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GM Leverage - VODKA 2

What is GM?

GM refers to the liquidity pools on the GMXv2 platform, which acts as the counterparty of traders in GMX. In GMX V2, each trading pair has its own individual pool, such as [ETH-USDC], [BTC-USDC], [ARB-USDC], and so on. Each GM pool consists of 50% volatile asset and 50% USDC. These pools are designed to reduce risk compared to the asset basket approach used in GMX V1.
The price of GM is influenced by the below factors:
  • Price Movement of the volatile asset
  • Traders' PnL
  • Fees earned by liquidity providers

GM Leverage Approach

To maximize the rewards from each GM pool, Vaulkta offers a "GM leverage" strategy that allows users to apply up to 10x leverage on their chosen GM pool. The required capital for leverage is borrowed from the USDC lending pool.
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
Long Strategy
Since each GM pool consists of 50% volatile asset. For instance, the [ETH-USDC] GM pool consists ~50% of ETH. Leveraging on GM pool will increase in both ETH & USDC exposure. It is one of the best strategy when users are bullish on ETH price. By doing so, their position value will grow alongside the rising price of ETH, enabling them to not only benefit from trading fees but also potentially gain from the price surge.
To illustrate this with the example of the [ETH-USDC] GM pool, a user will borrow USDC when initiating a leverage position on the pool, while maintaining a LONG exposure to ETH. As the price of ETH advances, the initial borrowed amount remains unchanged. This results in additional profits when repaying the borrowed funds upon closing the position.
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 the USDC lending pool.
Step 4: The borrowed USDC is 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.

Deposits & Withdrawals

  1. 1.
    GMX applies a dynamic deposit fee that is influenced by the token balance in the pool at the time of purchase. If the USDC share in the pool falls below 50%, the fee is lower compared to depositing in ETH, and vice versa.
  2. 2.
    Withdrawals on GMX are done in pairs, i.e. withdrawals of [WETH-USDC] GM token will receive WETH and USDC token according to the pool balance at the moment of request. Vaultka will help user to swap the WETH to USDC via Uniswap V3 so that users can receive USDC in full. As of now, users cannot choose to withdraw in pairs, but there are plans to enable this function.
  3. 3.
    The total withdrawal fees will include 4 items :
  • 0.2% withdrawal fee from Vaultka
  • Withdrawal fee from GMX x leverage size applied
  • Swap fee from Uniswap V3
  • 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.