Executive Summary
Following the successful deployment of GMX V2.2, this proposal recommends transferring to the GMX DAO Treasury the accumulated Price Impact Buckets from the GM pools that are in surplus to their isolated risk requirements. This reallocation will allow for both better functioning of the pools and ensure that funds potentially allocated for risk or other DAO priorities are more clearly accessible across the protocol.
Background and Problem Statement
The Evolution of Price Impact Mechanisms
Price impact buckets in GMX V2 were designed to store funds collected from traders who incur negative price impact. These are then used to compensate traders who receive positive price impact, helping to rebalance the pools. However, several factors have led to significant fund accumulation beyond operational requirements:
Historical Imbalances:
- Negative impact factors were historically set higher than positive impact factors
- Positive impact factors were initially set at 50% of negative factors, and after further review and recommendation by Chaos Labs, were increased to 83% of negative factors.
- The overall risk management model, including conservative pool-specific parameters, has led to consistently strong returns for GM pools. The primary ETH and BTC markets have delivered 32% and 35% annualised returns, respectively, in excess of their base assets (50:50 ETH/USDC, 50:50 BTC/USDC).
- The current settings mean that safety reserves will continue to be created and are stored in whole within individual GMs, which is undesirable.
Operational Limitations in V2.1:
- While allocation of liquidity became more dynamic through GLV, the price impact buckets were isolated within individual GM pools, preventing flexible usage from a risk / pool balance.
- GLV growth also meant pool-specific isolation results in capital that generated fees often differed from eventual recipients if such amounts are distributed
- Price Impact Buckets were denominated in the Index token. This could lead to LPs facing unnecessary price fluctuation risk, as LPs’ exposure could drift from the target 50:50 rebalancing on account of these reserved balances.
The V2.2 Solution Framework
Technical Improvements
GMX V2.2 introduces critical upgrades that address these limitations, alongside the growing risk management processes for the DAO, which means this can be better addressed.
- Price impact funds can now be redeemed from individual GMs
- Enables the development of an umbrella risk management system under DAO control
- Supports future hybrid model: DAO-managed pools alongside permissionless markets, pooled vs isolated risk management
- Removes pool balance distortions that previously affected rebalancing efficiency and could lead to further performance improvements
With the release of V2.2, the protocol can now maintain these funds by redeeming excess amounts into the DAO treasury. Following Chaos’s recommendation, a sufficient balance will remain to ensure the optimal operation of the price impact mechanism, while the surplus will be redeemed into the Treasury via a time-locked transaction over this week and overseen by the security committee.
Current Protocol Status
As of this proposal, the GMX ecosystem demonstrates strong growth metrics:
- Open Interest: $245 million
- GM Token Liquidity: $447 million
- Total Volume Generated: $312 billion
- Accumulated Price Impact Funds: Approximately $19 million at current asset values
Proposal Details
Recommended Actions
Primary Transfer:
- Maintain sufficient balances in individual pools to ensure optimal operation of the price impact mechanism for each pool.
- Transfer surplus currently held in Price Impact Buckets to the GMX DAO Treasury.
- Execute transfer via time-locked transaction with security committee oversight.
Important Clarifications:
- These funds are denominated in Index tokens and segregated from LP capital
- No impact on GM token or GLV pricing - funds are excluded from underlying vault calculations
- Transfer does not affect LP assets or GM token backing
Strategic Deployment Framework
Following the establishment of a formal Treasury Committee, these funds can be strategically allocated toward:
- GMX Safety Reserve Fund - Enhanced protocol security and risk management
- Umbrella Risk Framework - Dynamic allocation instead of GM-specific allocation
- Liquidity and Trading Incentives - Driving ecosystem growth and user engagement
- GM Pool and GLV Bootstrapping - Supporting deeper liquidity across the platform
Implementation Timeline
Phase 1: Immediate Actions
- DAO approval for price impact fund transfer
- Timelocked execution with security committee oversight
- Transfer completion within one week of approval
Phase 2: Governance Evolution
- Treasury Committee establishment proposal
- Framework development for fund management and allocation
- Strategic deployment planning and execution
Benefits and Risk Management
Key Advantages
Operational Efficiency:
- Improves pool rebalancing by removing balance distortions
- Enables flexible, protocol-wide risk management
Strategic Flexibility:
- Creates substantial, clearly defined assets within the treasury towards specific objectives, instead of the current less transparent reserves.
- Ensures funds required are accessible and can be directed as the DAO determines.
Risk Mitigation
- Timelocked execution provides transparency and security
- Security committee oversight ensures proper implementation
- Sufficient operational balances are maintained in pools
- Clear segregation from LP assets protects token holders
Conclusion
The transfer of excess price impact funds to the DAO Treasury improves performance of the individual LPs, while allowing funds to be more clearly allocated towards risk management and other initiatives as determined by the DAO. No matter how secure the protocol, the recent security incident with GLP confirms the merit of ensuring that such funds, while under the DAO, are segregated from the individual GM pools.
Community members and delegates are encouraged to provide feedback during the discussion period and participate in the upcoming vote.
Next Steps:
As next steps, a community discussion will be initiated. Unless there is significant feedback on the proposal, it will proceed to a Snapshot vote on Wednesday, 13th August. The funds will be managed by the Treasury Committee, with a separate proposal outlining the establishment of a formal Treasury Committee. The Security Committee will oversee all timelock transactions to ensure proper oversight.