Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
Last week, we covered the rise of “real yield” in DeFi. The flagship protocol for this trend among builders is the decentralized spot and perpetuals exchange GMX, live on both the Ethereum L2 Arbitrum as well as the L1 Avalanche. Trading on GMX is supported by a multi-asset pool that earns liquidity providers fees from market making, swap fees, and leverage trading. The pricing on GMX exchange is supported by Chainlink oracles and an aggregate of prices from leading volume exchanges. Ownership of this multi-asset pool is represented by buying the token GLP. GMX uses a two-token system whereby GLP holders earn 70% of trading fees in WETH + esGMX rewards and GMX stakers earn 30% of trading fees denominated in WETH + esGMX (vesting linearly, every second, over 1 year). See below how much GMX and GLP holders earned over the past week.
LPs can mint/buy GLP tokens, which represent shares in the GLP pool, by depositing any of the index assets below. They can redeem for any index asset by burning their GLP holdings as well. The fees associated with buying GLP vary depending on which of the GLP index assets are currently underweight or overweight. If an index asset is underweight (ie ETH, WBTC, UNI, USDT), one is incentivized to mint the GLP by depositing this asset for lower fees vs if an index asset is overweight in the pool (ie LINK, USDC, DAI, FRAX), then one is disincentivized to mint GLP with these assets due to higher fees.