Daniel Malinovski
October 26, 2023
Economy Spotlight

Our Thoughts


Here are our thoughts, but before delving in, if you're not well-versed in how the GMX economy works, read about it below.

GMX's value proposition lies in its ability to empower users to engage in perpetual trades in a decentralised manner. Essentially, GMX has decentralised B-book trading, which is where brokers take positions opposite to their customers and assume market risk. Tokens play a crucial role in this ecosystem by serving as incentives for users to align with the desired behaviours.

First and foremost, the $GLP token acts as the lifeblood of liquidity provision within the ecosystem. Because GMX is decentralised and can't run its own B-book, GMX needs a community-owned-and-incentivised B-book, which $GLP fulfils. Effectively, a PVP environment is created between traders and $GLP holders, as such holders of $GLP tokens take on the most significant systematic risk by essentially betting against the traders. Consequently, the $GLP token reaps the majority of the value generated within the ecosystem.

Next, since GMX is decentralised, it needs user governance and sovereignty, which the $GMX fulfils. Furthermore, $GMX allows users to accumulate value without directly participating in the player-versus-player (PVP) dynamics involving $GLP holders and traders. Irrespective of the PVP outcome or the size of the $GLP pool, the $GMX token steadily accrues value.

Furthermore, an additional layer is introduced through the $esGMX token to manage the pace of economic activity. By enhancing the rewards available to $GMX holders, GMX encourages long-term believers to lock up their tokens, relinquishing their ability to instantly sell. In return, they receive increased rewards. Additionally, when users receive rewards, they are granted $esGMX tokens, which act as a buffer against immediate token dumping. Holders must make the choice between vesting their $esGMX and foregoing their rewards during the $esGMX vesting period or staking $esGMX and receiving rewards instead.

Overall, GMX is a superb example of a good token economy because both $GMX and $GLP tokenise different parts of the product and, therefore, are required by nature.

This difference in purpose, with an inherent lack of overlap (other than some rewards), allows GMX to separate its community owners ($GMX holders) from its ecosystem participants ($GLP holders), thereby ensuring that the former risk-averse people don't get impacted by the latter risk takers.

This is crucial because the platform and its owners win regardless with value being accrued to them in all situations, but not by taking value away from $GLP holders…

GMX has created an ecosystem that is greater than the sum of its parts.

Protocol Explanation


What Is GMX?

GMX is a decentralised spot and perpetuals exchange built on Arbitrum and Avalanche. Trading is supported by a unique multi-asset pool that earns liquidity providers fees from market making, swap fees and leverage trading.

The GMX protocol has three tokens and a points system to incentivise actors and ensure a healthy ecosystem.

$GMX token

$GMX is the utility and governance token of the GMX ecosystem.

  • $GMX can be staked to receive three types of rewards:
  • $ETH / $AVAX Rewards (a portion of 30% of fees generated from swaps and leverage trading are converted to $ETH / A$VAX and distributed to staked $GMX tokens).
  • Earn $escrowedGMX ($esGMX) tokens
  • Earn Multiplier Points (MP) that boost the yield.
  • It can also be used to partake in governance proposals.


$EscrowedGMX Token

$EscrowedGMX ($esGMX) is earned by vesting GMX and is a representation of your stake.

1. $esGMX can be staked to receive three types of rewards:

i. $ETH / $AVAX Rewards (a portion of 30% of fees generated from swaps and leverage trading are converted to $ETH / $AVAX and distributed to staked $GMX tokens).

ii. Earn additional $escrowedGMX ($esGMX) tokens.

iii. Earn Multiplier Points (MP) that boost the yield.

2. $esGMX can be staked to receive normal $GMX

$GLP token

$GLP consists of an index of assets ($ETH, $BTC, $LINK, $UNI, and various stable coins) used for swaps and leverage trading. It can be minted using any index asset and burnt to redeem any index asset. It is at the core of the GMX protocol acting as a unique multi-asset pool that allows holders to make a profit when leverage traders make a loss and vice versa.

$GLP tokens are automatically staked and earned

i. $ETH / $AVAX Rewards (70% of fees generated from swaps and leverage trading are converted to $ETH / $AVAX and distributed to staked $GMX tokens).

ii. Earn $escrowedGMX ($esGMX) tokens.


Multiplier Points

Multiplier Points reward long-term holders without inflation.
When you stake $GMX, you receive Multiplier Points every second at a fixed rate of 100% APR. e.g. 1000 $GMX staked for one year would earn 1000 Multiplier Points.

Multiplier points can be staked for fee rewards, each staked multiplier point will earn $ETH / $AVAX at the same rate as a regular $GMX token.

GMX Economy Flow


GMX Revenue


The GMX economy has five sources of revenue. All fees generated on the platform are redistributed to ecosystem participants.

  • Swap fees: swap fee present ranging from 0.2% - 0.8% depending on how the GLP pool is currently composed.
  • Trading fees: 0.1% fee of each position size taken from trades.
  • Execution fees: fee in $ETH & $AVAX to execute trades.
  • Liquidation fees: when trades are liquidated, a fee is paid out to trade keepers.
  • Borrow fees: there is an hourly borrowing fee when trades are placed which is equal to (assets borrowed)/(total assets in the pool)*0.01%.


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