DeFi Yields Surge to Highest Levels in Two Years

DefiLlama’s yield overview page reveals that GMX and protocols built on top of it currently boast four out of the top 10 highest yields among protocols with at least $10 million in deposits.

GMX stands as a decentralized perpetual trading exchange deployed on both the Arbitrum and Avalanche blockchains. Perpetual futures, also known as perps, are derivative contracts allowing traders to speculate on the future value of an asset indefinitely, without an expiration date.

Liquidity providers on GMX V1 are currently enjoying a 35.6% annual percentage yield, while those on GMX V2 are earning between 11.8% and 105.3%. These substantial yields are a result of the surge in perpetual futures trading, with the decentralized derivatives sector achieving an unprecedented weekly volume of $84.5 billion during the week ending March 1.

The weekly volume for decentralised derivative protocols (DefiLlama)

In the first week of March, GMX sustained its momentum by generating over $1 billion in trading volume on March 4, marking its highest daily amount since the collapse of the FTX crypto exchange in November 2022.

Decentralized exchanges like GMX differ from centralized counterparts by not relying on market makers. Instead, they utilize liquidity pools, where users deposit assets for others to trade. GMX V1 employs GLP, a basket of assets including Ether, Bitcoin, LINK, UNI, and stablecoins, exposing users to price fluctuations of the underlying assets. Conversely, GMX V2 uses isolated pools for each asset, giving liquidity providers more control over their exposure.

DeFi yields surge

Combined, GMX V1 and GMX V2 hold over $593 million in deposits. Liquidity providers earn a share of fees paid by traders, with fees on GMX V1 at 0.1% and on GMX V2 ranging from 0.05% to 0.07% of the trade size. Despite the attractive yields, users should be mindful of inherent risks such as smart contract vulnerabilities and potential exploits.

Historical annual percentage yield in DeFi (DefiLlama)

The surge in yields, fueled by protocols like GMX, has propelled the market-wide DeFi yield to its highest level since March 3, 2022, reaching a seven-day average of 5.4%. With decentralized finance experiencing a resurgence and the total value of assets in protocols and volume on decentralized exchanges hitting new highs, the potential for further yield increases remains.

Decentralized derivatives exchanges like GMX, contributing significantly to these yields, show promise for continued growth compared to their centralized counterparts, with decentralized derivative exchanges handling $12 billion in total volume in the last 24 hours, while centralized exchanges managed over $458 billion, according to Rabbitx data.