GLP Smoothing

Please note, the Snapshot vote for this proposal is now live at:

A bit late to the party here. I thoroughly disagree and encourage all to vote against, in the interest of LPs and the entire platform. Here are the reasons:

  1. It takes money from LPs, who are the ones taking the risk. The portion of sequestered fees may never be paid out to the LPs that created the fees in the first place. 50% of all LP fees over the APR threshold now will go to the YSR. And this reserve must always remain 80% full (i.e. a maximum of 20%/week can be used to buoy yield, and so 80% of the remainder by definition is not distributed. Though the 80% can shrink overtime, LPs will never be paid back in full for the yield that was taken). In other words, LPs will never recover all the fees they are missing out on. Additionally, LPs now have to deal with additional time cost of not having access to all of their fees on any definite horizon — the YSR could remain locked for weeks/months.

LPs will actually be making less yield overtime, because of the portion that is going to sit in the YSR. As GLP functions nows, whether you make 10% this week and 30% next week, or 20% both weeks — it is the same thing from an average APR point-of-view. But with this YSR starting, an you LP have 10% the first week (and possibly some coverage from the YSR), and only 25% the next week, with the remaining 5% going to fill the YSR.

Now let’s imagine a string of 3 months say with yield over 20% — LPs don’t get to see 50% of any of that above threshold yield. An enormous cost and disincentive.

  1. Nowhere is it said how the YSR is intended to be managed. Will it be held in ETH, in stables, or how? LPs must now take on the additional friction and cost of not controlling the fees generated on their risk while they are locked in the YSR, otherwise known as opportunity cost.

  2. Any individual LP or project can set up their own kind of “smoothing reserve” — there is no reason to make this a base-level mechanism that adds friction and cost to LPing.

  3. This will not solve the problems of any of the so-called “delta neutral” vault projects being built over GLP. They have a litany of issues, and if “yield volatility” was really the limiting factor — see (3) above. And furthermore, this YSR will RESTRICT their real yield overtime.

LPs are the lifeblood of GMXv1 and this proposal affects them directly, and negatively. The general idea of this proposal is that this will in fact make LPing “better”, but it is an illusion to be frank, that adds complexity and sequesters money from LPs. Risk should be rewarded in full as best is possible for LPs, as it is currently done by paying fees out in a timely manner, and this YSR mechanism falls well short.


This is really great proposal

First, I understand GMX’s POV. In theory, when GLP yield drops, LPs should leave. When yields rise, more LPs enter. Taking excess yield to buffer the downside to prevent LPs leaving GLP makes sense — Liquidity should remain strong in all market conditions. HOWEVER:

The data reveals that this premise is flawed entirely. There is no significant correlation between GLP outflows and GLP yields. Liquidity continues to grow despite market conditions and GLP yield. GLP has actually thrived, because of, not despite, volatile yields.

It’s clear that LPs are willing to experience lower yields if it means they get wildly high yields too. Therefore the biggest risk to GLP liquidity is not volatile yield — the biggest risk is GLP LPs leaving to pursue other greater yield/returns as the market turns more risk-on

The proposed YSR exacerbates this risk with kneecapping yields when they’re high and providing a buffer when they’re low, when data shows GLP LPs are fine with lower yield some weeks as long as they get higher yield other weeks. If yields are smoothed lower, LPs may leave.

Behavioural risks aside, the YSR may not even help provide a buffer for lower yields as conceived. Here’s why: Trader PnL and market activity are reflected in GLP price, not GLP yield.

GLP LPs can lose money from GLP price declining because of market dumps or positive short trader PnL. However they can clawback some of the loss thanks to high yield from GLP when that occurs. If high yields are suppressed by the YSR, GLP cannot clawback loses as much.

No data nor market activity has indicated that a YSR or any command economy element for GLP is necessary. In fact, the YSR harms GLP’s competitiveness long term. Here’s how:

In the bull market when volumes are plentiful, GLP yields will be high and a YSR to buffer downside won’t be needed. Instead, it will reduce GLP yields diachronically. I would even venture that the YSR is BULLISH for GMX competitors with uncapped yield for their liquidity.

In a bull market when yields are high on every platform, why should an LP stay in GLP and earn kneecapped yield? Assuming rationality, GLP LPs leave when market volumes are high (to earn better yield elsewhere) and return when yields are low (to leech off the YSR).

The YSR may make GMX frighteningly uncompetitive and actually worsen the liquidity issue it seeks to solve. The data is clear: GLP LPs don’t care about low yield as long as they get uncapped high yields. The dynamics work, and nothing indicates they should be changed.

Another supposed benefit of the YSR is helping DN Vaults built on top of GMX. Let me be very clear: If vaults built on GLP don’t work, it is not GMX that needs changing. Many DN vault models are laughable, it’s no surprise they burn money and will continue to do so, YSR or not.

When built right, delta neutral yield on top of GLP is amazing. There’s only one protocol that does this right, and has not lost money on their vaults. Goes to show that the issue is not with GMX, GLP works flawlessly as it is.

If the YSR proposal does pass, I would encourage the DAO to think long and hard about the hurdle rate for the YSR and the amount of yield clipped. Happy to model this and post a proposal should the YSR pass, but I hope that’s not necessary.

GLP is extremely favourable to LPs as it is. GMX should not focus on optimising this further, as it entails risking the very mechanics that allowed GMX to become the dominant perp DEX. I welcome all discussion!


@TCC @IceCream
thank you for your expanded view of things here. Pretty informative and thought-food’ish. :+1:

Btw as I remember there was an idea to introduce separate pool for stable APR…
may be we can go this way somehow? @coinflipcanda wdyt?
Those who want more predicted APR - can stake there. Other Chads can stake in full acid “GLP classic” :crazy_face:

I get your point it is very interesting but I got a doubt while reading this line:

They are fine in a bear market, it has to be more profitable to hold GLP than plain ETH in order to attract liquidity.

I disagree with this. Even in a bull market, a reasonable investor will diversify their assets to mitigate their risk. This would be something like GLP, that does not have the potential price increase vs holding ETH solely, but also does not have the potential exposure to the price decreasing that holding ETH solely would.

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real counts during bear season. just hold on

fwiw, as of today, anyone can trade their variable GLP yield for a fixed GLP yield on Voltz, a yield/rates marketplace. read more here:

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Hi! now that the proposal has been rejected. May I ask for some suggestions on how to make YSR more acceptable?
Improvements or so, but yet able to achieve a decent YSR of 20% (or 18, 15 etc)

A fluctuating APR is also not good as big funds can join in for this week’s high APR and run off next week in search of better yields

I strongly feel a simple floor APR would help to pull in more funds for GLP and generate more fees for everyone, but your points are very valid too, so maybe you have ideas to improve more on YSR and gathering more for LPs.