Maximum Leverage GMX V2

There have been recurrent requests from community members to allow higher leverage on the GMX protocol. The contributing developers, risk committee, and security partners have evaluated this possibility, and concluded that it is feasible.

The risk committee was earlier delegated the ability to evaluate and update various parameters to support the proper functioning of markets on GMX V2. (Snapshot and Snapshot)

On GMX (v1) well before the formation of the risk committee, there was a governance vote to increase leverage to 50x.

Accordingly, to avoid confusion and out of abundant caution, the following ratification/rejection and guidance on future updates to a parameter that has the practical effect of increasing maximum permissible leverage are sought:

Updating the minCollateralFactor adjusts the minimum collateral before positions are liquidated. This simultaneously has the effect of increasing or decreasing the maximum possible leverage on the GMX V2 contracts for that market.

To date, the reference front-end design linked at app.gmx.io has limited opening leverage to 50x, and no market has supported more than a theoretical 100x maximum leverage directly on the contracts.

The updated risk recommendations for minCollateralFactor allow for materially higher leverage with an intention to enable contract level leverage up to 200x on certain markets; specifically, gmBTC, gmBTC+, gmETH, and gmETH+, due in part to their deep liquid reference markets. (Note: gmBTC+ and gmETH+ refer to the recently launched Single-Asset Markets for BTC and ETH)

Chaos Labs’ updated recommendations:
https://www.notion.so/chaos-labs/minCollateralFactor-maxLeverage-recommendation-4792f6befe63442d99d884e2e53bad3f

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This proposal consists of two questions. The proposal seeks (1) confirmation from the community that this parameter should be updated beyond the current, and (2) re-ratifying that updates affecting collateral and leverage are also delegated to the risk committee in a manner consistent with other parameters.

Please allocate your voting power between both questions. For each question, the option that gets the most votes will be considered ratified.

Question 1) ratify or reject the implementation of updated risk parameters:

  • Confirm change to min collateral, allowing higher leverage
  • Reject change to min collateral

Question 2) who determines updates to parameters affecting max leverage in the future:

  • Future updates by Risk Committee
  • Future updates by Governance

These questions are being put up directly for vote in parallel with this discussion, to ensure the Risk committee, has the needed clarity in a timely manner.

2 Likes

Snapshot Vote

https://snapshot.org/#/gmx.eth/proposal/0x70f1477cee26a04c8dc1606b2cc157b7d4811c63057e56c1259eefe200165145

I looked into the protocol data with a dev, and here’s some extra context that I think is very valuable:

  • On GMX, about 15-20% of volume can currently be attributed to 40x+ leverage:

  • In the past few weeks 23-35% of positions (weighted by volume) were opened with 40x+ leverage

  • In the SOL market, in one week 60% of volume can be attributed to 40x+ leverage (!)

So the demand for higher leverage by traders is quite noticeable for non-BTC and ETH markets in general. And it is rising recently:

In short, increased leverage can attract new traders to GMX, increase trading volume, and should consequently lead to higher collected fees.

And I’m generally in favour of delegating updates to parameters like this to the risk committee, as they’re best positioned to oversee all the implications. I think the community will favour allowing for higher leverage on the protocol as well though.

1 Like

A very detailed analysis. We can see the scalability and unlimited potential of GMX from this. Providing users with more choices within capability is always better, fully supportive!

We’re only talking about the benefits of increased leverage. And what about associated risks for protocol and LPs? It was probably not without reason that it was limited to 50x before

1 Like

It’s a fair question. The associated risks were mainly around potential price manipulation, I believe. And that risk has lessened compared to one or two years ago, as the reference markets on CEXs have significantly deeper liquidity than back then, in bear market times. So manipulation would be much harder.

The doc by Chaos Labs linked in the opening post has some good data on this.

In V1, longs and shorts were in a state of imbalance for an extended period. In a one-sided market, this easily brought significant risks to LPs, and increasing the leverage limit would exacerbate these risks. However, after the implementation of the adaptive funding fee in V2, longs and shorts achieved a nearly perfect balance in the long run. Raising the leverage limit can better tap into trading demand, and short-sided arbitrage strategies will effectively protect LP exposure.

1 Like

Yes adaptive funding indeed made a big difference in terms of the stability of the pools.

The Snapshot vote for this proposal showed a significant share of the community agreeing with the desire to allow increased leverage;

https://snapshot.org/#/gmx.eth/proposal/0x70f1477cee26a04c8dc1606b2cc157b7d4811c63057e56c1259eefe200165145

This change is already live in production as of today, I understand. You should now be able to select up to 100x leverage on the BTC and ETH markets. Please manage your risk responsibly!