Open Interest on GMX
Longing: Users can open a long position using the vault. e.g. to open a long, a user can deposit 1 ETH into the vault and open a position of $25,000, if the price of ETH at the time of opening the position is $5000, then this would be a 5x long position. To ensure the vault has sufficient funds to pay out any profits, an amount of ETH equivalent to the position’s size is marked as reserved, for this position, 5 ETH in the vault would be reserved.
Today I want to look at GMX’s open interest data. You are probably already familiar with the term open interest from tradFi or centralized exchanges, but open interest on GMX is a little different. On GMX, all assets, including GLP providers’ assets and traders’ collaterals, are placed in a vault. When a user opens a trade, it doesn’t need another user to take the opposite side because the vault serves as the counterparty. The following table summarizes the difference:
In the example given by the quote above, 1 ETH flows into the vault and an open interest of $25,000 is created. Similarly, if another trader deposits 5000 USDC and opens a 5x short position of $25,000, 5000 USDC will flow into the vault and the open interest will increase by $25,000 to $50,000. So rising open interest indicates new and more money is trading on GMX, while a decrease means traders’ money is leaving. Let’s chart it out and see if trading has been increasing or decreasing on GMX.
Hmm…, it seems open interest has been rising and falling without any obvious trend. Is it right? No, not really; these charts are misleading. This is because the open interest numbers are in USD, which are calculated using the price of the collateral tokens at the time of position opening. Therefore they are subject to price fluctuation. To correctly measure trading activities, we need to remove price from open interest to get the number of open positions1. Let’s save some effort and simply divide the open interest numbers by BTC prices. This gives us a proxy to the number of open positions. Let’s plot it.
It’s clear that trading activities have been increasing over time on both platforms. The slope for Arbitrum is 3.8 times that of Avalanche, indicating the speed of growth is 3 times faster on Arbitrum. More trading means more fees for GLP providers and GMX stakers. While this is all good, you may wonder if increased trading puts pressure on GLP assets since if traders collectively won big at the same time, GLP assets would be depleted. To find it out, I divided open interest by GLP value to get a percentage and plot it over time.
We see at the moment, open interest is less than 20% of GLP value, suggesting there are more than enough GLP assets to carry the trading load. Can trading growth outpace GLP growth? I hope so, otherwise, GLP yield will keep getting diluted. Finally let’s look at shorts vs. longs.
While both platforms have more long-dominated days, it is interesting to see Avalanche has twice as many short-dominated days as Arbitrum. Also, in terms of USD magnitude, short-to-long can go as high as 4 to 1 on Avalanche while only 2.5 to 1 on Arbitrum.
This is it for today. Thanks for reading and enjoy GMX’s green candles.
Data & Code
Arbitrum Data (2021-08-31 ~ 2022-08-02) and Python Notebook
Avalanche Data (2022-01-06 ~ 2022-08-02) and Python Notebook
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This is precisely the definition of open interest from CEX that operates on order book. Number of open contracts. Not USD.