Level Finance's Success and Sustainability

Introduction

Level Finance is an oracle-based margin and spot trading decentralized exchange (DEX) that emerged following the success of GMX. Its growth has been remarkable since launching in 2023, achieving volumes that rival its largest competitor (GMX). The graphics above show that Level captures between 10-42% of the daily volume market share across levered trading and perpetual DEXs.

In this report, we’ll explore the differences between Level and GMX, the reasons behind Level’s success, and the sustainability of its growth.

Protocol Design

Level Finance employs a levered trading system similar to GMX. Like GMX, Level utilizes a liquidity pool (LP) containing a mix of assets including BTC, ETH, long-tail crypto assets, and stablecoins. This liquidity is rented to traders for levered trading or spot swaps. For more information on GMX and how it works, you can refer to our GMX report published in October 2022.

Though similar to GMX, Level distinguishes itself by operating on the BNB Chain using its own codebase rather than simply forking GMX. Level offers different risk tranches for various risk exposures and has a unique token economic structure.

In contrast to GMX, where GLP serves as the single liquidity source for trades and all liquidity providers face the same level of risk, Level sets itself apart by allowing LPs to select their preferred risk exposure across three tranches. The exposure weighting here refers to the LP’s exposure to the trader’s P&L.

Senior Tranche (SLP) (Low Risk):

BTC: 25%
ETH: 20%
BNB: 2%

Mezzanine Tranche (MLP) (Medium Risk):

BTC: 35%
ETH: 35%
BNB: 38%
CAKE: 30%

Junior Tranche (JLP) (High Risk):

BTC: 40%
ETH: 45%
BNB: 60%
CAKE: 70%

Each LP’s exposure determines the liquidity source used by traders. For instance, if a trader enters a 100 ETH long position, exposure is calculated as follows:

SLP = 100 ETH * 20% = 20 ETH
MLP = 100 ETH * 35% = 35 ETH
JLP = 100 ETH * 45% = 45 ETH

This structure ensures that higher-risk LPs face greater risks from a trader’s P&L while also benefiting from increased utilization of pool assets.

Source: Level