This publication presents the community an opportunity to add gmBTC on the Arbitrum Aave v3 Liquidity Pool.
Motivation
GMX Protocol is the largest DEX offering derivatives and one of the most popular DeFi’s today. The introduction of several new features and integration with Chainlink Data Stream in GMX V2 has significantly reduced the risks of front-running and price manipulation compared to GMX V1. gmBTC is a BTC-USD’s Liquidity Token on the GMX V2 and earn fees from leverage trading, borrowing fees and swaps.
Integrating gmBTC as collateral asset in the Aave V3 Arbitrum Pool has the potential to create new demand for borrowable assets on Aave V3, such as WBTC and Stabelcoin.
I occasionally trade on GMX, but more than as a trader, I like to use their ‘Earn products’: GLP in the past, and the new GM pools since their launch.
There are some other Arbitrum protocols that already support these as collateral; Abra, Solv, Vaultka. But to be honest, if AAVE introduced them, I would prefer to use AAVE. Just because it’s even more battle-tested.
Hello @SaucyBlock and thanks for this proposal.
A few questions.
Do people holding gmBTC get yield simply by having gmBTC in their wallet? I just read quickly through the docs.
The APR is currently sitting at 25% (6% ARB STIP) so the slope 1 could be set a bit higher to earn more fees while also attracting people to deposit their token in Aave.
Overall it is looking good to me.
Maybe someone who is deeper in GMX can tell if there could be any risks for the protocol.
The price of gmBTC will automatically increase due to fees from leverage trading and swaps. Additionally, rewards from the ongoing ARB STIP are airdropped to users every epoch.
That’s correct. The yield from holding any GM pool token is auto-compounded into the price of those GM tokens.
The yield comes from all the trading that takes place on GMX, both swaps and perpetual futures. And they really do a lot of volume: 170 Billion in aggregate trading volume. 1.32 Billion in volume on the GMX V2 pools, just in the last week. Very significant fees are being made too, as a result.
I was made aware of this proposal by @SaucyBlock and wanted to provide some additional context on the GM pools of GMX V2, as I appreciate the initiative a lot. I’m a communications contributor for GMX. We would love to see Aave integrate a GM pool as collateral, as it’s a win-win situation.
$136 million of GM(BTC) has been minted already on Arbitrum. This shows the asset’s popularity.
The APR of this BTC pool stands at 21.23%: very respectable yield
There are more than 1400 Liquidity Providers holding the GM(BTC) token: a healthy, decentralised distribution
Chainlink oracles are available for GMX’s GM tokens, providing best-in-class pricing.
GMX V2 and its GM tokens are highly composable, and were designed with that in mind.
GM(BTC) is already being integrated in various DeFi protocols and being successfully used as collateral in multiple money markets: Dolomite, Solv, Abra, Rodeo, Vaultka, Silo, LodeStar, and Deltaprime come to mind.
Let me attach a graphic to illustrate the ecosystem-focused nature of GMX’s approach to DeFi, as I believe it highlights how an Aave integration of GM(BTC) would make significant sense:
Lastly, in terms of security and risk management, GMX is very diligent. Working with Chaos Labs, Hexagate, Doppel, Chainalysis, Forta… And even formal verification of the contracts through Certora. On top of 4 separate reputable firms having audited the V2 contracts.
I will express my support of this proposal, because I have seen the strictest discipline for highest security by GMX. Countless audits by the best have been done and are even ongoing as the project keeps developing. Looking at immunefi, GMX is paying the 3rd highest bounty of 5 million for finding a critical weakness in the architecture.
I believe it is a very important factor for this proposal. That it would be beneficial for AAVE should be clear - considering GMX holding a total TVL of around 550million.
If I understand it correctly, the GMX tokens don’t allow atomic withdrawals. Only whitelisted “keepers” can perform swap/withdraws. This poses a substantial risk to the protocol in my opinion. Please correct me if I’m wrong.
It’s correct that GMX doesn’t work with atomic withdrawals; this system with Keepers was required for the perpetuals trading contract architecture.
This doesn’t introduce substantial risk, however. It would just require Aave to set proper risk management parameters; certain caps on deposits and borrowing, for example.
There are unique advantages of the GM tokens just as much. High yield, for example, coupled with the fact that the GM token price is not impacted by burning GM, so a liquidation cascade is highly unlikely.
