GMX, a decentralized perpetual options platform, empowers global investors with self-custody of their assets, a feature lacking in most centralized exchanges.

Our in-depth exploration of the DeFi landscape led us to test out GMX and share our concept here: gmexithere.xyz. Nine months later with the launch of GMX v2 and growing demand for DeFi options, the VentureInvesting team is doubling down on our decision to support GMX.

Before delving into the top five reasons why, let's briefly review perpetual options (perps) and how they are an important innovation for financial markets.

What are Perpetual Options?

Perpetual options in decentralized finance (DeFi) are a type of derivative contract that gives the holder the right, but not the obligation, to buy or sell an asset at a specified price at any time. Unlike traditional options contracts, which have a fixed expiry date, perpetual options have no expiry date. This means that the holder can exercise their option whenever they see fit.

First introduced by BitMEX in 2016, traders can now access perps on a number of centralized exchanges such as FTX, Bitforex, Kraken Futures, Binance and more. In 2021, we saw perps find product market fit in DeFi with the rise of the 2 leading protocols dYdX and GMX attracting the most open interest, users, and trading volume. As of today, over $125b is traded daily in the perpetuals market, making it the largest market.

Perpetual options are traded on decentralized exchanges (DEXs) such as GMX and dYdX. These DEXs use smart contracts to manage the trading process and ensure that the contracts are executed fairly and efficiently.

Advantages of Perps to Traditional Options

Perpetual options offer a number of advantages over traditional options contracts, including:

• Flexibility: Perpetual options give the holder the flexibility to exercise their option at any time, regardless of market conditions. This makes them a good tool for hedging risk or speculating on future price movements.

• Leverage: Perpetual options allow traders to gain exposure to an underlying asset with relatively little upfront capital. This is because traders are not required to purchase the underlying asset in order to buy an option contract.

• Reduced counterparty risk: Perpetual options traded on DEXs are less susceptible to counterparty risk than traditional options traded on centralized exchanges. This is because DEXs are non-custodial, meaning that users retain control of their own funds at all times.

Perpetual options have started with cryptocurrencies as the test product. The assumption is that real world assets and all financial products, along with new ones will move on-chain into transparent finance in the next 10-20 years by 2050.

Now, with the understanding of Perpetual Options, let’s dive into the top five reasons GMX is a unique opportunity to own a profitable exchange early in it’s lifetime as a business.

Top 5 Reasons to Learn More About GMX

1. Perpetual options have product market fit

Perpetual options are expected to be the largest active financial market in global finance ahead. This is because, futures and options are the largest active financial markets today, outside of government bonds.

• GMX is the #1 leader today of global perpetual options in the Ethereum ecosystem. The #1 global leader, DyDx decided to build their own blockchain in the Cosmos ecosystem, leaving all Ethereum users and the ecosystem behind. This transition will give GMX the chance to acquire more users.

• Comparing GMX to other perptual options exchanges, GMX is often #1 or #2 fees earned and open interest.

Why is GMX #1?

GMX’s easy user experience, competitive pricing, and total liquidity to trade/leverage against are the top three reasons. GMX enables investors to hold leveraged positions without an expiry date, giving them flexibility to enter- or exit trades at any moment in time.

Now V2 has gotten off to a great start with volume growing. GMX V2 is an upgrade that puts GMX on par with centralized exchanges.

GMX V1’s design for the exchange liquidity to be provided by one underlying multi-asset pool token GLP and their the governance token GMX. GMX has a fully diluted market capitalization of $545M with a max supply of 13,250,000 GMX token supply.

GLP provided a hedged investment on a portfolio of assets and provided a competitive APR that is generated by “real yield”. Real yield means the APR is not generated by deflationary mechanics such as token emissions, but by awarding staked GMX holders with 30% share of actual revenues. This how the GLP and GMX tokens came together to support GMX’s funding and support.

How does GLP work with GMX?

GLP is minted when users deposit their liquidity to the protocol. By simply minting GLP, LPs accrue 70% of all the fees that the protocol processes.

• GLP acts as the ‘house’ in the GMX casino, whenever a trader wins or loses, GLP holders are on the other side of the trade — they are the counterparty to the traders.

Staked GMX Pays & Gives Voting Power

GMX, the governance token, is used as additional collateral and safety for the exchange. Owners of GMX, are encouraged to stake their GMX as staked GMX owners earn 30% of fees generated from swaps and leverage trading which is converted to ETH / AVAX and distributed to staked GMX tokens every day. Staked GMX owners can also vote on governance for the exchange’s future.

How Profitable is GMX?

GMX is one of the most profitable DeFi exchanges and projects, ranking in the Top 10 regularly and on high trading periods in the Top 3.

Still early in the evolution to DeFi over CeFi, GMX now has ~9,000 weekly active traders and 380K total users.

Check out the best summary analytics here on this GMX Analytics Dune Dashboard.

