TL/DR

GPT3 read the article and formulated this TL/DR:

• GMX is a perpetual protocol that allows leveraged trading of blue-chip tokens with high fees, but all of the income is distributed back to token holders.

• Many protocols are building on top of GMX. The Delta-neutral vault is a trend in the DeFi space, with many protocols trying to launch such a strategy.

• GMX has a strong social layer, a good user interface / user experience which are some of the key factors that contribute to its popularity. It has had a remarkable success so far and it's possible that it will continue to grow and evolve in the future.

Introduction

Blockchain technology offers a significant advantage in the form of permissionless access to data and tokens. This is because they are defined on a basic layer, such as Ethereum's token standards. The trustless interaction between protocols and developers generates opportunities that I like to refer to as "Money Legos" for decentralized finance (DeFi). These "Money Legos" are constantly evolving and changing, much like a natural ecosystem. For this reason and to limit the scope of this article, I will focus specifically on the Arbitrum GMX ecosystem.

If you're interested in learning more about other DeFi ecosystems, I recommend visiting defiwars.xyz, which provides a comprehensive overview of many different protocols.

The Arbitrum Success Story

Arbitrum is an optimistic rollup Layer 2 solution for Ethereum. As of writing, it has the largest total value locked (TVL) among all layer 2s, with approximately $1 billion. About 40% ($410 million) of this is deployed in GMX contracts. This highlights the success of Arbitrum being closely tied to GMX, and vice-versa.

GMX and GLP

GMX is a perpetual protocol that allows the trading of blue-chip tokens (ETH, BTC, UNI, and LINK) with leverage. It is unique in that it distributes all of its income back to token holders. There are two tokens associated with GMX: the GMX token, which is a governance token that receives 30% of the collected fees, and the GLP token, which acts as the counterparty to traders (GLP = GMX Liquidity Provider Token) and is a basket of tokens (mostly ETH and BTC, and about 50% stablecoins). GLP receives 70% of the fees to compensate for the risks.

I recommend checking out the GMX gitbook for further details and more information.

Playing Lego with GMX

There are many protocols that build on top of GMX, and I have no particular connection to any of them. It is important to note that I have not personally verified all of these protocols and it is important to be aware that many of them have various fees (such as swapping, deposit, or management/performance fees) that should be considered before deciding to put any investment there. As always, it is important to stay cautious and conduct your own research before making any decisions.

I am not a paid shill, so I will list them in alphabetical order.

Bondprotocol.finance

OlympusDAO has launched Bond Protocol which offers "bonds-as-a-service". If you intend to buy GMX, you might be able to get a discount on the actual market price, but you will only receive the tokens after a vesting period (currently 5 days).

Blueberry.Club | GMX Blueberry Club

Initially, a fan club for early adopters of GMX (NFT with a limit of 10,000 NFTs), it has amassed some GLP treasury of more than $1.8 million and will deploy an own trading (codename puppet.finance), where you can mirror some more skilled (or at least more popular?) traders.

Dopex.io

Dopex is a decentralized options protocol where you can write or trade options for your GMX token.

GMDprotocol.com

GMD launched a "pseudo Delta-neutral" strategy in which tokens are deployed into GLP and manually hedged weekly. They do not enforce a delta-neutral strategy (they state due to the crypto volatility it's too costly and not worth it) but use a risk-absorbing reserve to offset some risks.

Jonesdao.io

Jonesdao promises "astronomical yield" (disclaimer: whatever this is) for 2023, when they will launch their Delta Neutral vault based on GMX / GLP. From what I've understood they want to split up the GLP into their native tokens and hedge or leverage them.

Mugenfinance.com

They have launched a vault that invests in GLP and reflects some kind of dollar-cost averaging (DCA) style.

Neutra.finance

Neutra will launch a Delta Neutral GLP Vault, with constant yield and no price exposure to the underlying assets. They have planned an initial coin offering (ICO) for the public on January 16th and will launch their first GLP delta-neutral vault on Jan 18th with a soft cap of $2m.

PlutusDao.io

Plutus has a GLP autocompounder plvGLP, and you could loop it in the now-exploited lodestar.finance (afaik the exploit is not plutusdao's fault). Disclaimer: If you're looking for a GLP autocompounder I'd recommend Unstoppable's one because they charge no fees.

Perpy.finance

Perpy is a fully on-chain protocol that allows access to copy trading on a decentralized perpetual exchange, currently on testnet.

Rage.trade

Rage.trade is a friendly competitor to GMX. They have a similar product as GMX, a perpetual trading DEX (currently limited to ETH-USDC). Additionally, they have recently launched a delta-neutral vault that uses hedges to reach a stable APY. At the launch, they had limited their vault's capacity (and still are), but the vaults were filled up within minutes.

