GLP Vault TVL is only $38,557.
Mugen Finance is on Arbitrum with a TVL of $3.23 million. It claims to be a multi-chain aggregator that uses sustainable protocols to generate yield. However, Mugen only supports one protocol on one chain at the moment, which is GMX/GLP on Arbitrum.
Mugen's mechanism is different from the above-mentioned GLP vaults. $MGN is the protocol token. Users deposit $USDC into Mugen treasury to mint $MGN, and Mugen buys GLP with its treasury. Users stake $MGN to receive the yield generated by GLP.
What is the difference between buying $MGN and buying GLP directly? Buying $MGN is 3x worse.
The Mugen team takes a 10% cut from your GLP returns when you buy with $MGN.
While you can burn GLP to redeem assets from the GLP pool, you cannot withdraw assets from the Mugen treasury. You can only sell $MGN on the open market. Right now, the market price of $MGN is $81, while its treasury value is $126, which means if the early users want to get out, they have to accept a 35% loss.
Mugen implements a vesting design to "prevent manipulation of staking and unstaking right before and after reward deposits." The vesting design pays out GLP rewards over a period of 30 days. For example, if Mugen claims 100 $ETH from GLP yield today, every Mugen staker gets 1/30 of their share of the 100 $ETH over the next 30 days. If you want out, you will forfeit your remaining rewards.
So why would anyone buy $MGN today? They could benefit from the losses taken by the early adopters. Because they can only sell $MGN on the open market, the price of $MGN is lower than its treasury value. If you buy $MGN today, for $81 you can buy $126 worth of GLP.
Plus, only 84% of $MGN is staked. Stakers earn a slightly bigger share because 16% of $MGN holders willingly give up their yields (keep in mind that GLP is auto-staked). So buying and staking $MGN gives you a higher yield than GLP.
But this juicy boost in APR comes with additional smart contract risk. Mugen previously paused reward distribution with no explanation when users thought the payout should be automatic via smart contracts.
Lastly, the project relies on a community-made front end for users to interact with its contracts. The project has its own official website, but the functionality is limited.
In addition to basic auto-compounding, a series of advanced GLP strategies have been designed and implemented.
The most common one is delta-neutral. Because GLP consists of 50% stablecoins and 50% $BTC + $ETH, GLP holders are exposed to the price movements of $BTC and $ETH (plus minor exposure to a few other tokens in the pool such as $UNI and $LINK). Holding GLP is equivalent to holding a 0.5x long position on crypto. This is great in a bull market. But not so much in a bear market. Consequently, delta-neutral vaults emerged to hedge those risks.
Rage Trade's delta-neutral vault is the most popular, which is called a Risk-On Vault. Rage Trade's Risk-On Vault invests $USDC deposited by users into GLP while building short positions in $ETH and $BTC via flash loans. Our previous article explains Rage Trade's mechanism in greater detail. The end result is that Rage Trade hedges your long exposure when you hold GLP.
Rage Trade also designed a Risk-Off Vault to accompany the Risk-On Vault. Risk-Off Vault supplies $USDC borrowed by the Risk-On Vault to build short positions. The Risk-Off Vault earns Aave interest rate and a portion of the GLP rewards earned by the Risk-On Vault.
The Risk-On Vault has a TVL of $7,330,180, and the Risk-Off Vault has a TVL of $3,799,645. The combined TVL is $11.13 million.
Neutra Finance tackles the delta-neutral problem via a different route. It hedges the long exposure by GLP via opening leveraged short positions on GMX itself. It maintains delta neutrality through a unique rebalancing mechanism. It currently has a TVL of $1.16 million.
Similar to Neutra, Umami's delta-neutral strategy also involves hedging on GMX. It also implements an internal netting strategy, which reallocates Delta among vaults to minimize hedging costs. Hedges are algorithmically rebalanced at regular intervals.
Umami was scheduled to launch a public beta in March. However, its CEO recently abandoned the project, and dumped all his tokens. While the rest of the team decided to carry on as a DAO, the unfortunate event will likely cause delays.
Vovo Finance is another interesting solution to the delta risks. Instead of automatic hedging, Vovo allows users to hedge manually.
Every week, the vault collects the yield of staked GLP tokens, and uses the yield to open 10x leverage positions on GMX. Users can choose the asset and direction from $ETH Up, $ETH Down, $BTC Up, and $BTC Down. After one week, the vault automatically closes the leverage position and reinvests the profit to buy and stake more GLP.
Vovo has a combined TVL of $66,013 across the four vaults.
GMD Protocol is another variant, which offers pseudo-delta-neutrality. Instead of hedging price movements of the underlying asset, GMD allows you to have exposure to only one asset instead of all the assets in the GLP pool by creating three independent vaults. For example, holding GLP means holding both $BTC and $ETH, but GMD allows your GLP to have exposure to only $BTC, $ETH, or $USDC. It also uses protocol revenue to protect you against traders PnL. But in most cases, traders lose anyway.
GMD's GLP TVL is $4.27 million.
Olive adds more financial alchemy to the mix. It offers Principal Protection Vaults to amplify base yields by combining composability and structured products without exposing users' funds to credit or principal risk. Olive uses yield generated by GLP to gain exposure to structured products such as range-accrual, twin-win, ascent, summit, digital, highland, etc. It trades in cycles, and it charges a 2% management fee on a prorated basis and a 10% performance fee if the cycle is profitable.
