- vaults are suites of trustless defi strategies to generate delta-minimized returns on $GLP assets (gmx's lp token, which receives 70% of gmx's fee revenue).
- vaults can provide liquidity on gmx to collect yield from $GLP. they are also the counterparty to margin traders (benefiting from trader losses).
- vault should be backtested against months of real-world market data (including edge cases), usually with a baseline such as a standalone usdc vault
- hedges are algorithmically rebalanced at regular intervals. hedging on gmx incurs fees for minting and burning of $GLP, opening and closing positions, and funding for open interest.
- delta neutral strategies offset volatility so that GLP owners win yields while also not having to worry about price changes.
- this is usally achieved with shorting its underlying assets or hedging the positions, and the positions must be constantly changed based on the weight of the assets.
- the first component of a pool are the available assets, which are the vault assets minus reserved assets (assets set aside to cover longs).
- by covering longs, a reserved $BTC that would move with $BTC is used to cover a long position by surrendering all the upside gains to the counterparty (but also taking all collaterals of the counterparty when the price of $BTC goes down).
- conversely, a short against the pool becomes a synthetic long as its credit gains to the pool when the price goes up (but takes money from the pool when the price goes down).
- hedging $GLP means taking short positions, either on GMX or on a CEX. The short pays when the directional asset goes down, and loses when the opposite happens.
- the spread of hedged $GLP over $ETH is a good measure of $GLP's performance, and why a hedged strategy might be a better holding strategy that minimises volatility.