GLP/JLP/HLP: Everyone Can Be a Market Maker

In early 2022, an on-chain perpetual DEX called GMX emerged. The product, once launched, was almost unrivaled, firmly holding the top spot. In just one year, its monthly trading volume reached a high of $10 billion, dominating the Arbitrum with an average TVL of $500 million, and has cumulatively processed nearly $300 billion in trading volume to date.  

The impressive data behind this success is attributed to a new liquidity provision mechanism called "GLP" introduced by the team. "GLP" achieved one thing: "allowing anyone to act as an on-chain MM (market maker), serving as the counterparty to traders".

Since then, liquidity provision methods similar to GLP have continued to evolve until now. Looking at the current on-chain perpetual DEX landscape, you can find similar product design across almost all relevant protocols: HLP, JLP, MLP… Although GMX itself no longer enjoys its former glory, understanding these mechanisms can help you navigate various derivative protocols with greater ease.

Perpetual DEX LPs: Retail Counterparties

In traditional finance, market making has always been a game for professional players: high capital thresholds and extremely demanding risk control made it impossible for retail users to participate.

However, the on-chain perpetual DEX LP model broke all of that. It simplified "market making" into a counterparty-based liquidity participation mechanism—users no longer need to predict market trends; they just deposit their money into a shared pool and can enjoy the fees and losses brought by traders.

This design of "you provide money, the protocol acts as the MM" not only greatly lowered the barrier to market making but also became a new way for DeFi protocols to self-sustain. Thus, you'll find that more and more on-chain perpetual DEX are starting to launch their own GLP-like products. Essentially, they are all playing the same game. We will take GLP, the pioneering ancestor of this mechanism, as an example to reveal its underlying logic.

GLP is GMX's liquidity pool, which serves as the counterparty for all perpetual contract trades on the entire platform. Users opening long or short positions on GMX are not facing another user, but the entire GLP pool. As a GLP participant, you are essentially one of the people betting against others; you just don't need to do anything but wait for the outcome.

GLP's revenue mainly comes from two parts:

• Firstly, fee income: All trades generate fees, and these fees are distributed proportionally to GLP holders.
• Secondly, trading counterparty losses: When others get liquidated with high leverage or incur losses due to misjudgments, the GLP pool ultimately absorbs these, which then goes into your pocket.

The entire process requires no market prediction or constant monitoring. You just need to deposit your money and you can passively earn like an "algorithm-driven MM". The more frequent the trades and the more people lose, the more GLP earns.

So, what's in the pool?

As shown in the figure above, GLP is not a single-asset pool; it's more like an asset portfolio or an index fund. The funds within it are mainly composed of three types of assets:

• ETH and WBTC;
• USDC / USDT / DAI and other stablecoins;
• LINK/UNI and other large-cap altcoins.

The pool's asset allocation dynamically adjusts based on the market trading direction. For example, if the proportion of ETH in the pool is too high relative to its target weight, the cost of minting GLP with ETH will be higher, while the cost of minting with other assets will be lower, to help rebalance the pool.

In other words, the protocol dynamically rebalances positions based on "counterparty pressure" to ensure that GLP won't be easily shattered during extreme market conditions.

But where are the risks for GLP? Can GLP incur losses?

Of course, it can, as you are acting as a counterparty to all market traders.

GLP primarily faces three types of risk sources:

• Unidirectional trend, collective trader profits: For example, in a strong bull market, many users open long positions and profit, which means GLP, as the counterparty, will incur losses;
• Underlying asset depreciation: GLP is essentially an asset pool, so if the ETH or BTC you deposited significantly depreciates, the value of your holdings will naturally shrink;
• Decreased trading volume: If platform activity declines, resulting in reduced fee income, GLP's earnings will also decrease.

Therefore, although GLP offers mindless participation and automatic income, it is by no means a risk-free product. Its income and risks essentially depend on two points: market conditions and trader behavior.

The Evolution of Perpetual DEX LPs: What Everyone is Earning

Initially, GLP's peer-to-pool model was the core mechanism of GMX, an on-chain perpetual DEX. However, as competition in the on-chain perpetual DEX sector intensified, protocols have continuously evolved and innovated on this basis, and the perpetual DEX LP mechanism has gradually diversified and refined from its initial passive market making.

• Diversification of Asset Structure

At the inception of GLP, asset composition primarily included ETH, BTC, and stablecoins. This design facilitated risk control and aligned with the mainstream asset preferences of the on-chain perpetual contract market. However, as the on-chain ecosystem continues to expand, more and more public chains and protocols are starting to support a wider range of risk assets.

