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 integrated currency markets. Vertex is committed to building a new vertical inheritance exchange that combines the security advantages of DeFi with the convenience of CEX. Vertex's mission is to make decentralized trading simple and easy to use for everyone. In today's mainstream DEX track, Vertex Protocol brings a new direction of development.

Product Mechanism

Vertex is powered by a hybrid unified central limit order book (CLOB) and an integrated automated market maker (AMM). Vertex's liquidity is significantly enhanced as positions in the paired LP market fill the order book.

Vertex Protocol uses Ethereum Layer2 Rollup Arbitrum’s batch transactions and optimistic rollup model, so it can effectively solve the problems of network performance and handling fees. At the same time, Vertex adopts a non-custodial design, and users can continue to control their assets on the chain.

Vertex uses a hybrid order book-AMM design, which has extremely low latency transactions and more efficient DeFi assets. In addition, the off-chain sequence architecture also helps to minimize the miner extractable value (MEV) of Ethereum L1, which can achieve 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 integrated UX enables users to experience seamless switching between platforms and applications.

Therefore, Vertex provides users with a robust and scalable infrastructure, as well as a fully functional API and SDK, bringing support for high-frequency trading and automated trading to community users and developers. Vertex can also optimize transaction efficiency so that transactions can be converted between EVM-compatible chains.

On Vertex, the user's portfolio is margin. Trading accounts maximize capital efficiency by managing margin between open positions in individual trading accounts through default universal cross-margin. 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, which includes three core DeFi-based products. These include:

▪️Spot Market

▪️Perpetual Market

▪️Currency market

Arbitrum can bundle these three most popular DeFi products into a single DEX, providing users with the experience of using three financial primitives in the same interface. Therefore, users do not need to switch between isolated DeFi applications (such as AMM, perpetual DEX, money market) to access DeFi's most popular primitives.

▪️Buy and sell assets

▪️Use leverage to go long or short on derivative contracts

▪️Borrow/Lend Asset Pool

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 the user's trading accounts are consolidated with liabilities to offset margin between positions. The user's portfolio then becomes collateral for multiple open positions. Therefore, at Vertex, the user's portfolio is the margin.

Universal cross-margin trading accounts in DeFi are not common. Therefore, it is important to compare two specific forms of margin:

▪️Isolated Margin = Account liability is limited to the initial margin posted for a single position.

▪️Cross Margin = Liabilities on multiple positions are shared across accounts to offset margin between positions.

Segregated margin is often used for volatile, speculative positions and limits the risk to the user’s account balance. Segregated margin is popular for long-term trading on DEXs and CEXs.

Cross margin allows users to reduce margin requirements by calculating the overall risk of a portfolio across multiple positions. Open positions pool capital to offset margin requirements between each position, while requiring lower initial margin for each position. Cross margin is popular in TradFi and available on many CEXs, but is limited in DeFi.

On Vertex, users can leverage all funds - deposits, positions, and PnL - as margin.

This means that users' open positions in spot, perpetual contracts and currency markets all contribute to the account portfolio margin. With the risk of margin calls and forced liquidation of single positions reduced, users can trade more flexibly and efficiently.

Vertex's cross margin design also allows for portfolio margining. Similar to regular cross margining, portfolio margining means that unrealized profits can be used to offset unrealized losses or deployed as margin on existing positions or used to open new positions. All relevant settlements for the portfolio are automatically calculated on the Vertex backend and the portfolio health of the trading account is intuitively displayed on the Vertex application.

Integrated money market

Perpetual and spot market specifications

▪️PriceIncrement = The smallest transaction price unit for a given market.

▪️MinSize = Minimum transaction amount for a given market.

▪️SizeIncrement = Minimum transaction amount increment for a given market.

▪️lpSpread = LP related bid/ask spread

(Often referred to as LP trading fees on other non-order book exchanges)

▪️Initial and Maintenance Health (Margin) = Health is the amount of capital (in $USD) an account has available for trading before being liquidated

Hybrid Orderbook-AMM

Vertex incorporates a fully on-chain trading venue and risk engine at the protocol level, and stacks an off-chain sequencer on top, forming a hybrid order book-AMM DEX. The on-chain trading and risk engine contains Vertex’s core products, namely spot markets, perpetual markets, and money markets, and is controlled by the Vertex Protocol smart contracts at the Arbitrum layer.

The sequencer can be used as a high-performance order book, capable of matching inbound orders at the protocol layer with extremely low latency. Vertex's on-chain clearing house serves as a hub that can integrate perpetual and spot markets, collateral, and risk calculations into a single integrated system. The fusion of AMM and order book forms the basis of a unified trading stack, and vertically integrated DeFi primitives become the core product on the chain.

Each component of the Vertex trading stack can be combined into a powerful on-chain trading platform. Therefore, the hybrid order book-AMM DEX has unique advantages in performance, liquidity expression and diversified product suite.

