Performance and Challenges of GMX under the Short-term Incentive Program on Arbitrum

Recently, GMX received 12 million ARB tokens allocated from the Arbitrum Short-Term Incentive Program (STIP), which is the largest share obtained by a single project in the Arbitrum ecosystem. GMX stated that it will use these funds to support the joint development of its V2 version and the Arbitrum DeFi ecosystem. Since the planned launch on November 8, nearly 10 days have passed. Let's analyze how these funds will be used and their impact on the development of GMX.

Main Uses of ARB Token

The 12 million ARB tokens will be distributed over 12 weeks, with each week serving as a period. The funds will mainly be used for the following aspects:

1. Incentivize GMX V2 perpetual contract and spot liquidity providers, who can receive additional ARB token rewards besides trading fees.
2. Provide an incentive of 350,000 ARB to transfer liquidity from the GMX V1 GLP pool to the GMX V2 GM pool.
3. Subsidize transaction fees to reduce the average transaction fee to 0.02% to enhance competitiveness.
4. Projects that are developed on GMX V2 but do not receive Arbitrum subsidies will be allocated up to 2 million ARB.

These measures aim to enhance the overall competitiveness of GMX while retaining its advantage of no slippage in trading.

The liquidity growth of GMX V2

As of November 17, the total liquidity of GMX V1 and V2 increased from $496 million on November 8 to $528 million, a growth of 6.45%. Specifically:

• The liquidity of GMX V1 decreased from $400 million to $364 million, a drop of 9%.
• The liquidity of GMX V2 increased from $96.77 million to $164 million, a growth of 69.5%.

It is worth noting that the significant growth in GMX V2 liquidity mainly occurred on the first day of the incentive program, after which the growth rate noticeably slowed down.

Changes in Open Interest and Trading Volume

In terms of open interest, it increased from $152 million on November 8 to $182 million on November 13, and then decreased again to $137 million on November 17, even falling below the level before the incentives began.

The trading volume is greatly influenced by market fluctuations, reaching a peak of $555 million on November 9 and $365 million on November 16. Recently, the trading volume of V1 is still higher than that of V2.

The Long-Short Imbalance Problem of GM Pool

Despite GMX V2's attempts to balance long and short positions through fee adjustments, certain GM pools still exhibit significant long-short imbalances. For example:

• Long positions for assets such as SOL, DOGE, and XRP have reached their limits and cannot continue to open long orders.
• The long position of XRP is 4.42 times that of the short position.
• The long position of SOL is twice that of the short position.

Taking the XRP/USD trading pair as an example, although there is arbitrage potential, the actual difficulty of arbitrage is high due to the limited short positions. This has led to GMX V2 not being able to achieve the expected long-short balance.

Conclusion

The incentive program of Arbitrum has indeed helped GMX V2 achieve significant liquidity growth, but this growth was mainly concentrated in the first two days after the program started. The open interest and trading volume did not show a significant increase. At the same time, certain GM pools of GMX V2 are still facing severe imbalance in the long-short ratio, which may pose higher risks to liquidity providers, especially when trading some highly volatile cryptocurrencies.