A deep dive into Vertex Protocol, an all-in-one DEX offering cross-chain orderbook liquidity, and a look at Vertex Edge and Vertex Blitz.
In decentralized finance (DeFi), a core challenge for most decentralized exchanges (DEX), be it in spot or perpetuals trading, is the ability to rival the user experience of a centralized exchange (CEX), while offering users self-custody of their own assets, an important aspect especially in the wake of the FTX collapse. First launching on Ethereum layer-2, Arbitrum, in April 2023, Vertex sought to tackle this problem.
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What Is Vertex Protocol?
Vertex is an all-in-one DeFi product, combining spot trading, perpetual contracts and money markets all in a single application. Its primary product is its lightning-fast orderbook DEX, providing traders an efficient and professional trading experience.
According to Token Terminal, the derivatives market has a total circulating market capitalization of $4.73 billion, and total daily trading volume of $4.3 billion. While significant, the daily trading volume of the largest centralized derivatives exchange, Binance, already stands at $140 billion, suggesting huge room for growth for these decentralized protocols.
Vertex has come a long way since launching just 11 months ago. Vertex is now the second largest perpetual DEX in DeFi by ADV over the past 180 days, and saw over $6.6 billion in cumulative spot volume and $67 billion in cumulative derivatives volume since inception.
Source: Token Terminal (link)
In fact, the Vertex Protocol constantly ranks as one of the top gas consumers on Arbitrum, a testament to its usage and popularity among users.
Source: Nansen.ai (link)
Vertex Edge: Synchronous Orderbook Liquidity
In February 2024, Vertex announced Vertex Edge, the unique and innovative mechanism to enable a synchronous orderbook liquidity layer to unite all their supported chains across the DeFi landscape. This allows liquidity to be aggregated at the sequencer level for traders’ needs, while still settling the trades on the origin base layer.
Vertex Edge enhances what is possible with the current Vertex Sequencer, a custom parallelized Ethereum Virtual Machine (EVM) implementation of an off-chain order book and trading engine, written in the programming language, Rust. In essence, Vertex Edge functions as a market maker between the various chains supported by the protocol.
When orders from different chains are sent to Vertex Edge, the sequencer receives the orders and concurrently matches it against the liquidity present on the various connected chains. When both sides of the trades are determined, Vertex Edge takes the opposite side of either trade to hedge each of the positions. This is done while simultaneously rebalancing liquidity between chains to ensure the protocol manages the risk of its traders’ positions.
For example, take the example of two traders: Alice and Bob. Alice opens an ETH perpetual long on Arbitrum, while Bob opens an ETH perpetual short on the Blast L2. Assuming both their orders are of the same size, they will be matched by Vertex Edge. Vertex Edge will then take the short side of Alice’s trade on Arbitrum in the form of an ETH short, while also taking an ETH long on Blast to mirror Bob’s position.
Better Liquidity Across Chains
As a result, traders no longer need to jump between chains to access liquidity on the different chains. Beyond convenience, traders are also now granted access to a much larger unified liquidity profile aggregated by Vertex Edge, rather than the typical fragmented liquidity on-chain traders regularly struggle with. Perhaps more importantly, this also creates a flywheel for the Vertex ecosystem, as each additional chain integration adds additional liquidity to the unified liquidity profile. This also enables traders on the new chain to tap on the existing liquidity on Vertex Edge.
Protocol and Base Layer Alignment
Combined liquidity is not the only benefit that Vertex Edge offers — Vertex Edge also aligns the protocol well with the base layer chain that it is built on. Most chains seek several key goals: growth of native applications and community building on the chain. With Vertex Edge settling all trades on the base layer from which it originates, trades processed by Vertex Edge do not take away activity from their respective chains.
Reduction in Development Costs
Additionally, the implementation of Vertex Edge greatly reduces the development costs of deploying a new DEX on every new chain. With Vertex Edge, redeploying smart contracts onto new chains is simpler. Plus, with Vertex Edge integrating with Axelar’s Squid Router, users can fund their account from cross-chain assets across 8 different networks, including Ethereum, Polygon, Avalanche and more. This is done natively on the Vertex platform, saving users time and making onboarding to Arbitrum more accessible.
Vertex Edge for Spot Markets and Money Markets
While perpetuals trading remains the main product for Vertex, Vertex Edge seeks to build on the other products in the Vertex suite as well. Spot traders will soon be able to leverage Vertex Edge to make cross-chain trades with the combined orderbook, just like the cross-chain liquidity currently available for perpetuals between Vertex and Blitz.
For money markets, Vertex Edge opens the doors for multi-chain collateral, expanding the market for borrowing and lending across chains. This seeks to increase liquidity as users are able to put their assets to work more easily.
Moreover, Vertex Edge will soon offer unified interest rates on the deposits on their platform. For example, all USDC deposits, regardless of which chain they are on, would receive the same interest rate on Vertex Edge. This helps to facilitate the flow of assets across the Vertex ecosystem, hence promoting efficient use of available capital.
Blitz: The First Cross-Chain Vertex Edge Instance
With the foundation laid out for a multi-chain expansion, Vertex launched the first non-Arbitrum instance of Vertex Edge, known as Blitz, on the newly launched L2, Blast. An instance simply refers to a deployment of the Vertex smart contracts on any L1 or L2 chains. Currently, there are two instances of Vertex Edge: Vertex on Arbitrum and Blitz on Blast.
Blitz brings a reskinned version of the familiar Vertex interface to Blast, enabling traders access to more than 30 trading pairs on perpetuals and spot markets. Fees are also kept competitive, with zero maker fees and 0.02% trading fees for takers. Additionally, Blitz’s API is freely available and is easy to integrate for more sophisticated traders, supporting Typescript, Python and Rust integrations. Most importantly, traders have access to liquidity on both Blast and Arbitrum from day one, all without leaving Blitz.
Moreover, Blitz has launched its own points program to reward trading activity on Blitz. As one of the winners of the Blast Big Bang Competition, Blitz will be receiving an allocation of BLAST tokens. These tokens will be eventually used to reward point holders in a token airdrop.
Conclusion
In less than a year, Vertex has gone from launching on mainnet to expanding their product suite, upgrading their sequencer with Vertex Edge, and even kick-starting their cross-chain expansion with Blitz on Blast.
However, their journey is only getting started. With Vertex Edge, every new integrated chain will connect and add to their existing unified liquidity profile. More combined liquidity attracts more traders, which attracts more liquidity providers, henceforth creating a positive flywheel for the ecosystem. With the combined total value locked (TVL) across both Vertex and Blitz amounting to $86 million, with each increasing chain, the protocol could quickly emerge as a dominant cross-chain protocol in DeFi.
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