GMX Liquidity Pools: A Long-Term Perspective

The article discusses how GMX liquidity pools work and explains their mechanics using historical on-chain data. The focus is on the BTC/USD pool, but the principles can be applied to other assets as well.

Liquidity provision in a perpetual DEX environment is not suitable for short-term yield instruments. It requires patience and a longer investment horizon of at least one year, and preferably two years or more.

A GM pool's performance depends on fees, market direction, volatility, trader PnL, and GM pool mechanics. The Fee Component refers to explicit fee income generated by trading, borrowing, swaps, and liquidations, while the Non-Fee Component is driven by trader PnL and GM pool mechanics.

The article uses charts to illustrate the daily Fee APR for the BTC/USD pool since its creation. It also shows how the Fee Component changes depending on the investment horizon, with longer periods reducing volatility and making it less dependent on short-term entry and exit timing.