The on-chain derivatives sector stands as one of the most dynamic and competitive segments within decentralized finance (DeFi). With dozens of protocols already live and many more on the horizon, selecting the most promising platforms requires a thorough understanding of key performance indicators, revenue models, and long-term sustainability. This article analyzes six leading on-chain derivatives protocols—GMX, Synthetix, Gains Network, Perpetual Protocol, Level Finance, and MUX Protocol—comparing critical metrics such as total value locked (TVL), trading volume, fee distribution, earnings, and valuation multiples.
By examining these protocols through both quantitative and qualitative lenses, we aim to provide investors and traders with actionable insights into which projects may offer compelling opportunities—and which may carry hidden risks.
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GMX: Dominant Player Facing Competitive Pressure
GMX has established itself as the largest perpetual decentralized exchange (DEX) in DeFi, known for its zero-slippage trading mechanism and strong user adoption. As of mid-2023, it leads in TVL, trading volume, fees generated, and overall revenue among its peers.
One of GMX’s most attractive features is its fee-sharing model: 70% of trading fees go to liquidity providers, while 30% are distributed to GMX token stakers. This dual incentive structure has fueled rapid growth and sustained investor interest.
However, despite generating solid revenue, GMX's price-to-earnings (P/E) ratio stands at 31.16, indicating it may be considered “expensive” relative to current earnings—especially when excluding token incentives. The upcoming GMX v2 launch could shift this narrative. Expected enhancements include:
- Integration with Chainlink’s low-latency oracles for improved price accuracy
- Support for non-crypto assets like stocks and commodities
- Reduced trading fees
- Coexistence of v1 and v2 with optimized routing
While GMX remains a market leader, its market share has been gradually eroding due to rising competition. If v2 fails to drive meaningful increases in volume and fee generation, a price correction toward the $40 range (implying a P/E near 20) may be justified.
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Synthetix: High Valuation Amid Negative Earnings
Synthetix holds a unique position in the derivatives ecosystem by enabling users to mint synthetic assets (synths) backed by its native SNX token. Unlike direct exchanges, Synthetix serves as an infrastructure layer—projects like Kwenta build frontends on top of it to offer perpetual futures trading.
In terms of scale, Synthetix ranks among the top in both market cap and protocol revenue. It directs 100% of fees to SNX stakers, who also act as collateral providers, creating a tightly coupled economic model.
To maintain liquidity, Synthetix has distributed over $100 million in SNX incentives**. However, this aggressive reward strategy comes at a cost: the protocol has generated only **$36 million in fees, resulting in negative net earnings.
With a negative P/E ratio and high token emissions continuing, SNX appears overvalued unless future demand can outpace inflation. Without additional utility or reduced emission schedules, trading activity may decline post-incentive phases.
Frequently Asked Questions
Q: What makes GMX different from other perpetual DEXs?
A: GMX offers zero-slippage trades using oracle-based pricing instead of AMMs, allowing efficient execution even during high volatility.
Q: Why does Synthetix have negative earnings despite high revenue?
A: While Synthetix collects fees, it spends more on token incentives than it earns, leading to net losses when accounting for emission costs.
Q: Is staking SNX profitable today?
A: Staking rewards are substantial due to inflationary emissions, but long-term profitability depends on whether fee growth can offset token dilution.
Gains Network: Undervalued Gem With Strong Fundamentals
Gains Network (formerly Gainswap) operates as a multi-market derivatives platform supporting leveraged trading in crypto, forex, and commodities. It currently shares ~33% of fees with GNS stakers and ~17% with liquidity providers, but starting in September, staker rewards will increase to 61%, potentially boosting demand for the GNS token.
Despite its robust product offering, Gains Network trades at a P/E ratio of just 10—the lowest among the six protocols analyzed—with a price-to-revenue ratio of 8.7. More impressively, its trading volume to TVL ratio is 568x, suggesting highly efficient capital utilization without artificial incentives.
These fundamentals indicate that GNS may be undervalued, especially considering ongoing development efforts and upcoming features like improved risk management and cross-margin functionality.
Perpetual Protocol: Struggling Against Competition
Built atop Uniswap v3’s concentrated liquidity model, Perpetual Protocol enables perpetual futures trading with efficient capital use. It allocates 80% of fees to liquidity providers and ~14% to PERP stakers.
Despite technical innovation, the protocol faces headwinds: it generated $1.4 million in annual revenue**, but had **$2.8 million worth of tokens unlocked—resulting in negative net income.
Its main competitor, Kwenta (powered by Synthetix on Optimism), offers deeper liquidity and broader asset coverage. Without a clear differentiation or surge in organic demand, Perpetual Protocol struggles to attract sustainable interest from traders and investors alike.
Level Finance: Incentive-Driven Growth With Structural Challenges
Level Finance gained early traction through aggressive LVL token incentives, driving billions in trading volume. It uses a hybrid model where fees are split among:
- 45% to liquidity providers
- 10% to LVL stakers
- 10% to LGO stakers (a secondary governance token)
While trading volume remains high—yielding a staggering 1000x volume-to-TVL ratio—this figure may be inflated by incentive-driven activity rather than organic demand. More concerning is that protocol earnings are negative: more value is distributed in tokens than collected in fees.
This unsustainable model raises questions about long-term viability. Unless Level transitions to fee-driven growth, it risks fading once incentives dry up.
MUX Protocol: A Flexible Aggregator With Hidden Potential
MUX Protocol functions both as a standalone trading protocol and a multi-chain aggregator, integrating perpetuals, options, and prediction markets across ecosystems. It shares 70% of fees between ETH liquidity providers and MUX stakers.
Though smaller in market cap, MUX stands out for its high scalability and deployment across multiple chains and verticals. Its lean structure and diversified product suite make it an intriguing option for investors seeking exposure to broader derivatives innovation beyond simple perpetual swaps.
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Frequently Asked Questions
Q: Which protocol offers the best returns for liquidity providers?
A: GMX and MUX offer 70% fee share to LPs/stakers, among the highest in the sector.
Q: Can a protocol be successful with negative earnings?
A: Short-term losses are common during growth phases, but long-term sustainability requires positive cash flow from fees exceeding emissions.
Q: What should investors watch for in derivatives protocols?
A: Key indicators include fee-to-revenue ratios, organic volume trends, token emission schedules, and real user growth beyond incentivized activity.
Final Thoughts
The on-chain derivatives landscape is rapidly evolving, with each protocol adopting distinct strategies around incentives, fee distribution, and product design. While GMX and Synthetix dominate by scale, emerging players like Gains Network and MUX show potential for outsized returns due to favorable valuations and innovative models.
Ultimately, success will depend not just on current metrics—but on adaptability, capital efficiency, and the ability to retain users after incentives end. As always, this analysis is not financial advice; thorough research is essential before any investment decision.