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, etc) 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.

APR Displayed

The APR is an estimate based on the fees collected on GMX for the past seven days, extrapolating the current borrowing fee. It excludes:

• price changes of the underlying token(s)

• traders' PnL, which is expected to be neutral in the long term

• funding fees, which are exchanged between traders

gm Tokens

When you deposit assets (USDC, ETH, BTC, etc.) into a GM Vault, you receive an equivalent value of gm tokens, which are yield-bearing tokens. As the vault generates yield, the value of each gm token increases, reflecting the dollar value of the captured yield. For example, if the vault generates a 10% yield, the value of each gm token increases by approximately 10%.

You can track the value of gm tokens on chain with popular chain scanners like arbiscan.io or on DeBank or Zapper.

Benefits of gm Tokens

gm tokens are fully transferable, allowing you to transfer them between wallets, send them to friends, or use them in other DeFi applications. These tokens can also be used for leveraging, enabling you to borrow against them on lending platforms to amplify your returns. The yield continues to accrue to the holder of the gm tokens, ensuring a continuous return as long as you hold the tokens.