A Detailed Explanation of Vertex Protocol

Forward the Original Title： Vertex Protocol: More secure than CEX, more convenient than DEX

Preface

• According to data from DeFiLlama, since November 2023, Vertex has seen a surge in both its trading volume and Total Value Locked (TVL), at one point becoming the second-ranked on-chain perpetual contract platform (with dYdX being the first), showing potential to surpass dYdX. What are the reasons behind Vertex’s rapid growth in trading volume and TVL in such a short time? What innovations and attractions does Vertex offer? Let’s find out together.

1. Project introduction:

Vertex is a decentralized derivatives protocol on Arbitrum, offering spot, perpetual, and composite currency markets. Its vision is to trade like a Centralized Exchange (CEX) while self-custodying like a Decentralized Exchange (DEX).

Originally a decentralized foreign exchange platform on the Terra blockchain, it migrated to Arbitrum as a DEX in May 2022 following the collapse of Terra, and developed three types of products: spot trading, futures trading, and lending markets.

Protocol’s Revenue Model:

Charging transaction fees to generate protocol income.

Providing economic incentives for liquidity providers.

Regulating speculative and manipulative activities in specific trading pairs.

Official Website: https://vertexprotocol.com/

2. Products and innovation:

product

• Spot Trading Market: All spot assets are quoted in USDC. On Vertex, users always retain ownership of their on-chain spot assets.
• Perpetual Contract Market: Traders can go long or short on crypto assets with up to 10x leverage, using USDC as the primary collateral. A full margin system allows the use of other spot assets to support perpetual positions.
• Lending Market: Users can automatically borrow spot assets using their portfolio margin to obtain loans. The lending market’s smart contracts operate on-chain (e.g., on Arbitrum).

innovation

• Hybrid design of order book + AMM：

The protocol integrates an on-chain exchange and risk engine at the protocol level, combined with an off-chain order sorter, creating a hybrid order book + AMM DEX. This includes spot, perpetual contracts, and currency markets — controlled by the Vertex protocol smart contracts on the Arbitrum layer.

Three key elements:

• A fully on-chain exchange (Constant Product AMM) — at the protocol level.
• A fully on-chain risk engine — at the protocol level.
• An off-chain sorter for order matching.

Cross Margin Mode:

By default, Vertex operates on a cross-margin basis, where a user’s portfolio serves as collateral for multiple open positions.

Isolated margin is not supported in Vertex V1; however, the feature for isolated margin in perpetual contracts will be added in Vertex V2 for users to choose from.

Sub-accounts:

Traders can isolate risk associated with individual positions by opening new sub-accounts.

Utilizing multiple oracles for price feeds:

Currently, the primary oracle used is Stork. In the future, Chainlink’s high-fidelity sub-second market data will support the market alongside Stork to ensure liquidation, funding rates, and profit and loss calculations.

Stork is an ultra-low latency, decentralized hybrid oracle network compatible with EVM for quoting. Its hybrid on-chain/off-chain architecture supports Vertex, unlocking the ability to perform initial processing off-chain.

Competitive trading fees:

Offers low trading fees for takers (0.02%) and zero fees for makers in major currency pairs such as BTC/USDC and ETH/USDC for spot and perpetual contracts. Compared to DYDX and GMX, Vertex’s fees are lower and more competitive.

• One-click trading 1CT:

Enables users to sign a one-time approval transaction at the start, eliminating the need for subsequent approval signatures. This experience is similar to that of CEXs, where users can log in (sign the approval transaction) and start trading without having to sign every transaction they make.

• More innovations will be launched in V2!

3. Community and data:

Social media:

• Twitter：https://twitter.com/vertex_protocol ，84.3K followers
• Discord：https://discord.com/invite/berachain , 28.8k members, 2.2k online

Protocol Data

• Total trading volume: $45.21b, with $41.21b in perpetual contracts
• TVL: $45.3M
• 24h trading volume: $242.87M
• Number of users: 20,615
• 24h trading fees: $49.26k
• Average daily users in the past month: 500–600

Data Sources:https://stats.vertexprotocol.com/

• Currently, participants can engage in a 6+ year ongoing incentive plan for the protocol itself and a short-term incentive plan (STIP) provided by Arbitrum DAO with 3 million ARB tokens.

4. Economic model:

VRTX Total Supply:

1 Billion, no additional issuance. Of this, 90.85% of the tokens will be released over 5+ years.

Distribution:

• Ongoing Incentives: 34.0% (340 million VRTX)

• Initial Token Phase: 10.0% (100 million VRTX)

  • The initial token phase includes the first 7 periods of the Vertex Trade & Earn rewards program, which started in April 2023 and ended on November 8, 2023. The 10.0% of the VRTX supply designated for the initial token phase is a one-time distribution — early Vertex users can accumulate it as trading rewards.

• Early Investors: 8.8% (88 million VRTX)

  • Early investors include participants in Vertex’s seed funding round, which raised $8.5 million starting in 2022.

