# Internal Netting in GM Vaults

We've adapted our cornerstone mechanism, **Internal Netting**, for GMX V2 GM Vaults. The core idea of Internal Netting is to **facilitate trades between the vaults**, thereby minimizing trading costs beyond what any individual running this strategy could achieve. 

For example in the $ETH Backed GM Vaults, the depositors can choose to deposit in two assets: $ETH and $USDC. Within our strategy, however, these assets are intricately linked with a basket of assets in our Risk-Adjusted Index. This basket encompasses pairs such as $ETH-$USDC, $XRP-$USDC, $DOGE-$USDC, and $LTC-$USDC.

The goal is pretty straightforward: an ETH Vault wants a full exposure to $ETH only, while a USDC Vault wants a full exposure to $USDC only. Yet, due to market dynamics and the dynamic rebalancing of token allocations in the index based on volatility, these vaults frequently possess a varied mixture of assets from the index.

Typically, to hedge this blend of assets and attain the desired exposures for ETH and USDC Vaults, a plethora of manual trades would be necessary. **This is where Internal Netting truly stands out.** Rather than looking externally, these vaults find what they need right within our system by **internally hedging between each other**. This method reduces the need for external trades, which in turn **conserves costs and preserves higher yields.**

<figure><img src="/files/a8tRPjQELiI4gkCCQ4Hi" alt=""><figcaption></figcaption></figure>

Moreover, since both the ETH and USDC Vaults function within the same index, there exists an inherent level of trust. This mutual confidence **eliminates the need for collateral, further enhancing savings and diminishing liquidation risks.**

However, there are instances when trading internally might not suffice. In such situations, our GM Vaults resort to external trades via our Trading Router to ensure price alignment.

In essence, Internal Netting in GM Vaults not only **ensures desired single-sided exposure** for depositors but also offers a more i**ntelligent and cost-effective hedging strategy**. This results in depositors enjoying higher yields than they would typically achieve through manual hedging.

This approach is reflected across our various asset Vaults and is tailored to **optimize operations, minimize expenses, and position our GM Vaults a step ahead of our competitors.**


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