Yield Sources

GMI (GM Index) Explanation and Correlated Markets

GMI (GM Index) Explainer

Risk-Adjusted Index

The initial ETH and USDC Vaults will have exposure to 4 markets:

  • ETH-USDC

  • XRP-USDC

  • DOGE-USDC

  • LTC-USDC

This approach allows the vaults to maximize revenue by gathering liquidation fees, swap fees, and PnL from all four pairs, ensuring a balanced risk-adjusted return across these ETH and USDC backed markets.

When a user deposits ETH, they become the counterparty to traders involved in trading those pairs. However, our underlying infrastructure, composed of internal netting and a sophisticated external trader router, ensures that users receive the delta of ETH in the ETH GM vault while maintaining delta neutrality for USDC.

Token allocations dynamically rebalance based on asset volatility and returns within the index, optimizing returns and offering diversification to reduce risk.

It's crucial to note that GMX V2 utilizes ETH to collateralize their markets. Consequently, if a token sharply outperforms ETH in a brief period, GMX may decide to close that market due to it being undercollateralized.

The immediate impact of this mechanism is the limitation of the overall profit and loss (PnL) potential to which the index is exposed.

In essence, this is a strategic approach designed to mitigate risk, effectively placing a cap on potential gains or losses. When using perpetual contracts in this system, users take on a position that has certain implications similar to specific financial instruments, but we've kept the details straightforward for clarity.

Index Allocation Strategy

Here, utilization refers to the actively used TVL by traders in the GM pool, while dilution represents the proportion of GM TVL among all indexed GM tokens. These factors are instrumental in modeling the weight of each and are fine-tuned during rebalancing.

Other Markets (gmWBTC, gmARB, and more)

Other Vaults (BTC, ARB,..) will only have exposure to their correlated market on GMX v2, for example gmWBTC will only have exposure to the trader PnL, liquidation fees, and swap fees of the BTC trading market on GMX v2 (BTC GM Pool). This is designed as a cleaner implementation meant to provide users with a cleaner overall experience. All Vaults are also built with a base model GMI underneath meaning if more markets were to be backed by the underlying asset we can add them to the index, for example if more $BTC backed markets were available on GMX we could add them to the current Vault. In the future all USDC Vaults will be combined into a single meta USDC Vault with exposure to all markets.

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