Explain GMX_V2 strategies to become a casino owner

Author: DCBot Source: medium

GMX_V2 Strategies to become a casino owner

This article will discuss the new mechanism and participation plan of GMX V2 from the perspective of on-chain liquidity providers (casino owners), and the main content is the following four parts:

• GMX’s Casino Principle
• The core and mechanism of GMX V2
• GMX V2 barbell combo
• GMX V2 hedging scheme

GMX’s Casino Principle

! [详解GMX_V2成为赌场老板的策略] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-4fc5c531ae-dd1a6f-cd5cc0.webp)

GMX’s operating model is based on the philosophy of “casino games”, where the liquidity provider (LP) is the casino owner and the dealer is the player.

The project has applied a “casino owner always wins” mentality when designing its current operating model, and in the process, GMX has achieved some success, raising around $600 million in TVL and hundreds of millions of dollars in transaction fees.

The GMX V1 model has some limitations. First of all, the cryptocurrency market is characterized by a one-way trend (traders tend to either buy large quantities or sell large quantities), so open interest in the GMX is usually quite high. In addition, GMX v1 does not have a funding rate mechanism to regulate trader activity, which means that liquidity providers suffer losses when the market moves in line with their bets.

The core of GMX V2

Guarantee the security and balance of the protocol

The core of GMX V2 is to ensure the security and balance of the protocol, and to maintain the balance of long and short positions by modifying the fee mechanism, so as to reduce the probability of systemic risk in GMX in the face of severe market fluctuations. Through the setting of isolation pools, high-risk trading assets can be added while controlling the overall risk. By partnering with Chainlink to provide more timely and efficient oracle services, we can reduce the probability of price attacks. The project team also considered the relationship between traders, liquidity providers, GMX holders, and the sustainable development of the project, and finally adjusted and balanced the distribution of protocol revenue.

The mechanics of GMX V2

! [详解GMX_V2成为赌场老板的策略] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-ded97e3659-dd1a6f-cd5cc0.webp)

1. Isolation Pool

LPs can carry out risk management such as timing and hedging with a higher degree of freedom in the segregated pool of GMX_V2.

2. Extended Variety

GMX_V2 the new SOL/XRP/LTC/DOGE, SOL/XRP uses the native coin as the underlying liquidity support, while DOGE and LTC use ETH as the underlying liquidity support.

3. Reduced transaction fees

GMX_V2 reduced trading fees to 0.05% or 0.07% from 0.1% previously, depending on whether the opening position is conducive to the balance of long and short positions, and if it is favorable, it charges a lower fee.

4. Price Impact

GMX_V2 increases the price impact fee, the larger the position, the more unfavorable the long-short balance, the more fees will be charged. The price impact fee simulates the dynamic process of price changes in the order book trading market, i.e. the larger the position, the greater the impact on the price. This design can increase the cost of price manipulation, reduce price manipulation attacks, prevent price flash crashes or spikes, and maintain balanced long and short positions to maintain good liquidity.

5. Funding Rate

GMX_V2 increase the funding rate, and the funding rate will be adjusted in stages, when the strong side holds/full positions are between 0.5 – 0.7, the funding rate is at a lower level, and when it reaches 0.7, it will be increased to a higher level, increasing the arbitrage space, promoting the arbitrage funds to enter, so as to restore the long-short balance.

6. Liquidity Incentives (ARB)! [Detailed explanation GMX_V2 Strategies to become a casino owner] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-34d68a44cf-dd1a6f-cd5cc0.webp)

Source:

GMX_V2 has recently increased liquidity incentives, and the above data is the data of the liquidity incentive ARB tokens provided in the first week of the recent past, which will be regularly distributed to LPs according to the proportion of the corresponding pool according to the number of incentives of different varieties every week.

GMX_V2 barbell combination

! [详解GMX_V2成为赌场老板的策略] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-8b987a55f3-dd1a6f-cd5cc0.webp)

There are two main sources of risk and return through GMX_V2, one part is low risk and the other part is high risk, the low risk income mainly comes from the transaction fee paid by the counterparty and the regular weekly liquidity incentive, while the high-risk income mainly comes from the rise and fall of the currency price held and the profit and loss of the counterparty’s bet.

! [详解GMX_V2成为赌场老板的策略] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-a9ae116292-dd1a6f-cd5cc0.webp)

Price(High Risk): refers to the risk-return source of the cryptocurrency market maker, which is mainly composed of the rise and fall of the token price and the profit and loss of the counterparty

APR (Low Risk): BaseAPY refers to the fee income paid by the counterparty, and Bonus APY refers to the income of liquidity incentives

Select SOL (2023.11.13) as an example

! [详解GMX_V2成为赌场老板的策略] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-7b83e4791f-dd1a6f-cd5cc0.webp)

SOL’s price is 1.548, because since the official launch on August 4, 2023, the SOL price has increased by 155% from 22.79 to 58.2, and to establish a pool, you will need to buy about half of the SOL coins and USDC stablecoins, and half of the SOL contributes about 72.5% of the gains brought by the increase, which means that Trader has a 17.8% gain in a larger upward market, which represents the Trader P/L of LP Part of the loss is about -17.8%, and as for APY, the APR is calculated based on the fees charged over the last 7 days. Base APY is based on the annualized return of fees (45.62%) from the pool’s supply corresponding to the trading volume of the overall SOL, and Bonus APY refers to the annualized return of the incentive (12.32%) from the current 10,000 ARB incentive in the first week corresponding to the pool’s supply.

Therefore, there are several factors to consider when choosing a pool, such as the momentum of the price increase, the counterparty P&L, the trading volume, the supply of the pool, and the number of trading incentives.

GMX V2 hedging scheme

! [详解GMX_V2成为赌场老板的策略] (https://img-cdn.gateio.im/webp-social/moments-40baef27dd-23c5c71af3-dd1a6f-cd5cc0.webp)

If investors believe that the counterparty has a high probability of loss in the long term and wants to hedge the profit and loss impact caused by the sharp rise and fall of prices, they can use futures contracts and buy options to hedge price risks.

Full hedging: Real-time monitoring of the number of tokens in the pool, complete hedging on centralized exchanges, the disadvantage is that there will be a large hedging capital occupation, and there will be a risk of insufficient margin leading to contract liquidation when the strong rise.

Option hedging: Monitor the number of tokens in the pool in real time and buy call and put options on centralized options exchanges, which has the disadvantage of paying for options for a long time.

If professional investors have the ability to choose the time, they can hedge in a market environment that is not conducive to LPs.

Timing hedging: Professional investors can use the trend and volatility environment of the market to match the trend strategy to hedge at the right time, so as to avoid the risk of large profits made by the counterparty when the market is rising and losses when the market is falling.

Summary

The delivery of GMX V2 is basically in line with market expectations, which shows that the GMX team has strong protocol design capabilities. From the perspective of mechanism, V2 increases the balance of liquidity pools, expands the types of trading assets, and provides a variety of collateral positions. For liquidity providers and traders, there are more ways to invest, better risk balance, and lower fees. Liquidity providers can better manage the risk of casino strategies through GMX V2 to achieve coin selection, timing, hedging and other solutions, and obtain more diversified and stable investment returns in the long run.