In the previous article, we introduced the products and positioning of GMX. In summary:
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The GLP pool is the counterparty on GMX. LPs provide liquidity to GMX by depositing assets into the GLP pool, and $GLP holders receive 70% of the fees generated by the GMX platform as a return. If traders lose money, $GLP holders will also win additional profits, otherwise they will need to pay a certain fee to the traders.
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Protocol income is distributed to LPs and token holders in ETH/AVAX, rather than through token issuance (a big deal).
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When a portion of the funds is withdrawn from GLP, the decrease in GLP AUM will increase the APR, attracting some funds to flow back, which is beneficial to stabilize the supply of GLP.
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In a bull market, GMX long liquidity may tighten, traders may not be able to open new positions, and $GLP holders may not be able to redeem, FUD may ferment on Twitter.
Today, let's take a closer look at its token reward mechanism. I will use Arbitrum as an example, and we need to understand three tokens: $GMX, $GLP, and $esGMX, and two mechanisms: Stake and Vest.
$GMX#
We can purchase $GMX through centralized and decentralized exchanges. $GMX can be staked and used for governance, and staking has the following benefits:
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$esGMX
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Multiplier Points (can be understood as staking points, the higher the points, the higher the staking rewards)
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ETH/AVAX (30% of platform trading fees distributed to $GMX stakers in the form of ETH or AVAX)
The current comprehensive APR for staking $GMX is 11.59%. $esGMX, also known as Escrowed GMX, can be staked like $GMX to obtain the same amount of $esGMX and ETH/AVAX. It can also be put into a pool called Vest to exchange for GMX in the opposite direction. However, there are some unlocking restrictions in the Vest process: the staked esGMX in Vest will unlock GMX linearly within one year.
The APR of Multiplier Points is 100%. What is the use of these points? According to the official documentation, Multiplier Points are used to reward long-term stakers. For example, staking 1000 GMX for one year can earn 1000 points, which can act as a GMX/esGMX to boost the yield.
Boost Percentage = 100 * (Staked Multiplier Points) / (Staked GMX + Staked esGMX). For example, in the example below, 100 * (4.5656) / (7.54 + 2.00) = 47.85%.
At the same time, the points will be burned when GMX/esGMX is unstaked. For example, staking 1000 GMX and earning 1000 points, when 300 GMX is unstaked, the corresponding 300 points will also be burned.
Vesting#
The more complex part is the Vesting process, which aims to lock the liquidity of GMX as much as possible and reduce selling pressure with the linear unlocking rewards. esGMX can only earn rewards through Vesting, and when Vesting esGMX, a certain proportion of GMX needs to be locked. For example, when you stake 1000 GMX and earn 100 esGMX, when you Vest these 100 esGMX, a corresponding proportion (100) of GMX will be reserved. The actual proportion will be adjusted based on different staking situations.
It should be noted that the locked GMX during the esGMX staking process cannot be sold or unstaked. The GMX obtained by staking esGMX in reverse needs to be manually claimed, and additional esGMX staking is allowed during the staking process.
$GLP#
Users providing liquidity to the GLP pool will receive an equivalent amount of $GLP tokens based on the price of the injected liquidity tokens. It can be done with ETH on L2 or with tokens like USDT, DAI, or WBTC. When redeeming, any token in the pool can be exchanged back. $GLP holders can receive 70% of the GMX trading fees (distributed in WETH) and some esGMX rewards.
Holding GLP is to some extent shorting the counterparty's trading ability. When the counterparty loses money, $GLP holders can earn corresponding profits. I tried staking an ETH and bought GLP myself, and the returns were considerable. Note that the rewarded wETH needs to be manually claimed in the end.