GMX has cemented itself as one of the leading perpetual decentralized exchanges (perpetual DEXes) on Arbitrum and Avalanche. Its unique liquidity model—where LPs earn fees from traders’ losses and leverage—has attracted billions in total value locked (TVL). In 2026, with the introduction of GMX V2 (also known as GMX 2.0 or simply GM Pools), liquidity providers have two distinct ways to participate: the original GLP pool and the new isolated GM Pools. This comprehensive guide dissects both, comparing real returns, risk exposures, and helping you decide which pool aligns with your DeFi strategy.
Whether you’re a seasoned DeFi farmer or a newcomer looking to earn yield from the growing perpetuals market, understanding the mechanics behind GLP and GM Pools is essential. We’ll cover how each pool generates yield, the role of trader PnL, token emissions, volatility impacts, and the often‑overlooked risks that can eat into your returns.
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📋 Table of Contents
- 1. What Is GMX and Why Its Liquidity Pools Matter
- 2. GLP Pool Deep Dive (GMX V1)
- 3. GM Pools Deep Dive (GMX V2)
- 4. GLP vs GM Pools: Side‑by‑Side Comparison
- 5. Where Does Yield Really Come From?
- 6. Comprehensive Risk Analysis
- 7. Step‑by‑Step: Providing Liquidity on GMX
- 8. Case Studies: Returns in Bull vs Bear Markets
- 9. Tax Implications for Liquidity Providers
- 10. Frequently Asked Questions
- 11. Conclusion: Which Pool Is Right for You?
What Is GMX and Why Its Liquidity Pools Matter
GMX is a decentralized perpetual exchange that allows traders to open long or short positions with up to 30x leverage, using a unique multi-asset liquidity pool. Unlike order‑book exchanges, GMX uses a “synthetic AMM” model where liquidity providers (LPs) collectively act as the counterparty to traders. When traders profit, LPs lose; when traders lose, LPs gain. This dynamic creates a yield that is directly correlated with trader losses and funding fees.
💡 Why GMX Liquidity Pools Are Popular in 2026:
- High Yield Potential: Historically, GLP has offered 15–30% APY, partly boosted by GMX token emissions.
- Trader Volume: GMX consistently processes billions in monthly volume, generating substantial fees.
- Dual‑Chain Presence: Available on Arbitrum (low fees) and Avalanche (fast finality).
- Evolving Product: GMX V2 introduces isolated pools, allowing LPs to choose specific asset exposures.
GLP Pool Deep Dive (GMX V1)
GLP (GMX Liquidity Provider token) is the original liquidity pool. It is a basket of assets (e.g., ETH, BTC, USDC, USDT, DAI, and others) that LPs deposit. In return, they receive GLP tokens, which represent a proportional share of the entire pool. The price of GLP is determined by the total value of assets in the pool divided by the number of GLP outstanding.
GLP Pool Composition & Mechanics
Multi‑AssetThe GLP pool typically consists of a mix of stablecoins and volatile assets. The exact weights change based on minting and redeeming activity. When users mint GLP with USDC, the pool buys more volatile assets to maintain balance; when they redeem GLP, the pool sells assets for USDC. This dynamic ensures that LPs are always exposed to a diversified basket.
📊 Historical Yield (2024–2026):
Average APY: 18–25% (includes fee distribution + esGMX rewards).
Best months: Up to 40% during high volatility and heavy trader losses.
Worst months: Down to 8% when traders are profitable and volume is low.
GM Pools Deep Dive (GMX V2)
GMX V2 introduced isolated, single‑asset pools called “GM Pools”. Instead of a single basket, LPs can provide liquidity in specific assets (e.g., an ETH GM Pool, a USDC GM Pool). Each pool has its own risk profile and yield. Traders can borrow against these pools to open positions, paying funding fees and borrowing fees that flow directly to the LPs of that specific pool.
GM Pools: Isolated Liquidity
Single‑AssetGM Pools allow LPs to choose exactly which asset they want to provide. For example, you can deposit only ETH into the ETH GM Pool and earn fees from ETH‑denominated trading pairs. This isolation means you are not exposed to the performance of other assets in the basket. It also means that if traders heavily short ETH and profit, your pool bears that loss directly.
