While most would expect token prices, especially for DeFi tokens, to go up during bull markets and down during bear markets, GMX is a quirky token indeed, with its price rising 86% in 2022 and 33% in 2023. However, 2024 has not been a good year for GMX, with its token price down ~55% YTD.

Could this be an opportunity to scoop up a hidden gem cheaply, or has GMX simply lost its appeal over the years?

Under the hood of GMX

GMX is a spot and perps trading platform built on Arbitrum, and subsequently on Avalanche. GMX is currently the largest Perp DEX on both chains, and is the second largest dApp on Arbitrum, accounting for 16% of TVL, and the fourth largest dApp on Avalanche, accounting for just over 7% of TVL.

Like all Perp DEXes, liquidity is king. More liquidity translates to lower slippage, which attracts trading volume to ultimately generate more fees for liquidity providers.

This incentivizes even more liquidity, thereby sustaining the liquidity flywheel.

For GMX, liquidity is sourced through 2 ways:

• For GMX V1, GLP serves as the liquidity provider token. GLP consists of an index of assets used for swaps and leverage trading, and can be minted using any index asset and burnt to redeem any index asset. As GLP holders provide liquidity for trading, they earn fees from leverage trading, borrowing fees, and swaps, and of course, they will make a profit when leverage traders make a loss and vice versa. GLP currently enjoys an APR of 5.03%.
• For GMX V2, liquidity provisioning is manifested through 2 layers. Individual GM pools (GMX Market pools) exist for each market, and together, they make up a larger GLV (GMX Liquidity Vault) pool. This allows for more flexibility, as liquidity providers can shift their GM tokens to another GM pool within the same GLV pool. At present, GLV[WETH-USDC] has an APY of 10.3% while that of GLV[BTC-USDC] is 6.32%.

By providing a decent yield to liquidity providers, GMX has been able to sustain and even grow its TVL over the 2022-2023 DeFi bear market.

On a side note, astute readers may notice that the mechanics of GMX’s liquidity provisioning methodology closely resembles that of Jupiter Perp DEX. However, the yield of JLP at 18% is materially higher, ostensibly due to the higher concentration of degen traders on Solana as compared to Arbitrum/Avalanche.

That’s not to say there aren’t any degen traders on Arbitrum/Avalanche though. At the end of the day, humans are as degenerate as the day is long, and there will still be degen traders on GMX. And with the house always winning, GMX liquidity providers will benefit from traders’ loss.

GMX token supply and demand

With GMX’s operations out of the way, let’s dive into its tokenomics! GMX has a max forecasted supply of 13.25 million tokens, and there are currently ~9.7 million tokens (~73%) in circulation. The distribution of GMX is as follows:

• 6 million GMX: XVIX and Gambit migration. GMX was formed by a merger of the XVIX and Gambit communities.
• 2 million GMX: Paired with ETH for liquidity on Uniswap.
• 2 million GMX: Reserved for vesting of Escrowed GMX tokens.
• 2 million GMX: For the treasury.
• 1 million GMX: To be used for integration incentives and community developers.
• 250,000 GMX: Distributed to contributors linearly over 2 years.

With a relatively high circulating supply, supply shocks from unlocks are mitigated. However, GMX stated that it is possible for GMX to be minted beyond this max supply if there is a requirement for it, and it will only be permitted once this requirement is voted on and approved by GMX governance.

As for utility, GMX can be staked for governance purposes and to receive rewards, which manifest in the following three forms:

• escrowed GMX (esGMX): GMX stakers will earn esGMX, which can either be staked for ETH / AVAX rewards similar to regular GMX tokens, or they can be vested to become GMX over one year.  
• Multiplier Points: GMX stakers receive Multiplier Points every second at a fixed rate of 100% APR. Multiplier Points can be staked for fee rewards, with each staked multiplier point earning ETH / AVAX at the same rate as a regular GMX token.
• ETH / AVAX rewards: GMX accrues 30% and 27% of swap and leverage trading fees generated from V1 and V2 markets respectively. GMX stakers on Arbitrum receive ETH while GMX stakers on Avalanche receive AVAX.

The attractiveness of staking GMX can be observed by a relatively high percentage of GMX being staked (>60%).

Bull vs bear

GMX has been shipping pretty consistently throughout the bear market, and this year, it introduced Single Token Pools with 0 price impact, the novel concept of GLV pools in GMX V2, and the Shift function as elaborated on earlier.

Looking forward, GMX contributors have also discussed how GMX can evolve into a finance ecosystem through the deployment of a GMX Bridge, PvP AMM model, and GMX Chain. Given the team’s consistency, it might not be long till this becomes reality.

Network-wise, while the demographics of GMX traders (Arbitrum and Avalanche users) are arguably more conservative than Solana’s cult of degen traders, Arbitrum and Avalanche are still pretty solid chains to deploy on.

After all, Arbitrum is Ethereum’s largest L2 and Avalanche has been attracting institutional attention through its Evergreen Subnets.

To substantiate this bull thesis, we can observe the growth of GMX's trading volume, and how this has translated to growing fees and revenue for GMX.

However, GMX’s TVL appears to be stagnating as it has been range-bound between $500 million and $700 million since the beginning of 2023.

As mentioned earlier, liquidity is the most important metric to me as it is the backbone of trading platforms. Comparing GMX’s TVL to Hyperliquid’s, we can observe that Hyperliquid’s TVL has been on a tear since 2024, and it has even surpassed GMX’s TVL!

Evidently, there could be some truth to the memes alluding to how Arbitrum is merely a bridge to Hyperliquid.

Concluding thoughts

The team behind GMX is certainly impressive; they launched GMX during the bear market and succeeded despite receding DeFi activity and liquidity. They are also shipping consistently, providing more features and generally improving the process of liquidity provisioning.

Token-wise, the absence of supply shocks is a relief, and a strong demand stemming from the myriad benefits of staking GMX is definitely bullish.

However, I’m not too sure if GMX is the best bet right now. Stagnating TVL since 2023 is not particularly inspiring, and this is in stark contrast to Hyperliquid’s exploding TVL.

While an upcoming bull market may boost GMX’s TVL, a rising tide will most certainly lift all boats, and I would expect other Perp DEXes to benefit as well. Hence, if I were to take a bet on a Perp DEX, I would be more inclined towards Hyperliquid over GMX.