The Development and Challenges of GMX V2 under the Arbitrum Incentive Program

Recently, GMX has obtained the most 12 million ARB tokens in the Arbitrum Short-Term Incentive Program (STIP). This funding is mainly used to support the joint development of GMX V2 and the Arbitrum DeFi ecosystem. After nearly 10 days of implementing the incentive program, let's analyze the changes and challenges faced by GMX.

Main Content of the Incentive Program

GMX will use these funds for the following aspects:

1. Incentivize GMX V2 perpetual contracts and spot liquidity
2. Encourage liquidity to shift from V1's GLP pool to V2's GM pool
3. Subsidize transaction fees, reducing the average transaction fee to 0.02%
4. Sponsoring projects developed on GMX V2

These measures aim to enhance the competitiveness of GMX, particularly in terms of competing with centralized exchanges on transaction fees, while maintaining the advantage of no slippage trading.

GMX Liquidity Changes

As of November 17, the overall performance of GMX is as follows:

• Total liquidity increased by 6.45%, reaching $528 million.
• GMX V1 liquidity decreased by 9%, down to $364 million.
• GMX V2 liquidity increased by 69.5%, reaching $164 million

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

Changes in Open Interest and Trading Volume

• Open interest: Increased from 152 million USD on November 8 to 182 million USD on the 13th, but dropped to 137 million USD again on the 17th.
• Trading Volume: Highly volatile, with the highest daily trading volume of $555 million on November 9.

Overall, trading volume and open interest are greatly influenced by market conditions, showing no obvious trend of sustained growth.

GM Pool Long-Short Imbalance Issue

Although GMX V2 attempts to balance long and short positions through a fee adjustment mechanism, there is still a serious imbalance between long and short positions.

• The total long open interest for V2 is $51.66 million, while the short is $28.67 million.
• Long positions for some assets (such as SOL, DOGE, XRP) have reached the limit.
• Taking XRP/USD as an example, the long position is 4.42 times that of the short position.

Although GMX V2 has set up a complex fee mechanism to encourage arbitrage, the actual effect is not ideal. The imbalance between long and short positions may pose higher risks for liquidity providers, especially in trading pairs of highly volatile altcoins.

Conclusion

The Arbitrum incentive program has indeed driven the liquidity growth of GMX V2, but this growth was primarily concentrated in the first two days of the program's launch. Open interest and trading volume have not shown significant sustained growth. Moreover, GMX V2 still faces a severe imbalance between long and short positions, which could pose potential risks for liquidity providers, especially in some highly volatile trading pairs. In the future, GMX needs to further optimize its mechanisms to achieve more sustainable growth and better risk management.