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GM Leverage (Neutral) - VODKA 2 DN

As mentioned HERE, GM consists of 50% volatile assets and 50% USDC. For example, the [ETH-USDC] GM pool consists of approximately 50% ETH. This means that entering the GM pool will result in a 50% LONG exposure to ETH. However, what if you want to remain "market neutral" and prevent the ETH price from affecting your position value? In such cases, we introduce the GM Leverage (Neutral) approach.

GM Leverage (Neutral) Approach

Vaultka offers a "GM leverage (Neutral)" strategy that allows users to apply up to 10x leverage on their chosen GM pool while maintaining a "market neutral" position. The required capital for leverage is borrowed from both the USDC lending pool and the corresponding volatile assets lending pool (ETH/BTC/ARB).
Currently, the following GM pools are supported:
  1. 1.
    ETH-USDC GM Pool
  2. 2.
    BTC-USDC GM Pool
  3. 3.
    ARB-USDC GM Pool
Market-Neutral Strategy
This strategy is beneficial for those who want to minimize the impact of volatile asset price fluctuations while still benefiting from the amplified trading fees from GM LP.
To illustrate this with the example of the [ETH-USDC] GM pool, a user will borrow ETH directly when initiating a leverage position on the pool, so to minimize net exposure to ETH. As the initially borrowed amount of ETH remains unchanged, the price movement of ETH will not affect the amount that needs to be repaid. The user will maintain a neutral exposure to ETH.
Please note that this strategy is pseudo-delta neutral and is not 100% hedged. It assumes the GM pool composition is allocated 50/50 between volatile assets and stable coins, although this ratio may vary in reality.
The fluctuation of the pool composition will affect your debt-to-value ratio, and it may result in liquidation if the ratio exceeds 95%. More details can be found HERE.
The payoff of GM Leverage (Neutral) is influenced by the below factors:
  • Fees earned by liquidity providers
  • Traders' PnL
  • Asset composition of GM Pool
Unique Reward Split Mechanism
Users who utilize leverage DO NOT need to pay any interest during the process. Instead, they share a portion of their profits as fees under the dynamic reward split mechanism. In other words, if the leverage strategy does not generate profits, no interest needs to be paid. This mechanism ensures the profitability of lenders while protecting the interests of borrowers. For more details on the dynamic reward split mechanism, please refer to HERE.

Workflows

Step 1: Users select the desired GM pool to deposit their funds into.
Step 2: Input the deposit amount and choose the desired leverage level (up to 10x).
Step 3: The additional capital required for the leverage strategy is borrowed from both USDC lending pool the corresponding alt-coin lending pool.
Step 4: The borrowed alt-coin & USDC are combined with the deposited USDC in the GM Leverage strategy to mint the corresponding GM tokens on GMX V2.
Step 5: The "Debt-to-Value (DTV) Monitor" and "Liquidation Monitor" continuously monitor the health of the strategy.
Step 6: When the leveraged positions are closed, the rewards are split to the Redistributor, which is a protocol-owned middleman contract that facilitates the distribution of rewards to USDC Lending Pool. See here for more details.
Notes
  • The total withdrawal fees will include 3 items :
    • 0.2% withdrawal fee from Vaultka
    • Withdrawal fee from GMX x leverage size applied
    • Slippage from swapping on Uniswap
**When users open / close positions, an upfront 0.006 ETH partially refundable fee is collected. This is to pay for the dynamic execution fee on GMX, approximately 70-90% of the fee is refundable. To learn more about the execution fee, please reference to GMX page here.