Redactedcartel.xyz (Pirex)

[Redacted] will launch a GMX liquid wrapper on their incubated project Pirex (pxGMX, pxGLP). At the time of writing, there is not much information known about their functionality.

STFX.io

STFX is a DeFi and SocialFi protocol for short-term asset management and is pioneering a concept of STFs (Single Trade Funds) short duration, non-custodial, actively managed vaults that are dedicated to one trade, with trading on GMX. Currently on testnet.

Tender.fi

Tender.fi is a newer money market in which you can deposit GLP to borrow other tokens, and if you want, leverage up GLP. They hinted at a delta-neutral GLP strategy in one of their Medium post. Disclaimer: Their protocol is very new, hence low TVL and I'd not see them as "battle-tested".

Unstoppable.ooo

Unstoppable: Defi has deployed a fee-less GLP autocompounder. That's right, autocompounding is so simple that there should be no one extracting any fees. Because it's a bit hidden on their website and it's not their main product, here is the direct link:

Umami.finance

Umami launched a Delta-Neutral vault based on GLP in summer 2022, but then shut it down due to flaws in their hedging strategy. They are planning to restart in early 2023 with a new, more sophisticated strategy (v2). It will be initially a gated launch (if you’re interested, marinating umami could help) and the vault will be open to the public in March 2023.

Vesta.finance

In Vesta vaults, you can borrow VST against your GMX or GLP. Doing so, you could leverage up GLP. Disclaimer: VST should be stablecoin pegged to 1 USD, but often trades lower.

Vovo.finance

Vovo.finance has implemented principal-protected vaults, based on GMX. The collected fees from GLP over each weekly epoch are used to bet on up or down price movement of ETH or BTC with a leverage of 20x, respectively 15x. They get often liquidated, but some weeks are juicy.

Other / Early Stage Projects

My twitter research led me to the following protocols, which are - as I see them - in early stage but could be interesting to follow:

• IVX.Fi: Fully delta-hedged, built on-top of GMX

• Rodeo.Finance: providing leverage and undercollateralized lending

Dexes

I recommend using an order routing service for larger swaps like cowswap, 1inch, or Odos. Using such a service usually provides you with the best price.

Camelot.exchange

Camelot.exchange is the new Arbitrum native dex launched in 2022 and has about $300k of GMX in liquidity. There is a liquidity mining ongoing. Camelot has variable fees.

TraderJoe

TraderJoe has just recently launched on GMX. There is $600k GMX deployed on it, with a fee level of 0.2%.

Uniswap

Uniswap is where the highest liquidity is for GMX on Arbitrum, with more than $30 million at the time of writing. There are GMX/WETH (1% TVL $20m, 0.3% TVL $4m) and GMX/USDC (0.3% TVL $2.9m) liquidity pools available on Uniswap.

Comparison of Delta-Neutral Vaults

As you can see from the list above, many protocols are building a Delta-Neutral vault, some have been launched and some are in preparation. These Delta-Neutral vaults are built in a style that they should have stable yield APY, without the significant price movements of the underlying tokens (ETH, BTC). These vaults utilize hedging strategies to offset the risk of price movements and aim to provide a stable yield for the depositors. Some backtests show APY of about 20%. However, it is important to note that these strategies can be complex and may not always be successful.

It is important to note that a full comparison of these delta-neutral vaults would be difficult as many of them have not launched yet and their strategies and performance may change over time. The Dune Dashboard of @Defimochi is useful for tracking the current TVLs but ultimately, it's important to understand the underlying mechanics and risks associated with each protocol.

A Prediction of the Future

It is possible that GMX's high fees compared to other trading products may deter some price-sensitive traders. However, the high fees may also be seen as an opportunity for token holders, as they are distributed back to them. With the volatility of crypto, leveraged trading is inherently risky, so the high fees may not be a major concern for many traders who are more focused on the potential for short-term profits. A good UI/UX, a functioning smart contract, and a strong social layer may be more important factors in driving adoption and growth for GMX and other similar protocols. Products that incorporate social media, like STFX and perpy, may also contribute to increased growth and popularity.

Overall, it's likely that competition in the market for leveraged trading and perpetual swap protocols will increase as more protocols and platforms enter the Arbitrum space (migrating from other chains like gains.trade or new developed like Vela or Vertex). However, the existing network and user base of GMX may give it a competitive advantage over new protocols that do not offer significant innovation.

Additionally, the high APY and the fact that GLP is a basket of tokens with a protected downside (stable coins proportion) may make GMX an attractive option for undercollateralized loans, a potentially growing area in DeFi. It's possible that Arbitrum native protocols such as Sentiment (or Rodeo) may explore this use case.

Furthermore, the GMX team is continuously developing new features and functionalities such as synthetics (github.com/gmx-io/gmx-synthetics), which could bring new users to the protocol and use cases to the money lego.

Overall, GMX has had remarkable success so far and it's possible that it will continue to grow and evolve.