Understanding GM Vaults: Strategy

5 min readDec 19, 2023
Harnessing the Power of GMX V2's Synthetic Pools

GM Vaults stand out in the Arbitrum and GMX landscape as a superior decentralized and permissionless liquidity provision solution, primarily due to the innovative GM Index (GMI) that significantly enhances yield for liquidity providers. Launching with dedicated ETH and USDC vaults, they intelligently utilize the liquidity pool structure of GMX V2, and offer an efficient, high-yield strategy, user-friendly UI and straightforward single-sided deposits.

The unique feature of single-sided exposure in GM vaults signifies zero impermanent loss, eliminating the need for manual hedging and constant portfolio adjustment.

Key Takeaways

  • GM Index: GM Vaults employ the GM Index (GMI) strategy to collect fees from 4 diverse synthetic pools.
  • Lower PnL Risk: Diversification into multiple pools, coupled with adaptive funding rates, promises a stable and enhanced yield over the long term.
  • Promising APR Projection: Promising APR projection of 15.52%, without taking into the account STIP incentives.
  • Single-Sided Deposits: Single-sided deposits in USDC and ETH at launch.

Exploring Synthetic and Non-Synthetic Pools

GMX V2 hosts an array of liquidity pools, broadly classified into two categories:

Non-Synthetic Pools: These pools consist of real assets such as UNI, SOL and LINK, offering investors direct exposure to their price movements and inherent market dynamics.

Synthetic Pools: An example is the XRP/USDC pool, where the underlying assets are ETH and USDC. This arrangement allows investors to gain exposure to the price movements of assets like XRP, while their actual positions are in more stable and liquid assets like ETH and USDC.

The GMI (GM Index): A Strategic Approach to GMX V2’s Synthetic Pools

Central to the operation of GM vaults is the GM Index (GMI), a key component designed to manage multiple liquidity pools for you and capitalize on the innovative fee structure and balanced approach of GMX V2.

GMI, GM Index, was introduced in our Introducing GM Vaults post and it consists of 4 markets: ETH-USDC, DOGE-USDC, XRP-USDC, LTC-USDC. This approach allows liquidity providers in GM Vaults to benefit not just from the performance of a single asset or pair but from the collective trading activities of multiple markets.

Three of the four markets are synthetic pools, these are markets where the long token is not the same as the index token. They are essentially backed by USDC and WETH which allows GM vaults to deploy USDC and WETH deposits as collateral across the 4 pools on GMX V2, and collect fees from all 4 markets.

Meanwhile, the internal netting mechanism within GM Vaults hedges exposure for vault depositors by managing the balance of USDC and WETH across these synthetic pools.

It maintains the delta of ETH for ETH vault depositors and achieves delta-neutrality for USDC vault depositors.

This advanced hedging approach not only simplifies the investment process, offering a ‘set and forget’ solution for those seeking exposure to GM trading volatility, but it also proves more cost-effective than manual hedging, significantly reducing the cost of maintaining optimal hedging positions.

Projected APRs

Let’s see the numbers! By depositing into multiple pools, GM vaults ensure that liquidity providers are not overly reliant on the performance or risks of a single asset or pair, and they aim to provide stable and high returns, drawing from a broader market base.

GMX V2 is currently showing the APR with STIP rewards

Let’s take a look at the APRs of each of these pools right now on GMX v2. For the sake of real yield, let’s ignore the STIP rewards for a second:

ETH-USDC: 12.37%

DOGE-USDC: 18.90%

XRP-USDC: 17.41%

LTC-USDC: 13.38%

Collectively, these rates contribute to a projected average APR of 15.52% for the GM Index (GMI), coming from just collecting fees from these 4 markets. Not bad for ETH and USDC. And that’s with no leveraging.. yet. Our partners will help with that shortly after launch for those interested.

In addition, the vaults are launching while the STIP will still be active on the GMX platform and there is the prospect of additionally incentivizing the yield for an initial period post-launch directly for GM vaults deposits.

Double $ARB rewards! 👀 Stay tuned for more details on that one!

Reducing PnL Risk with Adaptive Funding Rates

I know that some of you were already thinking “What if traders start to win against GMX V2, and that slashes my yields?”

Chads at GMX took care of that for V2 as well. How?

Along with the GM Vaults’ strategy of diversifying yield farming through the GMI, GMX V2 significantly contributes to the vaults’ stability and performance predictability with the key feature, adaptive funding rates, implemented just a few weeks ago across ALL liquidity pools.

This implementation has been instrumental in balancing OI interest (long and short positions), as seen in the chart below, and has effectively reduced market skew, leading to less impact on yields from trading PnL and a more predictable environment for providing liquidity.

After the implementation the long dominance significantly dropped.

This balanced approach directly benefits GM Vaults, ensuring more consistent returns for depositors and enhancing the overall appeal of GM vaults in the DeFi space.