GLP Fuds are emerging one after another, and recently some people have claimed that the bull market will fall into a death spiral. This article will use detailed cases, data and calculations to analyze the authenticity of many Fuds for you, and help you further understand the essence of GMX/GLP. The real problems and improvement directions of GMX, as well as the space and related airdrop opportunities brought to the new project on the Dex Perp track.
The essence of GMX is close to a leveraged platform. GLP lends currency to traders to increase leverage to make counterparties. That is to say, if you are long 10 ETH, GLP will lend you 10 ETH spot. Assuming that 10 ETH = $ 10k when opening a position, you will pay back when you close the position At that time, the value of ETH worth $10k was calculated according to the price when the position was closed. . On the one hand, your profit cannot be higher than 10 ETH, and GLP will naturally not be insolvent. On the other hand, for GLP, it is actually equivalent to selling 10 ETH for $10k. In the case of long-short balance, GLP is about 50% U+ 50% B/E, so what is the equivalent of GLP under the current imbalance?
As shown in the figure below, the utilization rate of BTC/ETH, which accounts for about 50%, is about 70%. 50% * 70% - 50% * 20% = 25%. In this way, GLP is equivalent to a net lending of 25% B/E, which means that the current GLP price (excluding revenue sharing) should be close to 75% U+ 25% B/E, and the U standard price will still rise in a bull market.
The benchmark of GLP is a package index of 50% USD+ 25% BTC + 25% ETH. In the bull market in the past two months, because the long-short ratio continued to be 3/1 or even 4/1, the GLP+ fee share did slightly underperform the index, but as calculated above, its U standard price is still rising, since U If the standard is rising, it will not cause too much panic, so the total GLP has not experienced the so-called panic-like decline.
The GMX borrowing rate is positively related to the utilization rate. In a unilateral market, the utilization rate is high and the interest rate is naturally high. For example, the current ETH borrowing rate exceeds 60%, so you will see that even if the leveraged trading volume is only $90 M on a certain day, the fee is as high as $ 223 k, which is much higher than the transaction fee of $ 90 M* 0.1% = $ 90 k even without considering the discount, which is the strong income brought by interest.
In this way, LP can completely hedge the net long risk of GLP on another platform. The cumulative funding rate of BTC/ETH on mainstream exchanges this month is around 0.8%, and the annualized rate is only 10%. If you hold GLP worth $1, you only need to do more than $0.25, and the margin is not much, you can easily collect 40% interest on the left hand (60% * 70%, GLP is divided into 70% interest income), right hand Lower costs hedge it out.
For those institutions that are doing U-standard neutral hedging strategy, they originally need to short $ 0.5 B/E to hold $ 1 GLP, but now they only need to short $ 0.25 B/E, and the margin occupation is even less, so Naturally, it is as stable as an old dog.
Taking a step back, if a large number of people withdraw from GLP and cause a decline in supply, then the increase in utilization rate will lead to an increase in borrowing rates, pushing up the APR of GLP. At this time, more LPs will naturally be attracted, especially institutions and institutions that are skilled in hedging. Professional investors will not fall into a death spiral.
However, in the case of an imbalance between long and short, there will indeed be one party with a low utilization rate, so what should be done? In fact, GMX originally had a plan to deal with it. It will increase the proportion of coins in the multi-party market, increase the proportion of U in the short-side market, and dynamically adjust the proportion according to market demand. However, there are already too many protocols based on GLP. If the ratio is changed arbitrarily and substantially, it will have a certain negative impact on the ecology. At the moment when GLP Lego is booming, maintaining the status quo is the result of weighing the benefits of both parties.
In addition, I have already answered the question of price manipulation attacks caused by zero slippage and whether GLP will become insolvent in extreme market conditions. Later, GMX founder X’s response was similar to this, so he paid attention to me: ), take a look at the tweet below.
As for GMX’s internal price feed risk, there is no bilateral funding rate, and the issue of the transaction cap is expected to be resolved in the near future. For details, please refer to the tweet below.
In response to these issues discussed in the last tweet, GNS has actually been optimized, which is one of the reasons why it can gain a foothold. If you are interested in GNS and DeFi derivatives,please pay attention to @NintendoDoomed Meow, and it is expected to provide valuable GNS research in the near future.
To sum up, under the bull market, the GLP U standard price rises, retail investors feel at ease, the demand for hedging margin decreases, and institutions feel at ease. This is the reason why the death spiral has not appeared so far. Issues such as internal price feed, funding rate, and transaction ceiling are on the way to be resolved. GNS has done a good job on these issues and naturally has a foothold. The airdrop opportunities brought by new projects to seize improvements are also worthy of attention.
To sum up, under the bull market, the GLP U standard price rises, retail investors feel at ease, the demand for hedging margin decreases, and institutions feel at ease. This is the reason why the death spiral has not appeared so far. Issues such as internal price feed, funding rate, and transaction ceiling are on the way to be resolved. GNS has done a good job on these issues and naturally has a foothold. The airdrop opportunities brought by new projects to seize improvements are also worthy of attention.
