GMX's Arbitrum Incentive Program: V2 Liquidity rise and Long-Short Imbalance Issues

Recently, a perpetual contract trading platform launched a Short-Term Incentive Program (STIP) on the Arbitrum network, supported by 12 million ARB tokens. This funding is primarily used to promote the development of the platform's V2 version and the joint growth of the Arbitrum DeFi ecosystem. This article will analyze the effects of this incentive program nearly 10 days after its implementation, focusing on the changes in liquidity of the V2 version and the achievement of the long-short balance target.

Main Uses of the Incentive Program

The platform will distribute these 12 million ARB tokens over 12 weeks, mainly for the following purposes:

1. Incentive V2 version perpetual contracts and spot liquidity providers
2. Encourage users to transfer from the V1 version of the Liquidity pool to the V2 version.
3. Subsidize transaction fees, reducing to an average of 0.02%
4. Sponsor projects developed on the V2 version

Through these measures, the platform aims to enhance its competitiveness, particularly in terms of fees, competing with centralized exchanges. At the same time, the high capital efficiency of the V2 version is expected to strengthen the overall strength of the platform.

Liquidity change analysis

As of November 17, the Arbitrum incentive program on the platform has been running for nearly 10 days. Overall, the combined Liquidity of the V1 and V2 versions has risen from $496 million on November 8 to $528 million, an increase of 6.45%. Specifically:

• The liquidity of version V1 decreased from 400 million dollars to 364 million dollars, a decline of 9%.
• The liquidity of V2 version rose from $96.77 million to $164 million, an increase of 69.5%.

Although the overall liquidity rise is not significant, the notable growth of the V2 version still has positive implications. However, it is worth noting that the increase in V2 liquidity is mainly concentrated in the first two days after the incentive program started, after which the growth rate has clearly slowed down.

Changes in Open Interest and Trading Volume

The changes in open interest and trading volume are relatively volatile:

• The open interest rose from $152 million on November 8 to $182 million on November 13, and then decreased to $137 million on November 17.
• Trading volume is greatly affected by market fluctuations, reaching a peak of $555 million on November 9 and $365 million on November 16.

Recently, the trading volume of version V1 is still higher than that of version V2.

Long-Short Balance Issues

The V2 version attempts to introduce arbitrageurs through a fee adjustment mechanism to achieve long and short balance, reducing the risks for liquidity providers. However, there are still significant long and short imbalances in some trading pairs.

• The total long open interest for the V2 version is 51.66 million dollars, and the short is 28.67 million dollars.
• Long positions for certain assets (such as SOL, DOGE, XRP) have reached their limits, with a significant difference in the long-short ratio.

Taking the XRP/USD trading pair as an example, although the fee settings seem to provide arbitrage opportunities for short sellers, in reality, due to the limited number of short positions, the arbitrage space may not be as large as expected. This may be one of the reasons for the continued imbalance between long and short positions.

Conclusion

The Arbitrum incentive program of this perpetual contract trading platform did indeed promote a significant rise in liquidity for the V2 version during its initial phase. However, this growth momentum has not persisted, and the open interest and trading volume have not shown significant increases. At the same time, the goal of long-short balance has not been fully achieved, and some trading pairs still face serious long-short imbalance issues.

For liquidity providers, although some liquidity pools offer higher annualized returns, they may face higher risks due to the trading targets including some volatile small-cap cryptocurrencies. In the future, how the platform continues to attract liquidity and improve the long-short balance will be a key challenge.