Fixed Rates 🤝 20% Real Yield

February 15, 2023

The GMX GLP yield rate is now tradable on Voltz via Arbitrum!

With the launch of a GLP rate market on Voltz Protocol, traders now have access to trade one of the highest “real yield” rates in all of DeFi. #RealYield has changed the game. The real yield narrative came on strong in 2022 against the backdrop of the bear market and collapsing CeFi organizations. Real yield is generated as a share of a protocol’s revenue, denominated in USDC or ETH. This is in contrast to the 4-5 digit APYs that were unsustainably propped up by a protocol’s native governance token.

Enter GMX. As one of the pioneers of real yield, GMX adoption over the last 12 months has been impressive. GMX is a spot and perpetual exchange on Arbitrum. Trading is supported by a multi-asset pool, in the form of GLP, that earns liquidity providers fees from market making, swap fees and leverage trading.

Source: DeFiLlama GLP dashboard.

‍What is GLP?

GLP is a multi-asset liquidity pool used for swaps and leverage trading. Liquidity is added when users mint GMX Liquidity Provider Tokens (GLP) using any index asset. It consists of 50-55% stablecoins, 25% ETH, 20% BTC, and 5-10% other altcoins. GLP holders earn 70% of the platform fees, distributed in $ETH. Over the last year, the APR has been roughly 25% on average. Hello real yield.

Why trade GLP rates?

As evidenced in the DeFiLlama GLP dashboard above, GLP yield is quite volatile. The rate has been as high as 50% to as low as 8% in just the last three months. The more volatile rates are, the more opportunities arise for both Fixed Takers and Variable Takers on Voltz Protocol. Let’s walk through a few examples.

  1. Fixing your GLP yield: If you’re a GLP holder you’re guaranteed to earn the variable yield. However, as outlined above, this can be quite volatile and instead you may want to fix this to have a guaranteed source of real yield. To do this, you could enter a FT position on Voltz Protocol, which means you pay out the variable rate (which you’re always going to earn as a GLP holder) and in return lock in a fixed rate. This synthetically converts your variable GLP yield into a fixed rate.
  2. Signal-Based Directional Trading: Another example might be taking a directional view of volatility in the market as a whole. The less trading on GMX, the less fees, and therefore less yield. Trading volume in late December was ~$40m on average, resulting in yields less than 10%. And vice versa, as we saw volumes spike in the second half of January resulting in yields of ~35%. Just as one can take a long or short view on an asset's price, now one can take a view on whether momentum is fading or gaining steam.
  3. Create Structured Products: Lastly, since GLP yield is in ETH, the collateral posted for margin on Voltz protocol will be ETH as well. Rather than staking one’s ETH for 4-5%, why not use that ETH on GMX to earn a yield of up to 35%? At this point, if you were to fix the yield you’d have a guaranteed income stream in ETH that you could do alternative strategies with - such as buying or selling ETH options. At this point you’d be changing the return profile and have effectively created an ETH structured product…

These are but a few examples. The launch of the GLP market to swap rates comes at a time when the GMX community debated whether a “smoothing” of the GLP yield would be beneficial to GLP holders. A proposal was voted on this week to determine whether to launch the “Yield Stabilization Rate” in order to “create stability and help smooth out volatility in GLP fee distribution.” The results: 60% voted against, and 40% voted in favor of stability. Now there is a new venue for the community to trade for or against stability on Voltz!

How do I get exposure on Voltz protocol?

Voltz protocol allows you to trade these rates, with leverage, by exchanging a variable rate for a fixed rate, or vice versa. We describe each side of the market as Fixed Takers (FTs) and Variable Takers (VTs). Let’s walk through an example trade. We’ll consider a trader from the community who, despite not getting his way in voting in favor of the Yield Stabilization Rate, now wants a fixed rate in these uncertain market conditions on Voltz protocol. Because they want to exchange a variable rate for a fixed rate, this makes them a Fixed Taker, or FT. 

Step 1: Find the GMX/GLP-ETH pool

A trader can pick their desired pool by clicking TRADE. They’ll then see the swap module for their chosen pool. 

Step 2: Choose a FT position

To enter a FT position, they’d select FIXED and watch the page morph. Notice that this pool comes to maturity on 15th March 2023. It can be auto-rolled over at the end of the term based on the trader’s preference.

Step 3: Input the desired notional and margin

Now it’s time to determine the level of leverage by inputting notional and margin amounts. Traders can increase the LEVERAGE to decrease the margin required. The higher the leverage the higher the risk of liquidation as determined by the Risk Engine, but also the higher the potential return should the trader be in-the-money.

All that’s left to do is to click TRADE FIXED RATE and approve the transaction! Traders can then monitor and edit their position on their portfolio page.

There are many more strategies for trading rates on Voltz Protocol. Stay tuned to the Voltz Labs Twitter for more swap strategies and the latest IRS alpha!