Proposal for GLP Index Rebalance within Arbitrum

This proposal is to rebalance the token weights in the GLP Arbitrum index. In addition to rebalancing token weights, I believe increasing fees based on whether the action improves the balance of assets or reduces them would benefit GLP’s index and GLP holders.

GLP Arbitrum

At time of writing, GLP within Arbitrum is composed of the following:

  • 40.87% ETH
  • 21.77% USDC
  • 15.07% BTC
  • 9.09% USDT
  • 6.40% DAI
  • 3.22% LINK
  • 2.09% UNI
  • 1.47% FRAX

To simplify, this breaks down to the following:

  • 56% ETH / BTC
  • 39% Stables
  • 5% LINK / UNI

For reference, if the weights were at their desired weight, the pool would be composed of the following:

  • 47% Stables
  • 45% ETH / BTC
  • 8% LINK / UNI

As GMX continues to grow exponentially, I believe GLP liquidity providers would benefit from an INCREASE in stables overall weight within the pool. What makes the GLP index unique to users is the ability to stake into an index of desirable assets while receiving attractive APR on spot and leverage trading provided by the platform. They are currently able to receive this APR while having the exposures highlighted above, but what if GLP holders were able to continue to earn yield with even more pool stability?

High yield, especially with the explosive growth of defi, is ubiquitous. This is typically through traditional liquidity provision on pairs, farming, etc. As most defi users know in these liquidity scenarios, users are typically 50/50 stable / coin or 50/50 eth / coin. As our space continues to mature and liquidity providers begin to seek safer harbor for their liquidity, increased exposure to stables will become more desirable. GMX is able to provide such a unique offering of high APR and high index stability, because of the (fantastic) way the protocol generates revenue.

As such, I propose we increase the GLP Arbitrum weights as follows:

  • 60% Stables
  • 30% ETH / BTC
  • 10% OTHER

At time of writing, the fee to add ETH to the GLP Arbitrum pool is 0.56% when ETH is 15.87% over desired index weight. In addition to modification of GLP Arbitrum weight, I propose an INCREASE in fees or rewards for decreasing or increasing index weights, respectively. This will bring more pressure for GLP liquidity providers to act in favor of the pool for a nominal increase in fees. Thank you for reading my thoughts.

EDIT: Proposed GLP Arbitrum weights now 100%

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Interesting proposal and thank you for taking the time to write it out.

I think, while in theory this does make sense, more stable coins=more stability, in practice this may not be the case. I believe that what makes the GLP such an attractive vehicle for investment is that it does in fact leave you exposed to the general crypto market; exposing you to crypto upside while reducing the overall downside. Having the pools at 60/40 allows the GLP to maintain it’s upside exposure and give plenty of liquidity for those looking to long (remember longs are better for the GLP). These longs would then help offset downturns in market from their liquidations, losses and closing costs.

An increase in Stablecoins could also mean a reduction in the amount of swap fees gathered for the GLP. Some of our most traded assets are the non-stable crypto pairs.

I do agree that the fee structure could be a bit more dynamic, however it is important that people don’t feel that are getting the sharp side of the stick when entering and leaving the GLP, fees should encourage behavior that is supportive to the weights in the GLP but not discourage people from joining the GLP all together.

Additionally, the worst case scenario for the GLP is actually the market turning full bear AND traders shorting the GLP, this results in the traders winning and GLP stablecoins being withdrawn from the pool, for the GLP we want users to long, with longs the traders win and the GLP can still continue to appreciate in price, this sets up the GLP for downside protection in the case of a sharp decline in asset prices.

In summary, I do not this that reducing the crypto assets weight would align with the vision of the GLP nor put it in a better position to weather a downturn in the market, but I do agree that the fee structures can be a bit more aggressive in helping to bring the pools closer to the target weights.

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Additionally, history for margin shows a preference for longs over shorts, which are typically utilizing more crypto positions and less stables, yes? Seems like any adjustment to target should be intended to support better capital efficiency, and that would mean taking utilization as the most important metric to follow. If GLP holders are looking to mitigate risk / get better exposure to their desired assets, than can easily adjust their net positions exclusive of their GLP holdings.

Would vote against any adjustment in the near term regardless, until we see better integration with aggregators to rebalance current makeups closer to targets, anyway.

Appreciate the writeup and thinking overall though!

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Thank you for the proposal on this, I think evaluating the weights is a good idea, the index price is referenced against 50% stablecoins, 25% ETH, 25% BTC, so we might want to target something close to those weights or 50% stablecoin, 50% crypto exposure as it is easy to understand.

The weights are also rebalanced depending on if there are more longs or more shorts, to help hedge the pool against traders as mentioned in the docs GLP - GMX

I think some of the issues are that we need to make this process more automated and also that the assets don’t reach their target weights at times, or take some time to reach the target weights. Having a positive slippage could help, will need to analyse whether we can allow for that.