📊 Case Study: ETH GM Pool (Q4 2025)
During Q4 2025, ETH volatility surged. The ETH GM Pool saw average funding rates of 0.02% per hour, translating to an annualized fee yield of over 35%. However, a sharp rally caused many short traders to be liquidated, adding to LP profits. Conversely, a prolonged period of profitable long traders would have reduced returns.
GLP vs GM Pools: Side‑by‑Side Comparison
| Feature | GLP (V1) | GM Pools (V2) |
|---|---|---|
| Asset Exposure | Diversified basket (multiple assets) | Single asset per pool |
| Risk Profile | Spread risk – losses from any traded pair are socialized | Isolated risk – you only lose if that specific asset’s traders win |
| Yield Sources | Trader losses (all pairs), funding fees, esGMX emissions | Borrowing fees + funding fees from that asset’s markets, esGMX emissions |
| Volatility Impact | Muted – because basket diversifies single‑asset shocks | Direct – high volatility can drastically increase or decrease returns |
| Capital Efficiency | Lower – capital is spread across many assets | Higher – concentrated liquidity for specific pairs |
| Withdrawal / Entry | Mint/burn GLP via the pool; may incur slippage | Direct deposit/withdraw of the asset; generally lower slippage |
| Best For | LPs wanting diversified exposure and lower volatility in returns | LPs with a strong view on a specific asset and its trading dynamics |
Where Does Yield Really Come From?
Both GLP and GM Pools generate yield from three primary sources:
- Borrowing Fees: Traders pay a small fee (typically 0.1% of position size) to open a position. This fee is distributed to LPs.
- Funding Fees: Perpetual contracts use funding rates to keep prices aligned with the underlying index. When funding is positive, long positions pay shorts, and vice versa. On GMX, these payments flow to LPs, not between traders. So LPs effectively collect the funding rate from whichever side is paying.
- Trader PnL: The most unique aspect: when traders lose money, that loss is added to the pool’s value. When traders win, the pool pays them. Over time, the average trader is unprofitable, so LPs tend to benefit from the “house edge”.
📈 2026 Yield Decomposition (Estimates):
- 50–60% from trader losses (including liquidations)
- 20–30% from funding fees
- 10–20% from borrowing fees
- Plus esGMX token rewards (can be 30–50% of base yield, vested)
Comprehensive Risk Analysis
⚠️ Critical Risks for GMX Liquidity Providers
- Trader Win Streaks: If a group of skilled traders consistently profits, LPs can experience negative returns (the “trader PnL” risk).
- Smart Contract Risk: Despite multiple audits, GMX contracts could contain vulnerabilities. In 2026, exploit attempts remain common.
- Oracle Risk: GMX uses Chainlink oracles; any manipulation or stale prices could lead to losses.
- Impermanent Loss (GM Pools): For volatile assets, providing liquidity in a single‑asset pool can lead to IL if you later convert back to stablecoins, because you are essentially long that asset.
- Emissions Dependency: A significant portion of yield comes from GMX token emissions. If the token price drops, the real value of those rewards diminishes.
- Regulatory Uncertainty: DeFi perpetuals may face increased scrutiny; future regulations could impact GMX’s accessibility.
GLP‑Specific Risks
The GLP pool has a “depeg” risk: if one of the stablecoins in the basket depegs, the entire pool suffers. Also, because the pool automatically rebalances when users mint/redeem, LPs may be forced to hold assets they wouldn’t choose individually.
GM Pool‑Specific Risks
GM Pools concentrate risk. If you deposit ETH, you are 100% exposed to ETH price fluctuations. Additionally, if ETH traders become overwhelmingly profitable, your pool could suffer large losses. On the flip side, if ETH traders are wrong, your yield could spike.
Step‑by‑Step: Providing Liquidity on GMX
Choose Your Platform
Go to GMX.io (Arbitrum or Avalanche). Ensure you have the appropriate network added to your wallet and some native gas token (ETH or AVAX).
Decide: GLP or GM Pool
If you want diversified exposure, choose “Earn” → “GLP”. For isolated pools, choose “GM Pools” and select the asset you want to provide.
Deposit Assets
For GLP, you can deposit with any supported asset (usually USDC is simplest). The protocol will convert it into the basket. For GM Pools, you must deposit the exact asset of that pool.
