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Deep Dive Research

GMX DEX Analysis: Insights on User Behavior and Margin Trading


Trang Nguyễn


16 Feb 2023


Cryptocurrency Trend
Liquidity Pool
Layer 2




GMX is a decentralized derivative exchange (DEX) for top cryptocurrencies such as BTC, ETH, AVAX, LINK and UNI. The exchange was launched in September 2021 and currently supports Arbitrum (Layer 2) and Avalanche (Layer 1) chains. We should point out that our following comprehensive analysis focuses on the Arbitrum-native margin trading data only.

With zero price impact trades, limit orders, low swap fees and a friendly UX design, GMX quickly attracted DeFi enthusiasts, especially those trying to qualify for the potential Arbitrum airdrop.

TL;DR at M3TA GMX (Arbitrum) Dashboard.



Why GMX?

Let's break it down a bit.

◉ Spot swap is the usual practice of swapping tokens 1:1 on the spot (hence the name and it is also not prioritized in this article)

Margin trading or Derivatives is the practice of betting on a long position (when the asset price rises, you win) or on a short position (when the asset price rises, you lose).

Derivative traders are also called margin traders in this analysis.



Decentralized Derivative Exchange

Before the wave of GMX and alike, traders usually went to CEX like Binance or Coinbase to conduct perpetual trading. Not a lot of DEX chose to offer derivatives. It is simply because the gas fees could be outrageous, liquidity could be in shortage and price slippage was too pervasive.

However, GMX happened to offer solutions to these DeFi problems:

1. Unlike a centralized exchange, the decentralized anon-built GMX hardly runs into issues of ​​security, data privacy protection or regulatory issues.

2. GMX uses Chainlink's oracles to provide accurate price data for the assets being traded on the exchange.

3. GMX offers zero-price impact trades through a custom algorithm that ensures large trades are broken up into smaller pieces and executed gradually over time.



Tokens and their Utilities

GLP (Liquidity Provider token)

GLP Pool

Unlike traditional centralized exchanges which process trades through order books, GMX operates through a community-driven liquidity pool, called the GLP pool, where users can provide liquidity and earn 70% of all protocol fees based on their contributions. 

GMX (Governance token)

  • To receive Escrowed GMX tokens (esGMX), which will automatically convert to GMX after a 12-month period or can be re-staked for the same rewards of GMX staking.

  • To receive 30% of all protocol fees in the form of ETH and AVAX APR.

  • To receive Multiplier Points every second at a fixed rate of 100% APR. For example, if you had to stake 1000 GMX for one year, you would earn 1000 more Multiplier Points after 12 months. Multiplier Points owners are eligible for reduced fees, faster transaction times or other exclusive features that encourage them to keep staking more GMX.

Margin trading 

GMX offers a user-friendly interface and easy access without requiring registration or an account. Rather than trading the token, users deposit collateral assets to open long or short positions. Long positions earn profit in the pair's other token (such as ETH or BTC) while short positions use USDC to pay for profits.




An expanding user base with robust swap and margin actions and concentrated LP providers

As explained earlier, there would be 3 main actions users can take when interacting with GMX:

1. Providing liquidity for GLP pool

2. Trading derivatives

3. Swapping GMX on the spot


Figure 1.4 Unique Users on GMX & Figure 1.5 User Actions on GMX (Source: M3TA)
Figure 1.7 New User of Each Category (Source: M3TA)

Throughout the later half of last year, GMX witnessed a significant rise in the number of unique users (Figure 1.4 & Figure 1.7) who actively engaged in the 3 main trading activities on the platform, mostly in swapping and margin trading

However, a similar trend was not seen in the number of GLP liquidity pool providers. Their operations remarkably intensified during Q4 of 2022 although there was not an upsurge in the count of distinctive liquidity providers at the time, indicating that merely a limited set of users were taking part in this LP "game."

The surge in the number of unique users in the second half of 2022 can be attributed to the listing of the GMX native token on centralized exchanges such as CoinEx, Bybit, Binance, and many more, which had drawn the interest of many users to explore the platform's offerings.

Within the same period, over the week of June 27, there was a notable upswing in all three types of users, marking the highest number ever recorded of users so far on GMX. The evidence was also backed by a concurrent soaring of new users added to the system on June 28 and 29, with approximately 12-15K new users each day (Figure 1.7).

A plausible explanation should be the effects of Arbitrum Odyssey Week 2, when Arbitrum partnered with Yield and GMX. On the GMX's part, users were incentivized to complete either of those 3 tasks: leveraged trading, providing liquidity to mint GLP, and spot swapping, in exchange for receiving NFTs from Arbitrum.

