Synthetix (SNX) trading volume overtakes GMX, but is the DEX token rally sustainable?

Synthetix weekly trading volumes surpassed $1 billion, overtaking decentralized derivatives exchange GMX to become the second-most active platform.

The trading volume data from Token Terminal shows that Synthetix did more than twice the trading of GMX in the seven-day period starting May 17, thanks to Optimism (OP) token incentives for perpetual swap traders.

The Synthetix (SNX) token has encountered resistance at the $2.50 level after gaining around 10.3% in the last seven days, per CoinGecko data.

On the other hand, GMX and dYdX are experiencing a decline in trading activity, while their native tokens are eyeing bearish targets based on technical levels.

OP incentives drive Synthetix volumes

Synthetix offers perpetual futures contracts on layer-2 rollup Optimism via a decentralized application called Kwenta.

The Synthetix community approved a proposal to distribute 3.65 million OP tokens, worth around $5.7 million, as rewards to Kwenta users based on their trading activity and amount of SNX staked for 20 weeks starting in April.

The 7-day trading volume on decentralized derivative exchanges. Source: Token Terminal

Kwenta’s usage has spiked since the March 2023 announcement, per DefiLlama data for Synthetix users, suggesting that it could be partly due to OP token rewards.

According to the Dune dashboard made by data analyst Gunboats, every $1 in fees spent on Synthetix perpetuals earns $1.27 in OP incentives. Traders can earn the difference of $0.27 per dollar by simply placing trades on both the short and long sides to cover for trading risk and earn the OP incentives.

The fees earned by Synthetix Protocol. Source: DefiLlama

The total value locked (TVL) in Synthetix has remained consistently around early 2023 levels at around $430 million, which suggests that new money is yet to flow into the ecosystem. Currently, existing Synthetix users appear to be farming OP rewards.

More proof that trading volumes at Synthetix are inflated comes from the difference in open interest (OI) volumes compared to top derivatives platforms like GMX and dYdX.

The total OI volume of Kwenta is around $50 million compared with between $130 million to $150 million at GMX and $250 million to $270 million on dYdX in May.

The ratio of trading to OI volumes in a weekly timeframe for dYdX is around 16, for GMX around 3.77 and for Synthetix’s Kwenta at 26.

Previously, analysts have suggested that dYdX volumes might be inflated due to token incentives for higher volumes. Currently, Kwenta shows a similar trend.

Technical analysis of the SNX/USD pair shows that it has encountered resistance at around $2.50, which is the midpoint of the pair’s parallel range this year and where its 50- and 200-period exponential moving averages (EMA) are trending.

SNX/USD price chart. Source: TradingView

A breakout above this level will see buyers aim toward 2023 peak levels of around $3.30.

Kain Warwick, the founder of Synthetix, proposed 12 improvements to the protocol on May 23, including a “buyback and burn” program to potentially remove SNX tokens worth $60 million from circulation. The proposal aims to fuel SNX price growth by reducing its supply.

GMX and dYdX trading volumes decline

Notably, GMX OI and trading volumes have declined in May 2023, potentially due to a lack of volatility in Bitcoin and Ethereum prices.

The weekly fees earned by the protocol have nearly halved in May compared to previous months. A decline in fees earned leads to reduced yields for GMX stakers, as 30% of the platform’s fees are distributed to stakers.

GMX open interest and trading volumes since April. Source: CoinGecko

Reduced revenues can motivate GMX holders to move to other ecosystems with higher yields. The staking ratio, the ratio between staked supply and circulating supply, has dropped from 71% to 69% in May from the previous month.

On the bright side, while the volume on GMX has declined slightly in May, the TVL on the decentralized application has remained consistently above $650 million, indicating that not much value has flown out of the GMX ecosystem.

Technically, GMX has lost support at the $59.30 level, currently coinciding with the 200-day EMA. If buyers fail to reclaim this support level, the negative slide could likely extend toward the $40.28 support level.

Related: Crypto funding seen shifting from CeFi to DeFi after major collapses: CoinGecko

The relative strength index, a momentum indicator, also shows that the token is oversold, which could trigger a relief rally. However, it remains to be seen if GMX buyers turn up, given that the platform’s revenues have gone down.

GMX/USD price chart. Source: TradingView

Similar to GMX, dYdX OI volumes have stayed flat, but trading volumes have declined in May. The DYDX token also dropped by 7.53% on May 24 alongside GMX, losing support below the 200-day moving average at $2.10.

The DYDX token is currently eyeing bearish targets near $1.22. Buyers need to stage a recovery above $2.10 and $2.50 to increase the likelihood of an upside move.