For example, GMX V2 attempts to support more long-tail asset trading by introducing isolated asset pools (GM Pool). In other words, in V2, each trading pair has an independent market-making fund pool and no longer shares risks, which provides users with more flexible choices.

Suppose you now believe: "An altcoin season is coming soon, ETH will surge, but BTC might not have much room for further gains," and at the same time, you want to implement some financial strategies around GMX. In V1, simply participating in GLP might lead to losses due to extreme one-sided ETH market conditions, whereas in V2, you can choose a market where the underlying assets only consist of "BTC+USD," thus exposing yourself only to BTC risk.

Furthermore, when we look across all Layer1s or Layer2s, almost every chain inevitably involves the "DeFi Big Three": "DEX, Lending, Perpetual." Besides the proven user demand for these applications, from an asset perspective, the development of a chain is inseparable from its governance token. To ensure that governance tokens have actual demand and value capture, a GLP-like model is one of the important avenues for capital accumulation.

A notable example is "JLP" on Solana. "JLP" is Jupiter's replication of the GLP model on Solana. With the rebirth of $SOL, "JLP" has become a core foundational asset in Solana DeFi, with its presence in almost all DeFi protocols.

• Diversification of Revenue Structure

Following the great success of the GLP model, the concept of perpetual DEX LPs has also begun to spread to more complex market structures. Today, even in perpetual DEX primarily based on order book mechanisms, we are quietly seeing designs similar to GLP.

Take Hyperliquid's HLP as an example: It is a community-driven shared liquidity pool where users deposit USDC, and the protocol automatically places buy and sell orders on its on-chain order book, earning from bid-ask spreads, trading fees, funding fees, and liquidation fees during active trading periods. Key differences from traditional perpetual DEX LPs include:

• Market-making approach: Shift from passive peer-to-pool counterparty betting to actively placing orders and matching on an order book.
• Revenue structure: Addition of fees like bid-ask spreads.
• Strategic proactiveness: Introduction of algorithmic market making and strategy adjustments.

More and more protocols, in order to expand product revenue, are choosing to introduce protocol-operated active strategies, which are actually quite different from the original GLP model. For such "black box strategy" products, users should be more cautious and constantly monitor changes in returns.

Being a "MM" is Not Easy; Beware of Brutal Attacks

When we act as Perpetual DEX LPs, in most cases, we are the counterparty to traders. The source of traders' profits comes from LPs, so theoretically, we don't really want to see extreme one-sided market movements, as this can easily lead to traders profiting. But in reality, the trading market in Crypto is relatively irrational, so from a long-term perspective, GLP is generally difficult to lose money.

What’s even more worth noting is the risk that when we act in the open, the opponent remains hidden. The market is a PvP game. When we are in a passive market-making situation, there will be sophisticated actors in the market targeting our strategy with precision strikes. Once smart players discover flaws in exchange designs, it will be a devastating blow to any liquidity provider.

Absolute security is hard to achieve in DeFi. Even an OG protocol like GMX, which has been running for years, still had a logical vulnerability in GMX V1 exploited by an attacker in July 2025. The attacker exploited a small flaw in GMX's price and balance update steps when calculating GLP token prices. By establishing a large number of short positions, they achieved the effect of inflating the GLP price, then redeemed the pre-deposited GLP to profit from the price spread.

Sophisticated attacks often employ the simplest methods. In March 2025, a price manipulation incident occurred on HyperLiquid : a trader used high leverage to open a short position of approximately four million dollars on HyperLiquid ; then used another address to dump spot assets, causing the short position to profit ; after profiting, they withdrew a large amount of margin, causing the short position to be liquidated ; due to insufficient liquidity, the massive short position was taken over by HLP ; this trader then heavily bought spot assets again to raise the price, causing a huge loss to the HLP treasury.

When the situation became uncontrollable, the HyperLiquid team chose to intervene centrally, rolling back the price to ultimately help the HLP treasury providers stop their losses.

End

As on-chain perpetual DEX gradually becomes a highly competitive sector, the perpetual DEX LP model is also becoming increasingly common, and its mechanisms are ever-changing. In a bull market, trading activity becomes extremely high, and fees and counterparty income surge, providing LPs with significant earning opportunities. Oracle attacks and smart contract vulnerabilities are indeed unavoidable, so for retail investors, "choosing the best" might be the simplest and best solution.

Disclaimer: This content is for educational purposes only and does not constitute financial advice. DeFi protocols carry significant market and technical risks. Token prices and yields are highly volatile, and participating in DeFi may result in the loss of all invested capital. Always do your own research, understand the legal requirements in your jurisdiction, and evaluate risks carefully before getting involved.