• Initial VRTX Liquidity (LBA): 1.0% (10 million VRTX)

  • Initial VRTX liquidity is 1.0% of the VRTX token supply unlocked at Genesis, designated as rewards for Vertex LBA participants.

• Future Contributors: 5.0% (50 million VRTX)

  • The future contributors allocation is a reserve for the growth of the future team. Once allocated, it will be placed into the protocol treasury for potential use but may not necessarily enter circulation. The VRTX tokens allocated to the future contributors category will begin vesting in the 2nd year.

• Ecosystem: 9.0% (90 million VRTX)

  • The ecosystem development allocation includes reserves of VRTX tokens to support the long-term growth of the Vertex ecosystem. At Genesis, 1% of the ecosystem development VRTX allocation is unlocked (10 million VRTX). The remaining 8% of VRTX tokens are designated for ecosystem development, released linearly from the 1st to the 3rd year, at 2.67% per year.

• Advisors: 0.5% (5 million VRTX)

  • 0.5% of the total VRTX supply, starting to be released in the first year. It will be used for third-party services, providing long-term benefits for the growth, security, and sustainability of the Vertex protocol — including, but not limited to, code audits and bug bounties.

• Protocol Treasury: 11.7% (117 million VRTX)

  • 5% (50 million VRTX) of the total VRTX supply will be unlocked for the protocol treasury, with the remainder released linearly from the 1st to the 3rd year.

• Founding Team: 20.0% (200 million VRTX)

  • The team’s allocation schedule is roughly released over 2–3 years after going live on the mainnet in April 2023.

  • Monthly release details can be seen here: https://docs.google.com/spreadsheets/d/1iLKBY7uoiYpa7lVzYuCK6HRCOJw-u4mnUR1CcD_OW3s/edit#gid=639807660

VRTX Staking

• voVRTX User Score: Various incentive mechanisms will be introduced to reward active participants with VRTX tokens. Increasing the voVRTX score can increase the amount of incentives.

• USDC Rewards: Based on the user’s voVRTX score, USDC rewards are given, sourced from protocol revenue.

Insurance Fund Staking (USDC):

• Rewards from the insurance fund’s liquidation profits (if any)

• Further enhances the voVRTX user score, thereby obtaining more VRTX staking rewards

5. Financing and Team:

Financing:

• 2022–4: Vertex Protocol completed an $8.5 million seed round from investors including Hack VC, Dexterity Capital, Jane Street, Hudson River Trading, and others.
• 2023-6-22: Received strategic investment from Wintermute Ventures, the specific amount has not yet been disclosed.

team:

• • Alwin Peng: Co-founder, former software engineer at Jump Trading.
• • Darius Tabatabai: Co-founder, former trading head at JST Capital with 20 years of trading experience in options, commodities, and foreign exchange. He holds a Bachelor of Science in Government and Economics from the London School of Economics.
• • Conor McNamee: Product Manager, former business development and operations manager at Eterna Capital. Graduated from the University of Western Ontario, Canada, and City University of Hong Kong.
• • SJ Park: Strategy Director. He has 10 years of trading experience in interest rates and credit, formerly an investment portfolio manager at Goldman Sachs.
• • Jeff Blockinger: Chief Legal Officer, with 25 years of experience specializing in securities, investment funds, fintech, blockchain, cryptocurrencies, and regulatory affairs. He is also the Chief Legal Officer at Quadrata.

6. Summary:

• Vertex is a vertically integrated DEX that aggregates spot, perpetual contracts, and money markets into a unified trading platform. It offers lightning-fast trades, universal margin accounts, and a user-friendly interface. Vertex combines the advantages of DEX and CEX, enabling self-custody like a DEX while offering fast transactions like a CEX.
• Unlike dYdX (off-chain order book) and GMX (on-chain liquidity pool), Vertex employs a hybrid order book + AMM model for spot and perpetual contract trading. With a product that leverages the strengths of both CEX and DEX, along with continuous trading incentives (340 million VRTX), Vertex’s trading volume and TVL have been steadily increasing.

• In the derivatives market, where there is no dominant leader, Vertex has the potential to compete for a significant position. Competitors like dYdX, GMX, and the recently surged APEX each have their strengths. Protocols that offer a secure, smooth trading experience with low slippage and transaction fees, and distribute protocol income to token stakers, are key to retaining users. From a market capitalization perspective, DYDX is valued at $990M, GMX at $385M, and Vertex at $44M, which appears undervalued considering its trading volume.
• Despite high trading volumes, the low transaction fee rate results in relatively low daily fee income (about $50K), which means less income distributed to token holders. However, official incentive programs effectively compensate for this. Additionally, the upcoming Vertex V2 version promises more optimizations and innovations, raising anticipation for more surprises from Vertex.

Disclaimer：

1. This article is reprinted from [SANYUAN Labs, Forward the Original Title‘Safer than CEX, More Convenient than DEX’,All copyrights belong to the original author [SANYUAN Labs]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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