Dolomite, a decentralized money market protocol on the Arbitrum network, has featured its one-click gmBTC looping strategy designed to multiply exposure to GMX trading fees without increasing directional Bitcoin risk. The strategy has driven sufficient borrowing demand for Wrapped Bitcoin (WBTC) on the platform to generate a 2.27% organic yield for lenders, without relying on token incentives or emissions programs.
Mechanics of the Looping Strategy
Users begin the process by holding gmBTC, a GMX V2 liquidity token tied to the BTC-USD trading pool. Holders of gmBTC receive 63% of the fees generated by trading, liquidations, borrowing, and swaps within the pool. Through Dolomite, users can deposit gmBTC as collateral, borrow WBTC, and convert the borrowed WBTC into additional gmBTC. Repeating this cycle increases the total gmBTC position and magnifies GMX ecosystem fee exposure while keeping net Bitcoin price exposure near 1x.
The automated one-click feature bundles the borrowing, swapping, and redepositing steps into a single transaction. Dolomite initially began accepting GM tokens as collateral in early 2024, and the looping strategy launched on November 22, 2024.
Yield Generation and Risks
The 2.27% yield earned by WBTC lenders stems entirely from borrowing demand driven by the gmBTC loops, with no artificial support from governance token farming or liquidity mining. Additionally, Dolomite passes 100% of GMX ecosystem rewards directly to users without taking a cut.
While the strategy allows users with leveraged positions to collect proportionally higher fees, success depends on the relationship between borrowing costs and fee generation. If borrowing costs spike or GMX trading volumes decrease, the spread between earnings and costs could compress or turn negative.
Competitive Advantage
Dolomite's early adoption of GM tokens as collateral provided a structural advantage, as many other lending protocols on Arbitrum do not support these assets. This first-mover position has resulted in consistent borrowing demand and organic yield for WBTC suppliers.
