Research Summary
The article provides an in-depth analysis of GMX, a DeFi trading protocol on Arbitrum. The author discusses the protocol’s business model, its mechanisms for protecting retail liquidity providers, and the potential for economic exploitation. The author also draws parallels between GMX and traditional finance analogs and speculates on the future direction of DeFi protocols.
Actionable Insights
- Monitor GMX’s Business Model: GMX has a unique business model that democratizes retail trading flow, taking profits from high-frequency trading market makers and distributing them to liquidity providers and GMX token holders. This model has generated almost $100M in net PnL in 15 months since its inception in 2021.
- Assess GMX’s Protective Mechanisms: GMX has implemented several mechanisms to protect retail liquidity providers. These include the use of price oracles to bootstrap price discovery, a 5-second speed bump to mitigate arbitrageurs from front-running oracle updates, and hefty trading fees.
- Stay Informed on Potential Exploits: Despite its success, GMX is not immune to potential economic exploitation. The author mentions the possibility of institutional level participants exploiting GMX whenever they are punting some deltas.
- Consider the Impact of Arbitrum Airdrop: The upcoming Arbitrum airdrop, one of the most anticipated airdrops of the year, could have a significant impact on GMX’s activity. The post-airdrop period will be a good test of the protocol’s robustness and sustainability.