Figure 1.6 Assets in GLP Pool (Source: M3TA)

One key indicator of the platform's growth is a surge in minting transactions (when people provided liquidity onto the GLP pool) within September-November (Figure 6).

However, the remaining period of November saw withdrawals of these assets and subsequently a periodic action of assets supplied in the pool. This could be an indirect result from the fact that the market was bearing the explosion of FTX (Nov 6-Nov 11) and risk-averse traders were trying to secure their assets from an uncertain economic condition.

Figure 1.8 Existing User / Total Active User Ratio (Source: M3TA)

We can also observe that after the Arbitrum Odyssey Week 2, between September 2022 and January 2023, there was a consistent rise in the number of new users with an average of 1K to 3K fresh sign-ups per day (Figure 7). Another data point can be made use here is the fact that the quantity of committed GMX users has been leveling off at around 80% of total platform users, and is often surpassing the number of new users per day (Figure 8).


Margin: the Double-Edged Sword
Figure 2.1 & 2.3. Volume by Category (Source: M3TA)
Figure 2.2 & 2.4. Fee by Category (Source: M3TA)

Figure 1.7 reveals an interesting trend where Swap Trading appears to have been more popular among users compared to Margin Trading.

However, despite Swap Trading having a higher user base, Margin Trading has yielded greater trading volume and fees as shown in the four Figures 2.1 to 2.4. This trend could be attributed to the ease of use and lower risk associated with Swap Trading, making it a more accessible option for beginners. On the other hand, Margin Trading requires users to have a good understanding of trading strategies and the market's volatility, which explains its popularity among more experienced and institutional traders.

Figure 2.5 Trader Net Profit & Loss (Source: M3TA)

Figure 2.5 shows that margin traders on GMX have mostly experienced losses throughout the majority of 2022, causing a negative PnL for the year. The period between December 2021 and October 2022 was particularly challenging for these traders, as they suffered a total loss of over $50M.

Figure 2.6 & 2.7. Short & Long Opening Interest (Source: M3TA)

Figures 2.6 and 2.7 provide further insight, revealing that until the middle of last June, a higher proportion of users had opened and held long positions rather than short positions, which is unsurprising given the bullish market conditions that prevailed most of 2021.

Figure 2.8 Liquidate Volume (Source: M3TA)
Figure 2.9 & 2.10. BTC-ETH & LINK-UNI Prices (Source: M3TA)

What was surprising to those traders is that the tokens they were leveraging against continued to follow a downturn trajectory into 2022 (Figure 2.9 & 2.10), subsequently resulting in long position traders receiving margin calls. This is evidently seen in the June liquidation which amounted to $44M (Figure 2.8).

As a consequence, the open interest of long positions started decreasing in the subsequent month, and eventually got replaced by short opens (Figure 2.6 & 2.7). But again, as observed in Figure 2.8, the negative impact of margin calls did not show signs of easing off as liquidation volume had risen dramatically in Q4 2022.

Figure 2.12 Lending Interest Rate Annualized (Source: M3TA)

Borrow Fee, or as we'd like to call it, Lending Interest Rate:

◉ = (assets borrowed) / (total assets in the pool * 0.01%) per hour

GMX calculates this rate by multiplying the Borrow Fee by 24 hours and 365 days and updates it every hour.

◉ which depends on the popularity of the asset and could go up to 36.79%/year (as of time of writing)

Essentially, when you trade derivatives, you are not using your own coins to trade; you are borrowing others' coins, the liquidity providers’. Therefore, these people would receive rewards for lending their money to you (which is partly from this fee). The more margin traders borrow an asset, the higher the fee, and vice versa.

It is crucial for users to be aware of sudden rate spikes, as this rate can experience sudden increases due to high demand or withdrawal activity.

Currently, BTC and ETH have a higher annualized lending interest rate of around 60%, while other assets have rates below 20%.




Our analysis of GMX platform's margin trading data found a smaller set of liquidity providers and more swap and margin users. Despite having a larger user base, margin trading generated higher volume and fees, but traders mostly experienced losses in 2022.

Overall, we deem that GMX has room for growth and its user base and volume will continue to increase.




The views expressed herein are for informational purposes only and should not be considered as investment advice. They may not necessarily represent the opinions of M3TA. As every investment and trading opportunity carries risk, you should conduct your own research before making any decisions. M3TA assumes no responsibility for our users' investment activities or their profits or losses. The articles, data, and content provided by M3TA should not be relied upon for any investment-related decisions. We do not advise investing funds you cannot afford to lose.

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