In a recent blog post, cryptocurrency legend and former BitMEX CEO Arthur Hayes mentioned that he has sizable pockets of GMX and LOOKS tokens. According to Hayes, the main reason for him to invest in both tokens was the revenue from his platform and the potential for both assets to outperform standard Treasury bills.
Let’s take a quick look at the on-chain data and compare GMX and LOOKS to the competition to see if Arthur’s assumption will work.
GMX usage cools off after strong November
The week leading up to November 16 provided decentralized finance (DeFi) with a significant fee entry after the centralized exchange (CEX) exodus sparked by the FTX bankruptcy. High temporary inflows to DeFi prompted GMX to overtake Uniswap on protocol fees.
On Nov. 28, GMX earned around $1.15 million in daily trading fees, which surpassed Uniswap’s $1.06 million in same-day trading fees.
While GMX usage may be declining, the token is outperforming the industry. The GMX token is only 8% away from an all-time high after gaining 59% in the last 30 days.
Since Uniswap is the closest competitor to GMX, a comparison of the two protocols can show which users prefer to use for trading. Aside from November 28, when the fee change was noted, Uniswap continues to outperform GMX in terms of fee revenue and daily active users. Unlike Uniswap, GMX distributes fees to participants from various GMX and GLP tokens.
The 90-day peak for Uniswap fees is $5.9 million, while the maximum for GMX daily fees is just $1.4 million. The large difference in maximum fees may show that GMX has reached its capacity when it comes to using the platform.
The fees that GMX accrues are split 30% for GMX token holders and 70% for GLP holders. The current GMX home page cites that the estimated APY on GMX tokens is around 10% and for GLP tokens 20%. While GLP would fit Hayes’ 20% annual return target, liquidity providers are susceptible to impairment losses and price declines, making it difficult to ensure success against the conservative Treasury bill strategy.
The use of OpenSea continues to dominate LooksRare
LooksRare, which is also the home of the LOOKS token, was also mentioned by Hayes due to the fees the NFT protocol earns. To date, NFT marketplaces, including Coinbase, have struggled to undermine OpenSea’s market dominance.
While OpenSea seems to have a natural flow of daily active users between 35,000 and 50,000, LooksRare has a small range of 350 to 500 users. Using this metric, OpenSea is 100 times larger than LooksRare and the trend doesn’t seem to change over a 90 day period.
Another difference between the two protocols is that OpenSea does not have a token that issues rewards through inflationary staking and minting. The issuance of rewards may hit Hayes’ 20% target, but it should also be noted that LooksRare is notorious for wash trading. The main goal of these wash traders is to get more LOOKS tokens, but this could have the effect of diluting the price.
The recently announced UniSwap NFT aggregator could help drive LooksRare to more “authentic” transactions, as users can buy LooksRare NFTs without ever visiting the site.
The current fee distribution is highly concentrated in OpenSea. Over the past 90 days, OpenSea has peaked at $2.5 million in daily fees, while during the same period LooksRare has only earned over $200,000 in daily fees once.
Researching the basics of the protocol mentioned by Hayes is an important first step when considering investing in DeFi and altcoin. Looking at the competitive landscape for both LooksRare and GMX, it would take a lot more adoption for either protocol to overtake the current leaders. Furthermore, the 20% target that Hayes sets could be overstated when looking at inflated issues and token prices.
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