Stake for esGMX Rewards (Optional)
After depositing, you can stake your LP tokens to earn escrowed GMX, which vests over time. This boosts yield but adds complexity.
Monitor and Reinvest
Returns accumulate in real time. You can harvest fees and reinvest, or simply let them compound. Be aware of gas costs when performing multiple transactions.
Case Studies: Returns in Bull vs Bear Markets
Bull Market Scenario (Q1 2026)
With crypto prices rising, many traders open long positions. Funding rates turn positive (longs pay shorts). On GMX, LPs collect these positive funding payments, but they also face potential losses if long traders profit. In Q1 2026, ETH rose 40% while many longs took profits. GLP LPs saw moderate yield (15% APY) because diversified assets absorbed some shocks. ETH GM Pool LPs, however, experienced higher volatility: they collected high funding fees (30% APY) but also saw the value of their ETH deposit increase—a double benefit. However, if they had redeemed at the peak, they’d have substantial gains.
Bear Market Scenario (Late 2025)
During a downtrend, shorts become profitable. Funding flips negative (shorts pay longs). On GMX, LPs collect negative funding (i.e., they receive payments from short traders). But if prices fall sharply, long traders get liquidated, and those liquidations add to LP profits. In late 2025, a 30% market drop caused massive long liquidations. GLP LPs enjoyed APYs spiking to 40% as liquidations poured in. GM Pool LPs in stablecoin pools saw steady but lower yields, while ETH GM Pool LPs suffered a drop in ETH value but were compensated by high funding and liquidation fees, nearly offsetting the price decline.
Tax Implications for Liquidity Providers
Providing liquidity on GMX triggers several taxable events depending on your jurisdiction. In the US, the IRS treats crypto activities as property transactions.
- Depositing assets: Usually not a taxable event if it’s a transfer to a smart contract (but consult a tax professional).
- Receiving fees: Fees distributed in ETH, stablecoins, or other tokens are considered income at their fair market value when received.
- esGMX rewards: When you claim or vest esGMX, it becomes taxable income at the market price at that time.
- Withdrawing: Selling GLP or GM LP tokens back into the underlying asset is a disposal, triggering capital gains/losses.
- Impermanent Loss: Not a direct tax concept, but it affects your cost basis when you eventually exit.
Always keep detailed records and consult a tax professional familiar with DeFi.
Frequently Asked Questions
GLP is generally more beginner‑friendly because it offers diversified exposure. You don’t need to predict which asset will generate the most yield. GM Pools require a deeper understanding of each asset’s trading dynamics and volatility.
Fees accrue in real time. The value of your LP token increases continuously as fees are collected. You can “harvest” by selling the token or simply hold to benefit from the rising price.
esGMX is escrowed GMX that can be staked for more rewards or vested into GMX over a period (usually 12 months). It effectively boosts APY but introduces a time‑lock and token‑price risk. Many LPs consider esGMX as part of their yield, but its real value depends on GMX’s market price.
Yes. If traders collectively profit, the pool’s value decreases. In extreme scenarios (e.g., a sustained period of highly profitable traders), LPs can experience a net loss. Additionally, smart‑contract hacks or depegs could lead to total loss.
Historically, Arbitrum has higher volume due to lower fees and greater DeFi composability, often leading to slightly better yields. However, Avalanche sometimes offers incentives. Check current APYs on the GMX dashboard before depositing.
Conclusion: Which Pool Is Right for You?
Choosing between GLP and GM Pools ultimately depends on your risk tolerance and market view. If you prefer a diversified, “set‑and‑forget” approach and believe that overall trader losses will outpace gains, GLP is a solid choice. If you have a strong conviction about a specific asset’s trading dynamics and are comfortable with concentrated risk, GM Pools can offer higher yields – but also higher volatility.
In 2026, GMX remains a cornerstone of the perp‑DEX landscape. Both pools have proven resilient across market cycles, but as with any DeFi protocol, due diligence and continuous monitoring are essential. Consider allocating only a portion of your portfolio to these strategies, and always stay informed about protocol upgrades and market conditions.
🚀 Ready to start?
Head over to GMX and explore the pools. For a deeper dive into DeFi risks, check out our DeFi Risk Management Guide.