Chris Curl,
Editor
Nov. 23, 2023
As we gear up for the next bull market in the crypto space, it's evident that decentralized finance (DeFi) derivatives are emerging as one of the most promising niches. DeFi has been successfully migrating traditional financial applications into the crypto realm, but one area where it's yet to make a significant impact is derivatives trading. GMX, a decentralized derivatives exchange, has risen to prominence in this niche.
Below, I explore the reasons for and against investing in GMX.
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Reasons to Buy:
Innovative Product: GMX boasts a user-friendly interface that makes it accessible to traders of all experience levels. It operates on the Arbitrum and Avalanche networks, ensuring minimal gas fees for users. GMX's standout feature is its GLP liquidity pool, a multi-asset pool that benefits both traders and liquidity providers.
Traders can enjoy ample liquidity and use up to 50x leverage, a rarity in decentralized derivatives. Liquidity providers are shielded from impermanent loss, and they can deposit in one coin and withdraw in another. Additionally, they receive the GLP token, which offers real yield from protocol revenue.
Consistent Growth: GMX has witnessed remarkable growth during the bear market, which is a testament to its viability. The platform consistently ranks among the top fee-generating protocols in crypto.
The number of users has surged since the launch of V2, going from around 298,000 to over 380,000 in just three months. Total value locked has also reached an all-time high, hitting $710 million on May 6th. GMX's on-chain metrics are impressive and indicate strong adoption.
Institutional Interest: Notably, institutional players are showing interest in GMX. Amber Group and BitMEX founder Arthur Hayes have invested millions in GMX tokens. GMX acts as a dividend-sharing platform, distributing 30% of protocol revenue to token holders. This tokenomics structure, along with a significant portion of the token supply locked in staking pools, minimizes selling pressure.
Strategic Partnerships: GMX has been proactive in securing partnerships, even during the bear market. Partnerships with Arbitrum and Avalanche provided them with millions of dollars to attract more users and liquidity providers.
Collaborations with Digital Risk Protection Agency Doppel and Dapos aimed at enhancing user experience and security further solidify GMX's position in the market.
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View PublicationsReasons NOT to Buy:
Risky Foundation: GMX's model of distributing winnings from traders to GLP holders could potentially be risky. If an unusually high number of traders become consistently profitable, it may strain the GLP pool and deplete it. The system pits traders against liquidity providers, creating incentives for manipulation, as witnessed in a price manipulation exploit in September 2022.
V2 Protocol Drawbacks: GMX's V2 protocol introduced independent liquidity pools, potentially fragmenting liquidity and preventing high-leverage positions for some trading pairs. It also removed the zero slippage feature, which was a significant selling point. The upgrades made GMX more similar to its competitors, reducing its uniqueness.
Increasing Competition: Competitors like dydx, Quinta, and Level Finance are actively vying for GMX's position. Some have offered substantial token incentives to attract traders, and others have lower fees. GMX's number one spot is not guaranteed, and any of these competitors could surpass it in the next bull run.
Lack of Marketing: Critics argue that GMX does not prioritize marketing enough. Competitors have been more proactive in creating incentives and attracting traders. To maintain its position, GMX needs to enhance its marketing efforts and incentivize traders to use its platform.
Final Verdict
GMX holds a strong position in the DeFi derivatives space, with an innovative product, consistent growth, institutional interest, and strategic partnerships. However, potential vulnerabilities in its system, drawbacks of the V2 protocol, increasing competition, and a need for more robust marketing efforts raise concerns.
Still, GMX looks poised to perform well in the burgeoning crypto bull market. Find out what coins I’m buying now.
Chris Curl
Editor, Daily Profit Cycle