Vertex Protocol: Multi-functional DeFi Protocol on Arbitrum
Vertex Protocol: DeFi platform on Arbitrum with multiple functions.
Vertex Protocol is a vertically integrated application built on Arbitrum, a cross-contract decentralized exchange (DEX) protocol that provides users with spot, perpetual contracts, and an integrated money market. Vertex is committed to building a new vertical inheritance exchange that combines the security advantages of DeFi with the convenience advantages of CEX. Vertex’s mission is to make decentralized trading simple and accessible to everyone. In today’s mainstream DEX arena, Vertex Protocol brings a new direction of development.
Product Mechanism
Vertex is driven by a hybrid unified central limit order book (CLOB) and integrated automatic market maker (AMM), and Vertex’s liquidity is significantly enhanced as LP markets fill order books in pairs.
Vertex Protocol uses Ethereum Layer2 Rollup Arbitrum’s batch transactions and optimistic rollup model, which effectively solves the problem of network performance and transaction fees. At the same time, Vertex adopts a non-custodial design, and users can continuously control their assets on the chain.
Vertex adopts a hybrid order book-AMM design, with extremely low latency trading and more efficient DeFi assets. In addition, the off-chain sequence architecture also helps minimize the miner-extractable value (MEV) that Ethereum L1 has, enabling lightning-fast transaction speeds.
At the same time, in order to facilitate community developers to develop more high-quality integrated construction and DApp combinations for the project, Vertex provides users with the Vertex SDK developer toolkit. And Vertex integrates UX, allowing users to experience seamless platform and application switching.
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Therefore, Vertex provides users with a robust, scalable infrastructure, as well as fully functional APIs and SDKs, bringing support for high frequency and automated trading to community users and developers. Vertex can also optimize trading efficiency, allowing trades to be converted between EVM-compatible chains.
On Vertex, a user’s investment portfolio is margin. The trading account manages a single trading account to offset margin between open positions through default universal cross-margin, maximizing capital efficiency. Vertex provides DeFi users with a powerful, simplified trading experience while retaining the advantages of self-custody, transparency, and autonomy, becoming an unparalleled, user-favored decentralized trading platform.
Trading engine
Vertex’s technology core provides the best architecture for a vertically integrated product stack based on DeFi, including three core DeFi-based products. These include:
▪️Spot market
▪️Perpetual market
▪️Money market
On Arbitrum, these three most popular DeFi products can be bundled into a single DEX, providing users with an experience of using three financial primitives in the same interface. Therefore, users can access the most popular primitives of DeFi without switching between isolated DeFi applications (such as AMM, perpetual DEX, and money market).
▪️Buy/sell assets
▪️Long or short derivative contracts with leverage
▪️Borrow/lend asset pools
Vertical product integration has unparalleled advantages in improving capital efficiency, reducing user costs, and improving overall user experience.
Universal Margin
By default, Vertex uses cross-margin, which means that users’ trading accounts will merge liabilities to offset margin between positions. Users’ investment portfolios then become collateral for multiple open positions. Therefore, in Vertex, users’ investment portfolios are their margin.
Universal cross-margin trading accounts are not common in DeFi. Therefore, it is important to compare the two specific forms of margin:
▪️Isolated margin = the account’s liabilities are limited to the initial margin submitted for a single position.
▪️Cross margin = the liabilities of multiple positions are shared in the account to offset margin between positions.
Isolated margin is often used for volatile, speculative positions and limits the risk to the user account balance. Isolated margin is popular in long-term trading on DEXs and CEXs.
Cross-margin allows users to reduce margin requirements by calculating the overall risk of the investment portfolio across multiple positions. Open positions share capital to offset margin requirements between each position, while requiring lower initial margin for each position. Cross-margin is popular in TradFi and can be used on many CEXs, but is limited in DeFi.
On Vertex, users can use all funds – deposits, positions, and PnL – as margin.
This means that open positions in spot, perpetual contracts, and money markets contribute to the margin of the account investment portfolio. With reduced risk of additional margin and single position liquidation, users can trade more flexibly and efficiently.
Vertex’s cross-margin design also allows for portfolio margin. Similar to regular cross-margin, portfolio margin refers to unrealized profits that can be used to offset unrealized losses or deployed as margin for existing positions or for opening new positions. All relevant settlements for the portfolio are automatically calculated on the back end of Vertex and intuitively displayed on the Vertex app for the health status of trading accounts.
Integrated Currency Markets
Perpetual and Spot Market Specifications
▪️PriceIncrement=The minimum trading price unit for the given market.
▪️MinSize=The minimum trading amount for the given market.
▪️SizeIncrement=The minimum trading amount increment for the given market.
▪️lpSpread = The buy/sell spread related to LP
▪️Initial and Maintenance Health (Margin) = Health is the amount of capital available for trading for an account before being liquidated (in $USD)
Hybrid Orderbook-AMM
Vertex has fused a fully on-chain trading venue and risk engine at the protocol layer, and stacked a Layer-2 sequencer on top, forming a hybrid orderbook-AMM DEX. The on-chain trading and risk engine houses Vertex’s core products, spot markets, perpetual markets and currency markets, controlled by Vertex protocol smart contracts at the Arbitrum layer.
