Partnership Request
GLP is an an index of assets powered by GMX. It is used for for swaps and leverage trading on their platform. This asset is very popular in the Arbitrum ecosystem and in our community due to its relative stable price and the interesting yield proposed by GMX. Its current supply is roughly $250M, which makes GLP an interesting asset to list as collateral for Vesta.
We have seen tons of “Wen GLP?” recently on our social media. Demand for a way to leverage GLP is high. Currently, there is no platform that allows it. Vesta could be the first mover here and attract a substantial amount of GLP, which would increase the total supply of VST. This move would also allow us to promote the GMX vault even more since GLP holders are often GMX holders as well.
A few weeks ago, we mobilzed the collateral GMX in our vaults. We could definitely mobilize the GLP locked in Vesta’s vaults in the future. It would make the user’s assets efficient and provide them with great yield. It would also allow us to attract more and more GLP.
Last but not least, enabling GLP as a collateral on our platform would strengthen our relationship with GMX and its community by a lot. This is non-negligible.
Despite the fact that GLP is mainly composed of centralized USDC, our last temperature check regarding VST exposure to centralized stablecoins indicated the community would not be against it.
First Principle Categorization
Based on our assessment, we can comfortably class GLP as a non-governance, redeemable, mostly centralized high-yield, index token.
Why?
GLP as an asset is very unique, as it is neither a simple governance token, nor a stablecoin designed to hold a certain peg, nor a rebase token with an asset treasury. Rather, GLP serves a unique purpose in another protocol’s system, and thus includes many features not seen in many other tokens. For these reasons, it defies simple categorization.
Despite these caveats, we have still placed it in a number of classes. Firstly, it is clearly not a governance token, that honor belongs to GMX. Secondly, in our view, GLP is redeemable. It is not traded on common DEXes but rather directly redeemed for assets in the GLP pool. The mechanism here seems to be redemption but we did note that the token is only redeemable up to 100% utilization. Thirdly, we believe that GLP is mostly centralized. More than 45% of the assets that make up GLP are centralized stablecoins and the protocol generally has a large degree of control over its composition. The categorization here is a reflection of this, with the important fact that governance still decides much regarding the token. Next, we realize that GLP is natively staked so that trading fees from the GMX platform can accrue correctly. Since its deployment almost exactly a year ago, GLP has maintained APRs consistently above and around 20%. Lastly, GLP is an index token. A rare breed among most of the tokens we have or will look at, we believe that giving this possible collateral this unique designation accurately describes its unique qualities. We dont expect it to have many extremely comparable peers in this category.
Risk Checklist
All information below are accurate as of August 10, 2022. Due to the unique nature of GLP, some items have been adjusted or otherwise deemed as less applicable.
Please see the table on this duplicate proposal: https://www.notion.so/vesta-finance/GLP-Listing-Proposal-10d586c19e6c4dc09154e91c105e3e86
Additional Information
With GLP, we’re identifying three more important risks here. First are oracle bugs that impact the accurate pricing of the token. That is, if the feeds that provide price data to the GLP mechanisms are hacked, compromised, or otherwise malfunction, the token will be priced incorrectly. This is rather different from most assets, as these oracle bugs would occur further up the line; usually oracle bugs will impact the Vesta system directly. Ultimately, this risk is rather unproductive to discuss too much. Vesta uses the same Chainlink Oracles as GLP, so this asset is no more risky than Vesta itself.
Secondly, we believe that changes in the composition of GLP over time may pose a substantial risk to the health of our system. Right now, the index is composed of a number of solid assets in our view, such as ETH or other stablecoins that have held peg well. It is possible that this will change. Another important counter-party risk could manifest in the form of a type of attack that attempts to adjust GLP’s composition to actively attack systems that collateralize it. To mitigate this risk, we will carefully monitor the token’s composition and any imminent changes, supported by RiskDAO and GMX.
Lastly, we are also looking into possible times where GLP enters high degrees of utilization by the protocol. When this happens, the token will become unredeemable and thus cause users to become stuck until utilization returns to more normal values. We’re also trying to reduce the chance that this impacts our system by monitoring utilization, supported by our partners.
All of the information in this proposal is only the start of a broader conversation that can comprehensively identify and mitigate all the risks of onboarding GLP. Everything mentioned here is hardly conclusive, and you are welcomed to provide any further information you may have!