All You Need to Know About HMX（HMX）

Introduction

The perpetual contract market is the largest product in the derivatives market, and it has become increasingly popular in the cryptocurrency industry. With the rise of decentralized exchanges and the expansion of the on-chain trading market, decentralized perpetual contract platforms have been gaining more users and funds.

dYdX has emerged as a leader in the decentralized perpetual contract market, thanks to its user-friendly interface, ample liquidity support from market makers, trading mining incentives, and the migration to the Cosmos ecosystem. Recently, the rise of GMX in a bearish market has sparked a new wave of development in the decentralized perpetual contract market and triggered the “Real Yield” battle among derivative protocols. Gains Network, Kwenta, MUX Protocol, HMX, and other derivative protocols are constantly innovating and competing for market share in terms of their economic models and product mechanisms, making the landscape of this market segment highly competitive and dynamic.

The development of perpetual contract trading platforms has been limited by the high gas fees and underlying performance constraints of the Ethereum network. However, with the continuous improvement of Layer 2 infrastructure, more perpetual contract platforms are choosing to build on Layer 2 solutions. Currently, Arbitrum is the most prosperous Layer 2 solution for decentralized perpetual contract trading platforms. According to the size of the total value locked (TVL), the ranking is as follows: GMX, MUX Protocol, Gains Network, and HMX. Since its launch, HMX has significantly increased its market share. This article will provide a detailed analysis of HMX’s product mechanisms, tokenomics, and current development status.

Overview of HMX

Originally known as Perp88, HMX was initially deployed on Polygon and later rebranded as HMX on the Arbitrum mainnet on July 1, 2023.

HMX is a decentralized perpetual contract trading platform built on the GMX protocol. It adopts a leveraged market-making approach similar to traditional perpetual contract trading platforms. The protocol introduces its own liquidity fund called the HLP Vault, which consists of 95% GLP and 5% USDC. GLP is an index token combination launched by GMX, similar to ETFs in traditional finance. Users can obtain GLP tokens by depositing funds into the GMX liquidity pool, and GLP holders serve as liquidity providers and counterparties for perpetual contract trading on GMX. By depositing GLP tokens from GMX into the HLP Vault, users can obtain HLP tokens, which means they can provide liquidity on both GMX and HMX, enabling them to earn double rewards through “leveraged market-making.”

In addition to supporting cryptocurrency perpetual contract trading, the protocol also supports forex, stocks, and commodities trading. It also allows for full-margin trading, with cryptocurrency leverage of up to 100x and forex leverage of up to 1,000x. Since its launch on Arbitrum, the protocol has experienced rapid growth in locked assets and has shown promising development.

Operating Logic

The HMX system essentially involves a trading process where both long and short parties engage in a game with liquidity providers (LPs). Similar to the traditional perpetual contract market, when traders incur losses, LPs make profits, and vice versa.

Image source: https://hmx.org/arbitrum/liquidity

HMX is a contract DEX built on top of the GMX protocol, which is the largest perpetual contract trading platform on Arbitrum. Users can obtain GLP by providing liquidity to GMX. The entire operation mechanism of HMX revolves around the liquidity pool called HLP Vault. Users deposit GLP as liquidity assets into HMX to receive HLP. HLP represents users’ collateral pledged to GMX, which can be withdrawn and paid to profitable users when needed. HMX operates similar to GMX in terms of overall mechanism and can be seen as a replica of GMX. The specific mechanism is as follows:

Image Source: https://docs.hmx.org/hmx/about-hmx-protocol/our-products/leveraged-market-making-hlp-vault

As shown in the above diagram, the operating mechanism of HMX includes the following steps: (1) LPs deposit assets into GMX to obtain GLP; (2) LPs deposit GLP into the HLP Vault to receive HLP; (3) HMX utilizes the pledged GLP for market-making on GMX and earns market-making profits; (4) When needed, HMX redeems the GLP used for market-making on GMX, and 65% of the market-making profits are converted into USDC and paid to LPs; (5) HMX charges fees to traders on its platform and earns ETH revenue from GMX, which is distributed to LPs along with esHMX as rewards.

In this mechanism, as it amplifies the profits of GMX users, users can earn 100% profits from GMX and additional profits from HMX, making it attractive for most GMX users to join the HMX platform.