To accurately demonstrate the specific design and subsequent advantages of Vertex DEX, it is necessary to break down the hybrid order book-AMM model into three core pillars:

▪️Off-chain order book tracking limit orders sent to Vertex

▪️Supports the long tail of crypto assets, allowing users to provide passive liquidity on-chain AMM

▪️An on-chain risk engine that routes orders to any of the above liquidity sources at a cheaper price without custody of funds

Vertex Technology Stack Concept Overview

API&SDK

API

1. Websocket/REST API that supports writing (execution) and polling (query).

2. A websocket API that allows subscription to real-time data feeds.

SDK

Vertex provides a high-quality developer toolkit called the Vertex SDK, which allows anyone to seamlessly interact with Vertex smart contracts, whether it is other protocols or larger traders. This will facilitate community developers to provide more integration and composability with other dApps for projects, as well as allowing users to quickly transfer their assets in and out of the platform quickly without the need to use independent transfer services or other applications.

Tokenomics

VRTX is the governance token of the Vertex Protocol, designed to facilitate decentralized governance of the Vertex Protocol by stakeholders in the Vertex DAO. VRTX promotes decentralized participation while also creating xVRTX (liquidity staking token) and voVRTX (non-transferable voting share tokens of the protocol).

Users who pledge VRTX will receive xVRTX and voVRTX

▪️xVRTX is a transferable staking token representing a single vote in governance and eligibility to share a proportion of protocol revenue and emission.

▪️voVRTX represents the "user score" of the holder. The voVRTX token unlocks the user's eligibility for enhanced voting rights and specific ecosystem rewards. It is also a rating system to encourage staking xVETX. Staking xVRTX increases the score. Unstaked voVRTX will be reset to 0.

VRTX Token Supply and Distribution

The total supply of VRTX is 1 billion, of which 90.08% of the tokens will be distributed within 5 years. Once the 1 billion VRTX tokens are distributed, no new supply will be introduced.

VRTX Token Total Supply Distribution Chart

VRTX Token Annual Distribution Schedule

Governance

Vertex introduced Vertex DAO as the decentralized governance structure of its protocol. Vertex DAO is innovatively designed to maximize the decentralization of the protocol over time.

Governance participants make decisions on new features and directions for the Vertex protocol, such as the integration of new features, protocol upgrades, and adjustments to risk parameters. Governance will involve VRTX token holders through a phased approach. First will be version 1, and then will transition to version 2.

version 1

Vertex Governance Version 1 is the first on-chain protocol governance iteration for the protocol. The governance format enables anyone to participate in governance discussions related to the evolution of the protocol, providing a way for VRTX token holders to govern the protocol based on community votes.

Vertex DAO Governance Process

Version 2:

The Vertex DAO update introduces a new governance model consisting of multiple sub-committees formed by selecting core contributors to the protocol to form DAO members.

▪️Core Contributors: Core contributors provide valuable general and technical protocol work, implement features and make changes to the protocol.

▪️Sub-Council: The Sub-Council is a community-elected division of the workforce responsible for overseeing, managing, and prioritizing Apex governance.

▪️Elections [Nominees]: Subcommittee elections are open and occur on a rolling basis every 3 months. The Council will have the ability to vote out non-committed Council members during their Council seat.

VRTX stakers (> 0.01 VRTX) can nominate themselves for a (single) council position while submitting a governance proof with relevant experience and information.

▪️Election [Voter]: VRTX stakers participate in the election of subcommittee members. Members’ wallets must hold and stake VRTX tokens to gain voting rights (voting rights).

Ballots are counted twice, and at the end of the election period, the nominees with the highest weighted votes will be elected to their respective sub-council positions.

Comparison with mainstream DEX

Most mainstream DEX platforms cannot allow native Web2 users to smoothly enter Web3 from Web2. For beginners, it is very troublesome to use Metamask and complex protocols for hedging or leveraged trading. The complex operations have discouraged a large number of native users. Compared with traditional DEX, Vertex uses a hybrid Orderbook-AMM design, which allows users to trade at very low fees, thereby simplifying the order book. At the same time, since AMM is ideal for illiquid assets, by integrating AMM and order books, Vertex has the best of both worlds.

Investors and partners

In April 2022, Vertex Protocol completed an $8.5 million seed round of financing, led by Hack VC, Dexterity Capital, Jane Street, and Hudson River Trading, with Collab Currency, GSR, Lunatic Capital, Big Brain Holdings, Huobi Ventures, JST Capital and other institutions following suit.

Summarize

Vertex is a vertically integrated DEX that bundles spot, perpetual contracts, and integrated money markets into a unified trading platform. Trade with lightning speed, universal full margin, and a customizable, user-friendly trading interface. No more switching between dApps, trade, earn, and borrow directly in one DEX. Vertex's unique design combines the advantages of DEX and CEX, enabling self-custody like DEX and fast trading like CEX. In short, Vertex is pushing DEX to a higher level.

Disclaimer: This article is for research reference only and does not constitute any investment advice or recommendation. The project mechanism introduced in this article only represents the author's personal views and has no interest in the author or this platform. Blockchain and digital currency investment has extremely high market risks, policy risks, technical risks and other uncertainties. The price of tokens in the secondary market fluctuates violently. Investors should make decisions prudently and bear investment risks independently. The author of this article or this platform is not responsible for any losses caused by investors using the information provided in this article.