GMX V2 Development Trends: Liquidity rise and Long-Short Imbalance under Arbitrum Incentive Program

Recently, GMX launched a Short-Term Incentive Program (STIP) on the Arbitrum network, supported by 12 million ARB tokens. This is one of the largest incentives in the Arbitrum ecosystem, aimed at promoting the joint development of GMX V2 and the Arbitrum DeFi ecosystem. The program has been running for nearly 10 days since its launch on November 8, and we will analyze the usage of these funds and their impact on GMX's development.

Main Uses of Arbitrum Incentive Program

Under the STIP plan, 12 million ARB tokens will be distributed over a period of 12 weeks, with a distribution each week. These funds are primarily used for the following aspects:

1. Incentivizing GMX V2 perpetual contract and spot liquidity providers
2. Encourage the liquidity to transfer from the GLP pool of GMX V1 to the GM pool of GMX V2.
3. Subsidize GMX transaction fees to make it more competitive.
4. Sponsored projects developed on GMX V2

Through these measures, GMX aims to enhance its competitiveness in the decentralized exchange market while maintaining its advantage of no slippage trading.

GMX V2 Liquidity rise situation

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

• Total Liquidity (V1+V2): Increased from $496 million on November 8 to $528 million, a rise of 6.45%.
• GMX V1 Liquidity: decreased from $400 million to $364 million, down 9%
• GMX V2 Liquidity: Increased from 96.77 million USD to 164 million USD, rise of 69.5%

Although the overall Liquidity rise has been relatively slow, the significant rise of GMX V2 is a positive signal. However, it is worth noting that the sharp increase in V2 Liquidity mainly occurred in the first two days after the incentives began, after which the growth rate noticeably slowed down.

Changes in Open Interest and Trading Volume

In terms of open interest, it rose from $152 million on November 8 to $182 million on November 13, and then decreased to $137 million on November 17, even falling below the level before the incentives started.

The trading volume shows significant fluctuations, closely related to the overall volatility of the market. During the observation period, the highest single-day trading volume occurred on November 9, reaching 555 million USD. Recently, the trading volume of V1 still exceeds that of V2.

GM Pool Long and Short Imbalance Issue

The long-standing issue of the imbalance in long and short ratios in GMX V1 still exists in V2. As of November 17:

• GMX V1: Long open positions amount to 19.26 million USD, while short positions are only 687,000 USD, showing a significant disparity.
• GMX V2: The total long open interest is $51.66 million, while the short interest is $28.67 million, indicating a significant gap.

In the GM pool of certain assets like SOL, DOGE, and XRP, long positions have reached their limit, and the long-short ratio is severely imbalanced. Taking the XRP/USD trading pair as an example, although GMX V2 has set up a complex fee mechanism to try to balance the longs and shorts, the effect is not ideal.

Conclusion

The Arbitrum incentive program has indeed driven a significant rise in GMX V2 liquidity, but this growth was mainly concentrated in the early stages of the program. The open interest and trading volume have not shown any significant sustained growth. Meanwhile, the long-short imbalance issue of GMX V2 still exists, especially in certain highly volatile cryptocurrency trading pairs. This imbalance may pose a higher risk to liquidity providers, particularly during periods of extreme market volatility. In the future, GMX needs to further optimize its mechanisms to achieve better long-short balance and risk management.