Trading Mechanism

For users trading contracts on HMX, the key features of the HMX collateral management are full collateral and multi-asset collateral support.

HMX provides full collateral, allowing traders to share the available margin balance across multiple positions. This improves capital efficiency compared to platforms that only support isolated margin but also requires users to effectively manage their risks.

Image Source: https://hmx.org/arbitrum/trade/eth-usd

Currently, HMX supports 10 different assets, as shown in the table below. The protocol assigns different collateral value ratios to each asset, meaning that the borrowing limits, liquidation thresholds, and health factors for open positions vary across different assets.

Image Source: https://docs.hmx.org/hmx/about-hmx-protocol/our-products/leveraged-trading-cross-margin-multi-collateral-management

HMX uses an account abstraction mechanism, allowing users to easily execute trades by entering a four-digit passcode, without the need for strict approval of each transaction on Metamask. This makes trading more convenient and eliminates delays.

Tokenomic Model

The HMX ecosystem consists of five tokens: HMX, HLP, esHMX, DP, and TLC, with HMX being the native token.

HMX, the native token of the protocol, is primarily used for governance and staking, capturing 25% of the protocol’s fee revenue. HMX has a total supply of 10 million tokens, with 40% allocated for community incentives, including early tasks and trading incentives, and 25.6% allocated for the ecosystem fund. Additionally, 5% is dedicated to HLP liquidity incentives, 8% for public funding, 6.4% for private funding, and 15% allocated to the team. The detailed allocation plan is as follows:

Image source: https://docs.hmx.org/hmx/tokenomics/hmx-token

It is evident that the project emphasizes community development, with the 40% allocation for community incentives being distributed over four years and all community rewards being distributed in the form of esHMX. The token unlocking schedule for HMX is illustrated in the following graph:

Image source: https://docs.hmx.org/hmx/tokenomics/hmx-token

HLP is the liquidity provider token, with each HLP representing ownership of the HLP Vault, the liquidity pool. Staking HLP allows participants to receive 65% of the protocol’s fee revenue, as well as earnings from esHMX and GMX fees.

esHMX represents custodied HMX and is distributed as an incentive to HMX, esHMX, and HLP stakers, aiming to protect the interests of HMX holders.

DP tokens incentivize long-term HMX holders to prevent inflation. Users can earn DP by staking HMX or esHMX, thereby gaining a share of the protocol’s revenue.

TLC serves as a trading voucher for users on the HMX platform, with the quantity of TLC obtained determined by the value of the assets traded. Users receive a minimum of one TLC for every $1 traded. HMX distributes esHMX rewards to traders based on their TLC holdings, which is part of the trading mining activity. The following chart shows the number of TLC obtained per $1 of traded assets:

Image Source：https://docs.hmx.org/hmx/tokenomics/other-platform-tokens

Current Development

Currently, HMX is deployed on both the Polygon and Arbitrum networks. Since its launch on Arbitrum, the total locked value has increased rapidly, growing by more than ten times in just one month. The total locked value on Arbitrum is currently close to $30 million, with the total value in the HLP asset pool exceeding $26 million.

Image source: https://defillama.com/protocol/hmx

Image source: https://hmx.org/arbitrum

HMX trading volume has been steadily increasing, with a total trading volume exceeding $7 billion. The daily trading volume is currently around $110 million. The platform supports cryptocurrency trading, forex trading, and commodity trading, with forex trading accounting for over 30% of the total trading volume.

Image source: https://dune.com/hmxintern/hmx-analytics

Image source: https://dune.com/hmxintern/hmx-analytics

The number of HMX users has surpassed 5,000, with the highest daily increase in August 2023 exceeding 300 users.

Image source: https://dune.com/hmxintern/hmx-analytics

Conclusion

HMX is a decentralized perpetual contract trading platform that offers multi-asset collateral and full-margin support. It supports cryptocurrency, forex, and commodity trading, expanding its user base. The overall mechanism of the product is built on the GMX protocol, allowing users to deposit the liquidity token GLP from GMX into HMX to earn higher returns. Leveraged market-making is its key selling point.

Despite being in a bear market, HMX has performed well and has experienced rapid growth since its launching on Arbitrum. It has established itself as one of the top players in the industry. Given the evolving trends in the decentralized perpetual contract market and the strong fundamentals of HMX, it has significant potential for future development.