2. GMX V2

GMX quickly became a market leader with their V1 design of a best in-class custodial perpetual options exchange for 7 crypto assets.

What’s new with V2?

GMX V2 provides a simple interface, the removal of liquidity losses for LPs, improved settlement, and overall reducing the associated costs. In addition to this, the GMX V2 upgrade promises the following features:

1. Faster execution times and lowered slippage: Thanks to the incorporation of Chainlink’s low-latency oracles (explored below), the transaction efficiency has been greatly improved.

2. Low-fee swaps: The swap fee is now competitive with the market rates of centralised exchanges (ranging from 0.05% to 0.07%).

3. New assets available for trading: The newly added assets include SOL, XRP, LTC, DOGE, & ARB on Arbitrum and SOL, XRP, LTC, and DOGE on Avalanche with the potential of adding more assets in the v2 markets in the future.

With the Arbitrum grant of ~$10M in funding to support user & project ecosystem growth, GMX bagged around 12M ARB recently to help grow ahead. These funds are expected to be allocated to protocol incentives which means GMX stakers and GLP holders can expect some boosted yields in the short term (source).

3. Smart Money Moves

Legendary investors back the project, like Arthur Hayes, and he has highlighted why GMX is more competitive than centralized exchanges publicly even as a centralized exchange owner himself. If you can’t beat ‘em, join ‘em.

Clients always pay for leverage…That’s why, when I set out to create my own crypto trading platform in 2014, I focused on derivatives and it’s also why, when I started exploring how to get meaningful exposure to DeFi in 2022, I went the derivatives route then, too.

..I have a large stake in BitMEX, and I also want to have exposure to what I believe will be a leading DeFi derivatives trading platform.

GMX is the 2nd largest DeFi derivatives platform by trading volume, most importantly, the tokenomics offer an attractive yield, which is another reason why I like this token for my portfolio.” - Arthur Hayes

4. Third-Party Collaboration - Growing the GMX Ecosystem

GMX already has a growing ecosystem of applications building on top of their current exchange contracts and current traders. Here are the top 3 ecosystem growth opportunities around GMX.

4.1 - Options AMMs & Structured Products

GMX is the most liquid exchange and close to the cheapest on Arbitrum, it is assumed that most of the current DeFi Options Exchanges (AMMs) and Structured Products Providers will use V2 to hedge their pools or even build more complex products (like the non-liquidatable perps).

Struct Finance example above. These products create constant flows through the protocol and help maintain good activity levels even in low-volatility environments. As we all know, liquidity is king and needs to be kept around.

4.2 Delta Natural Investing - Real Yield from Trader Funding Fees

Arbitrageurs that go delta neutral with long and short options combined, can “farm” funding fees and make a profitable return during the right conditions.

Centralized exchanges, limited liquidity, and total trading made this challenging in the past. With the launch of Kwenta a few months ago and GMX’s average open interest above $100B, there is a growing niche for decentralized players that extract yield solely based on funding differences across the three main venues (dYdX, GMX, and Kwenta).

5. Community & Innovation - The GMX Blueberry Club

The GMX founders are anonymous, but the community is supported by an NFT profile picture project, the GBC - GMX Blueberry Club.

There are 10,000 blueberry head NFTs that each provide a membership pass to trading competitions, early features on GMX, additional leverage, and fractional ownership of the GBC’s Treasury which is worth ~$1.4M right now (Wallet #1, Wallet #2).

The Blueberry Club was funded for the first year by GMX and has since then become profitable on it’s own acquiring a fraction of trading fees of the NFTs as well as referral fees from the trading competitions which run every month.

With a growing community of competitive traders building on top of GMX, the Blueberry Club plans to launch a copy trader product ahead so that anyone can trade along with the champions. There isn’t much about this product yet, and we will see how this NFT community helps grow the GMX ecosystem ahead.

More Users Are Coming

There is an ongoing exodus from centralized venues to decentralized ones due to regulatory pressure and the lack of trust in centralized exchanges after the FTX/Blockfi/Celsius blow up.

This transition has been happening at a rapid pace, especially with more mature financial segments within crypto like active traders, and options traders. According to The Block, global decentralized exchange market share has moved from 0.52% in March 2020 to a new ATH of 22% in May of this year in 2023. That is 40x growth in 3 years and can qualify as a leading indicator of more demand ahead.

As more users learn to move to DeFi due to lower costs, more products, and easy fo use. there is still one missing element for full scale market adoption. Clear regulations in the USA, EU, & Asia on DeFi tokens and crypto assets will help clear the blocks for most interested investors who today don’t touch crypto or DeFi due to the perceived risks. This is unavoidable and GMX continues to grow in it’s ability to offer the best user experience with perpetual options trading in the early days of transparent on-chain finance.

When you think DeFi, think GMX and perpetual options. GMX is uniquely positioned to thrive ahead in global financial markets and we hope you consider learning more.

Thank you for your time.

Blessings & Good Luck,

Ventureinvesting.eth