Its TVL sits at $299K at the moment.
The last participant in the GMX war is Jones DAO, with a TVL of $10.75 million.
It's a leveraged auto-compounding pool with two vaults, a GLP Vault and a USDC Vault. Our previous article discusses its mechanism in great detail. Basically, Jones DAO GLP Vault buys GLP and mints jGLP with user deposits and then borrows $USDC from the USDC Vault to buy even more GLP. The leverage is dynamic and is determined based on market trends.
Depositors of the USDC Vault earn interest as lenders and a portion of the GLP rewards.
jGLP can be used to provide liquidity on the Jones DAO platform and throughout the Arbitrum ecosystem. For example, users can provide liquidity in the jGLP - USDC pool on Camelot.
The GMX War
The GMX War has already begun as players building on top of GMX fight each other for GLP shares. While the basic auto-compounding function is already attractive, further innovations could boost GLP yields even more.
I am very bullish on vault products. GLP AUM currently sits at $443 million, whereas all vault products combined only represent a small portion of total GLP (15%). The majority of GLP is still sitting idle in holder wallets, waiting to be captured by vault providers.
Plus, GLP, as a yield-generating product, has huge potential in itself. Anchor by Terra, which promised a 20% return out of Ponzi schemes, managed to accumulate over $17 billion AUM at the top. GLP consistently outperformed the 20% benchmark with real yield from exchange fees. There is a big gap between $443 million and $17 billion. Better vault products will also attract more people to mint GLP.
One thing to note though. We are at or near the bottom of the crypto cycle. While delta neutral is a great strategy for GLP for the past year, where we came down from all-time highs, it may not be optimal when we are on the way up, where all gains from price increases are hedged.
Behind vault products, lending is the second biggest category building on GMX, enabling degens to borrow against their GLP holdings and add leverage to their yield farming. Jones DAO Vault is also a leverage yield farming product with built-in lending.
The main players are Vesta, Sentiment, Rodeo, and Tender.fi on Arbitrum, and Delta Prime, Yeti, and Moremoney on Avax. All of them allow users to borrow against their GLP. Sentiment also enables using GMX as collateral, while Rodeo has its own auto-compounding GLP vault.
GMX perp trading also synergizes well with options exchanges.
Lyra is a DEX for options. The protocol aims to keep the exposure of liquidity providers close to delta-neutral, which is achieved via either opening a long or short perpetual futures position through GMX or spot synth position through Synthetix. For example, if the Lyra AMM is long 500 $ETH deltas, it may short 500 deltas with GMX to maintain delta-neutral exposure.
Dopex is another option DEX that integrates GMX in two ways.
Their Atlantic Perp Protection allows perp traders to shield themselves against liquidation risks. When a trade approaches liquidation, the Atlantic Put's stablecoin collateral will move from Dopex contracts to top up the trader's GMX collateral account.
Dopex also helps with GLP farming, where their Atlantic Put acts as a hedge against GLP price action. If the GLP price decreases below the strike price, users earn the difference in settlement fees. If the price of GLP goes up, users maintain their price exposure to GLP and pocket the capital gain.
Social trading has been gaining momentum recently with the launch of STFX and Perpy. It allows users to copy highly profitable traders.
STFX stands for Single Trade Finance Exchange. It offers short-duration, non-custodial, active asset management vaults that are dedicated to one trade. STFX traders use GMX to route their trades. The platform charges a fixed performance fee of 20%.
Perpy Finance is similar to STFX in concept but differs in setup. According to Perpy, the main difference is that Perpy Vaults are continuous, charge variable fees, have no fundraising period, and protect privacy.
Puppet Finance (GMX Blueberry Club)
Puppet Finance is an upcoming copy-trading feature to be released by the GMX Blueberry Club. Users can deposit funds into different pools based on intent. For example, depositing $ETH into an $ETH-Long pool or $USDC into an ETH-Short pool. Puppet tracks the performance of each trader that users can match their trades against. More details will be released when GMX synthetics rolls out.
DappOS is an operating protocol designed to lower the barrier of interacting with crypto infrastructures. In particular, DappsOS allows users to access GMX via BSC wallets directly. It is very cool and will bring more users to GMX.
Demex bridges GLP to Cosmos via smart contract vaults and offers an auto-compounding service, allowing Cosmos users to access GMX and earn yield from GLP.
MUX, rebranded from MCDEX, is an independent perp DEX and a trading aggregator. The MUX perp DEX is the same as GMX. It also allows MUX traders to open positions on GMX directly if the fees are lower.
The GMX ecosystem offers synergies that benefit all its projects. For instance, vault products can team up with lending protocols, allowing degens to add leverage to their GLP farms. Social trading products also drive trading volume on GMX and generate greater returns for GLP.
The Arbitrum airdrop may happen anytime, and I anticipate that most of the earnings will be reinvested into Arbitrum projects. The GMX ecosystem is currently the most robust and dynamic. One or more of the projects mentioned above will benefit from the additional boost.
Furthermore, I believe that the "real yield" narrative will eat DeFi despite regulatory risks. Existing blue chips like Uniswap will be replaced by revenue-sharing protocols. As Bezos famously said, "your take rate is my opportunity." Uniswap cannot compete with a rival protocol that shares fees with users. GMX, as the "real yield" leader, will receive more attention, and its ecosystem projects will flourish.
Therefore, it is essential to monitor the projects mentioned above, which may include the next 100x project during the next bull market.