Introduction

Vertex is an exuberant all-in-one liquidity hub for trading, yield, and debt. Its highly anticipated testnet opened to the public last week as it moves closer to the final stages of its launch. The protocol was initially building on Terra, but has now chosen Arbitrum as its home network.

Vertex bridges the gap between the Web2 and Web3 trading experience with its diverse product suite. Few decentralized exchanges offer a comprehensive and user-friendly trading UI/UX while even fewer offer more than one product. Simply put, Vertex is pushing to modernize the standard DEX.

The Problem

Centralized trading platforms like FTX have an endless track record of proving how disastrous custodial platforms can be for users. Decentralized exchanges (DEXes) were created as alternatives to these platforms, offering the ability to trade crypto without creating an account (permissionless) and without using a custodial wallet (trustless).

This is a massive innovation by comparison, so why do most DEXes still fall behind their centralized counterparts? Ultimately, Vertex believes they fail to meet the same convenience and UI/UX standards that most centralized platforms offer. This is suspected to be a combined result of:

• unfamiliar trading interfaces

• complicated UX for Web2 natives

• monolithic product design in DeFi → creates fragmentation

The Web3 trading experience can be so initially overwhelming for some Web2 natives that they immediately give up on it. Using Metamask, new concepts/UIs (e.g. swapping), and using more protocols just to hedge or leverage may be exhausting for new learners who can meet their needs with ease on their favorite CEX.

Most DEXes only meet the primitive needs of an advanced trader, whereas CEXes offer tools for leverage and hedging, cater to various types of markets (spot/perps), offer yield on idle assets, bridging, and most importantly, fiat on/off-ramps all in one place.

The Goal

Vertex effectively overhauls the DEX so users can enjoy the pros of both a centralized and decentralized exchange. The protocol will bring top-tier flexibility with multiple UIs, a money market for lending and borrowing, cross-margin spot and perps trading, and deep liquidity from a dually integrated AMM + order book.

In the decentralized aspect, users inherit the benefits of self-custody, a permissionless protocol, and an entirely trustless trading UX. The protocol is product agnostic, even implementing bridging and fiat on/off-ramp interfaces. Vertex models a CEX without being permissioned or non-custodial, and its uptime instead relies on a decentralized network. It combats fragmentation with its “under-one-roof” approach and ultimately allows traders to enjoy the best of both worlds.

How Does it Work?

As a vertically integrated exchange, Vertex powers spot and perps markets which offer limit orders and cross-margin trading. Users can also take advantage of the money market to comprehensively leverage or hedge positions, all while earning yield in the process!

The protocol’s frontend is easy to use and familiar. Users can navigate their portfolio, trading markets, or the lending and borrowing branch. In the Portfolio tab, users get an overview of their account balance and positions, yield they are earning, leverage and debt, trading history, and much more.

The Spot markets tab brings users to the main trading interface. Vertex will offer a range of different trading features, particularly cross-margin trading for spot and perps markets. In this, Vertex will be one of the few decentralized trading platforms where users can trade with idle collateral. Similarly, traders in the Perpetuals markets will be able to access up to 10x leverage using various collateral types.

The Vertex SDK allows anyone to seamlessly interact with Vertex smart contracts/markets. Whether it be other protocols or traders of larger size (market makers, sorry BitBoy), users can plug into Vertex to build on top of or simply run automated trading algorithms.

Bigger players will have the same CEX risk management tools at their disposal and won’t need to use several protocols in order to access them; they’ll all be under one roof. This alone has explosive potential for Vertex.

Vertex will source liquidity from both its onchain order books as well as well as an integrated AMM for all pairs. The AMM reinforces the base orderbook liquidity layer by acting as a sort of “backup generator”. Whether it be low volume and thin order books, or just a generally illiquid asset being traded, the AMM will fill in to prevent unnecessary slippage otherwise incurred without it.

So with this said, the orderbook is primarily used to facilitate most volume. Combined with Arbitrum’s network speed, Vertex will be able to rapidly match orders at low fees. In theory, this creates a perpetual flow or a “flywheel” as low costs attract more traders → create deeper books → generates more fees for LPs → incentivizes even deeper liquidity/less slippage → more volume (repeat). Vertex users are even protected from front-running thanks to Chainlink’s fair sequencing on Arbitrum.

Users will be able to access a bridging interface and a fiat on/off-ramp straight from the Vertex website. Traders can go as far as to customize important data pinned at the top of their screen such as their assets, liabilities, PnL, collateral ratio, and more.

Vertex considers traders from all backgrounds and skill levels by offering its Vertex Lite and Vertex Pro frontend. These UIs differ to accommodate both advanced traders and newer traders who may be intimidated by “busy” interfaces. For those that aren’t Web3-savvy, the protocol will even automate the creation of a self-custodial wallet via a simple social media/email sign-up.

Partnerships

Vertex has no established partnerships given the fact it is unlaunched, but it is expected to branch out with both its bridge and on/off-ramp partners. On top of that, the lending+borrowing/perps markets gives Vertex composable outlets to further grow its list of partners within the Arbitrum ecosystem.

Tokenomics

$VRTX is a multipurpose token of the Vertex protocol. It can be held, staked into the liquid, transferrable xVRTX derivative (similar to xSUSHI), or locked for the non-transferrable voVRTX booster token.

Users enjoy lower trading fees when paying in $VRTX. $VRTX can also be used to participate in “basket auctions” in which Vertex auctions off a portion of its revenue in discounted batches (USDC/BTC/ETH trading fees). In both cases, spent $VRTX is burned and voVRTX is given in return (3 month lock expiry). So, spenders essentially get their $VRTX back after 3 months. All burned $VRTX supplies the insurance fund.

Staked $VRTX (xVRTX) passes back Vertex trading fees and $VRTX emissions to the staker. It can be unstaked anytime, but unstakers must endure a two week waiting period before they can access their unstaked $VRTX.

Unlike a CEX, Vertex users retain distributed governance rights over the platform. xVRTX holders will be able to create new proposals or vote on changes to the protocol, however, the protocol’s official docs suggest this will not be an instant reality. A gradual transition towards fully decentralized governance is expected as Vertex’s minimum viable product (MVP) matures beyond its infancy.

The voVRTX token will serve as a grounding mechanism for governance and aligning incentives. Aside from trading fees and basket auctions, it can be obtained from locking xVRTX. voVRTX boosts fees earned, emissions earned, and increases voting power. Lockers have two options: pledging or insurance staking.

Pledgers lock their stake for 2 or more weeks (up to 6 months for max 2.5x boost), and receive a boost from their accruing voVRTX balance. Insurance Stakers lock for 3 weeks or more, in which up to 50% of their stake acts as collateral in the insurance fund. These lockers instantly receive the max 2.5x boost, and also get the exclusive ability to liquidate under-collateralized positions for extra yield.

Conclusion

Vertex is bringing a new, modern version of the decentralized exchange to Arbitrum. The platform will have all the usual features of a CEX that most DEXes lack, including a lending a borrowing market, a bridging interface, on/off-ramp for fiat, and advanced trading tools like cross-margin, limit orders, and leverage.

Vertex has a ton more in store for its users, and this potential only grows over time. As a whole, Vertex will take the DEX to the next level, and with it may inspire a new, explosive wave of “modernized” decentralized exchange in DeFi.

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DISCLOSURE: $VRTX does not exist at the time of writing this article. The information provided in this article is solely for educational purposes and should not be considered as financial advice. The views expressed in this article are my own and do not necessarily reflect the official policy or position of any company or organization. I have not been compensated in any way for writing this article. Readers should always conduct their own research and seek professional advice before making any financial decisions.