Why is there a lukewarm market response to the launch of GMX V2? A brief discussion on the ‘midlife crisis’ of Perp DEXs.

Analyzing the lackluster market reaction to GMX V2 launch and the midlife crisis of Perp DEXs.

GMX V2 launched its mainnet with a tepid market response, reflecting the current bottleneck period for the Perp DEX track. This article will analyze the current situation, growth challenges, and reasons for the Perp DEX track, as well as look ahead to the solutions and future development of this track.

Overall, the trading volume of the Perp DEX track is about 60% of the peak period three months ago. However, the decline in fee income and the number of users is more significant. The number of daily active users (DAU) is only about 30% of the peak period, which is similar to the peak gmx. The trading volume data also heavily relies on token incentives. Unlike the previous growth of GMX/GNS based on real user behavior, the impact of trading incentives in this track can no longer be ignored.

For example, Kwenta (the trading frontend for SNX), which continues to occupy the first place in trading volume, benefits to a large extent from trading incentives, including Op grants of 300k op to SNX every week, 30k op to Kwenta, and the issuance of $Kwenta. This is a huge amount of nearly 600k US dollars per week. Another SNX frontend, Polynomial, has also seen impressive growth recently for the same reason – using Op grants for trading incentives. Even the Super Jun can’t help but marvel at the generosity of SNX’s dividend distribution, which cannot be separated from the silent support of the OP community.

Trading incentives have brought about the growth in trading volume. Whether it’s Kwenta, which directly issues trading incentives, or Vertex, which has airdrop expectations, they take turns being the top in terms of trading volume, almost three times that of GMX. However, when looking at the number of active addresses, it is only about 1/3, and it is unknown how many users will be left after excluding those who are incentivized to trade.

Why can’t trading incentives attract real users? This is because professional teams can push the trading volume to a very high level, resulting in a low average incentive level. For example, the trading incentives and fee income of the SNX system are very close, making it difficult for retail investors to benefit much from trading here, thus making it difficult to attract a large number of real users to migrate.

Since real users cannot be attracted, natural and benign growth cannot be achieved. Just like those Dapps that no one uses, tokens have become the most important product. When the market is good, everyone looks at the data and shouts orders, but when the tide recedes, they can only swim naked.

This still stems from the dilemma of identifying “real users on the chain”. If each address is considered as one user, it will be similar to the current L1/L2, where users are mainly bots and studios. The difference is that the market has sustainable profit expectations for Perp DEX, which relies on “real income”. If these expectations are not met, the price can only go down rapidly.

If it is not possible to attract users efficiently through transaction incentives, then the only option seems to be improving user experience and lowering entry barriers. After all, the number of Dapp users is only a small fraction compared to the overall number of crypto users. Attracting users from CEX platforms seems to be one way to go. For example, in the recent popular bot track, the user experience of DEX has been greatly improved and the entry barriers have been lowered through the combination of Telegram frontend and hosting mode. Maestro Bot, which does not issue tokens, can still maintain a stable DAU of 3,000.

However, in the bot track, meme and dog tokens currently dominate, and these tokens have short trading cycles and focus on early alpha stages, where CEX platforms naturally have disadvantages. On the other hand, in terms of contract trading dominated by mainstream tokens, DeFi has the advantage over CEX platforms.

Currently, besides the bot track, the usability evolution of DeFi wallets themselves also seems to be a promising direction. For example, improving the trading experience through AA wallet models. But ultimately, this will not be a quick process.

In summary, Perp DEX is currently experiencing a bottleneck in user growth, and transaction incentives account for a large portion of the trading volume. The main problems are inefficient means of growth, unable to exchange real user growth with money, and the inability to quickly reduce user experience and entry barriers. Improving infrastructure such as bots and AA wallets may help address these issues.

These problems are significant and cannot be solved with just GMX V2. Furthermore, from the development of the bot track, it can be seen that the infrastructure layer (Uniswap) may not necessarily have higher actual profitability than the consumer service layer (Unibot). After all, in a situation where the basic mechanisms are homogenized, providing good user service and operations bring in more profits, just like how Bitmex invented perpetual contracts, but the ultimate winner was Binance.