The sequencer can act as a high-performance orderbook, capable of matching inbound orders from the protocol layer at extremely low latency. Vertex’s on-chain clearing acts as a hub, integrating perpetual and spot markets, collateral, and risk calculations into a single integrated system. The fusion of AMM and orderbook forms the foundation of a unified trading stack, and vertically integrated DeFi primitives become the core products on-chain.
Each component of Vertex’s trading stack can be merged into a powerful on-chain trading platform. Therefore, the hybrid orderbook-AMM DEX has unique advantages in terms of performance, liquidity expression, and diverse product suites.
To accurately display the specific design and subsequent advantages of the Vertex DEX, the hybrid orderbook-AMM model needs to be broken down into three core pillars:
▪️Track off-chain order book for limit orders sent to Vertex
▪️Support long-tail crypto assets to enable on-chain AMMs providing passive liquidity
▪️An on-chain risk engine that routes orders to any cheaper liquidity source without custodying funds
Overview of Vertex Technology Stack Concepts
API & SDK
API
1. WebSocket/REST API that supports write (execute) and poll (query).
2. WebSocket API that allows for real-time data feedback subscription.
SDK
Vertex provides a high-quality Vertex SDK developer toolkit that allows anyone to seamlessly interact with Vertex smart contracts, whether they are other protocols or larger-scale traders. This will facilitate community developers to provide more integrative building for projects and composable for other dApps, and allow users to quickly transfer their assets in and out of the platform without needing to use separate transfer services or other applications.
Tokenomics
VRTX is the governance token of Vertex Protocol aimed at promoting decentralized governance of the Vertex Protocol among stakeholders in Vertex DAO. VRTX promotes decentralized participation while also creating xVRTX (liquidity staking token) and voVRTX (non-transferable voting share token of the protocol).
Users staking VRTX will receive xVRTX and voVRTX
▪️xVRTX is a transferable staking token that represents a single voting right for governance and qualification, used to share the proportion of the protocol’s revenue and release volume.
▪️voVRTX represents the “user score” of the holder. voVRTX tokens unlock the qualification for enhanced voting rights and specific ecosystem rewards for users, and also serve as a rating system that encourages staking xVRTX. Staking xVRTX increases the rating, and voVRTX without staking will be reset to 0.
VRTX Token Supply and Allocation
The total supply of VRTX is 1 billion, 90.08% of which will be distributed in 5 years. Once the 1 billion VRTX tokens are distributed, no new supply will be introduced.
VRTX Token Total Supply Allocation Chart
VRTX Token Annual Allocation Timeline
Governance
Vertex has introduced Vertex DAO as the decentralized governance architecture of its protocol, with Vertex DAO innovatively designed to maximize protocol decentralization over time.
Governance participants make decisions about new features and directions for the Vertex protocol, such as the integration of new features, protocol upgrades, and adjustments to risk parameters. Governance will attract VRTX token holders to participate in management through a phased approach. Version 1 will come first, followed by a transition to Version 2.
Version 1
Vertex Governance Version 1 is the first on-chain protocol governance iteration of the protocol. The governance format allows anyone to participate in governance discussions related to the evolution of the protocol, providing a pathway for VRTX token holders to govern the protocol by community vote.
Vertex DAO Governance Process
Version 2:
Vertex DAO update introduces a new governance model, composed of multiple subcommittees, formed by selecting core contributors to the protocol as DAO members.
▪️ Core Contributors: Core contributors provide valuable generic and technical protocol work, implement functionality, and make changes to the protocol.
▪️ Subcommittees: Subcommittees are labor departments elected by the community, responsible for overseeing, managing, and prioritizing Vertex governance.
▪️ Election [Nominees]: Subcommittee elections are public and take place rolling every 3 months. The council will have the ability to vote out uncommitted council members during their council term.
VRTX stakers (> 0.01 VRTX) can nominate themselves for (singular) council positions while submitting governance proof with relevant experience and information.
▪️ Election [Voters]: VRTX stakers participate in subcommittee member elections. Members must hold and stake VRTX tokens in their wallets to have voting rights (voting power).
Voting is by two rounds of voting, and at the end of the election period, the nominee with the highest weighted vote count will be elected to their respective sub-council position.
Comparison with Mainstream DEX
Most mainstream DEX platforms do not allow native Web2 users to smoothly transition into Web3. For beginners, using Metamask and complicated protocols for arbitrage or leverage trading is very cumbersome, and the complex operations discourage a large number of native users. Compared to traditional DEX, Vertex combines the design of Orderbook-AMM, supports low-cost trading, and simplifies the order book. At the same time, since AMM is an ideal choice for illiquid assets, Vertex has the best of both worlds by integrating AMM and the order book.
Investment and Cooperation
In April 2022, Vertex Protocol completed a seed round of financing of $8.5 million, with lead investors including Hack VC, Dexterity Capital, Jane Street, and Hudson River Trading, among others such as Collab Currency, GSR, Lunatic Capital, Big Brain Holdings, Huobi Ventures, JST Capital, and follow-up investment.
Summary
Vertex is a vertically integrated DEX that bundles spot, perpetual contracts, and integrated currency markets into a unified trading platform. Trade at lightning speed, with universal full-margin financing and customizable, user-friendly trading interfaces. No need to switch between dApps, trade, earn, and borrow directly in one DEX. Vertex’s unique design combines the advantages of DEX and CEX, allowing for both self-custody of DEX and fast trading like CEX. In short, Vertex is pushing DEX to a higher level of development.
