Vertex Protocol Exchange

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What is Vertex Protocol?

Vertex is a non-custodial, cross-margined decentralized exchange (DEX) protocol offering spot, perpetuals, and an integrated money market on Arbitrum.

Vertex is powered by a hybrid unified central limit order book (CLOB) and integrated automated market maker (AMM), whose liquidity is augmented as positions from pairwise LP markets populate the orderbook.

Gas fees and MEV are minimized on Vertex due to the batched transaction and optimistic rollup model of the underlying Arbitrum layer two (L2). Vertex boasts extremely low-latency trading and effective liquidity utilization across a broader range of DeFi assets as a byproduct of its hybrid orderbook-AMM design. The off-chain sequencer architecture also helps to minimize the Miner Extractable Value (MEV) characteristic of Ethereum L1 while enabling lightning-fast trading.

Vertex provides a powerful, streamlined trading experience for DeFi. Maximizing the benefits of a hybrid central-limit orderbook (CLOB) and integrated AMM on a scalable L2 Arbitrum, Vertex offers users a frictionless and decentralized trading experience, replacing the need for CEXs and handing control back to the user.

Here are some of the key features of Vertex:

  • Universal cross-margining: Vertex allows you to manage all of your positions in a single margin account, which can help you to maximize your capital efficiency.
  • Lightning-fast speed: Vertex’s order matching latency is as low as 10-30 milliseconds, which means that you can execute trades quickly and easily.
  • Earn and borrow: Vertex’s integrated money market allows you to earn a yield on your deposits and borrow assets against your margin.
  • Self-custody: Vertex is a non-custodial exchange, which means that you always have control over your assets.
  • Intuitive and streamlined app: Vertex’s user interface is simple and easy to use, even for beginners.

If you’re looking for a powerful and streamlined trading experience in DeFi, then Vertex is a great option. With its low latency, universal cross-margining, and integrated money market, Vertex offers a number of advantages over traditional centralized exchanges.

How does Vertex Protocol work?

Here are the functioning components that bring the Vertex Protocol Exchange to life:

Hybrid Orderbook AMM Design

Vertex’s hybrid orderbook-AMM design combines the best of both worlds, providing users with the speed and liquidity of a centralized exchange (CEX) with the security and transparency of a decentralized exchange (DEX).

Protocol Level

The protocol level of Vertex consists of two core components: a constant product AMM and an on-chain risk engine. The AMM provides liquidity for spot trading, while the risk engine manages margin requirements and liquidations.

Off-Chain Sequencer

The off-chain sequencer provides low-latency order matching for traders who want to trade against limit orders. The sequencer also plays an important role in risk management, as it is responsible for matching orders and ensuring that all trades are executed fairly.

Key Takeaways

  • Vertex’s hybrid orderbook-AMM design provides users with the speed and liquidity of a CEX with the security and transparency of a DEX.
  • The protocol level of Vertex consists of a constant product AMM and an on-chain risk engine.
  • The off-chain sequencer provides low-latency order matching and plays an important role in risk management.

Benefits of Vertex’s Hybrid Design

There are several benefits to Vertex’s hybrid design:

  • Speed: Vertex’s order matching is as fast as a CEX, thanks to the off-chain sequencer.
  • Liquidity: The AMM provides deep liquidity for spot trading, even for illiquid assets.
  • Security: The on-chain risk engine ensures that all trades are executed fairly and that margin requirements are met.
  • Transparency: All transactions on Vertex are transparent and auditable.

Conclusion

Vertex’s hybrid orderbook-AMM design is a powerful new approach to decentralized exchange. It provides users with the best of both worlds, offering the speed and liquidity of a CEX with the security and transparency of a DEX.

Universal Cross-Margin

Vertex offers universal cross-margining, which means that all of your positions share the same margin pool. This can be beneficial for traders because it allows them to use their capital more efficiently and reduce their risk of liquidation.

Advantages of Universal Cross-Margin

There are several advantages to using universal cross-margining, including:

  • Lower margin requirements: Because your positions share the same margin pool, you can often get away with using lower margin requirements for each position. This can save you money on fees.
  • Reduced risk of liquidation: Because your positions share the same margin pool, if one position starts to lose money, the other positions can help to offset the loss. This can help to prevent your account from being liquidated.
  • More flexibility: With universal cross-margining, you can open more positions with the same amount of capital. This gives you more flexibility to trade and manage your risk.

How Universal Cross-Margin Works

When you open a position on Vertex, the amount of margin required for that position is calculated based on the size of the position and the volatility of the underlying asset. The margin is then deducted from your account balance.

If you open multiple positions, the margin requirements for each position are added together. The total margin requirement is then deducted from your account balance.

If the value of one of your positions starts to lose money, the margin requirement for that position may increase. If the margin requirement for a position exceeds the amount of margin in your account, your position may be liquidated.

How to Use Universal Cross-Margin

To use universal cross-margining, you don’t need to do anything special. When you open a position on Vertex, the margin requirements for that position will be calculated automatically and deducted from your account balance.

If you want to learn more about how universal cross-margining works, you can visit the Vertex documentation.

Example of a Cross-Margin Trade Strategy

One popular trade strategy that can benefit from universal cross-margining is the basis trade. A basis trade is a trade that profits from the difference between the price of a spot asset and the price of a futures contract on that asset.

For example, you could buy ETH on spot and sell ETH perps. If the price of ETH goes up, the value of your spot position will go up, and the value of your perp position will go down. The difference between the two price movements will be your profit.

With universal cross-margining, you can use the same margin for both your spot and perp positions. This means that you can use less margin overall, which can save you money on fees.

Conclusion

Universal cross-margining is a powerful tool that can help traders to use their capital more efficiently and reduce their risk of liquidation. If you’re looking for a way to improve your trading performance, universal cross-margining is a great option to consider.

Subaccounts, Isolated Margin, and Health

Vertex offers a unique subaccount system that allows traders to isolate risk and manage their capital more efficiently. Each subaccount has its own margin, balances, positions, and trades. This means that if one subaccount is liquidated, the other subaccounts will not be affected.

In addition to subaccounts, Vertex also offers isolated margin. This means that traders can choose to isolate the risk of a single position to that position alone. This can be useful for traders who want to take on more risk with a specific position, but don’t want to risk their entire account.

Vertex also uses a concept called “health” to determine if an account can open new positions or can be liquidated in the event of adverse price movements. Health is calculated based on the value of all assets in an account, as well as the riskiness of those assets. This means that assets with higher risk will have a lower health score, and assets with lower risk will have a higher health score.

How Subaccounts, Isolated Margin, and Health Work Together

Subaccounts, isolated margin, and health work together to provide traders with a high degree of flexibility and control over their risk. For example, a trader could create a subaccount for each asset class they trade. This would allow them to isolate the risk of each asset class to that subaccount alone.

The trader could also use isolated margin to take on more risk with a specific position. For example, a trader could open a long position on BTC with isolated margin. This would mean that if the price of BTC falls, the trader would only lose the amount of margin they deposited for that position.

The health of an account is important because it determines if the account can open new positions or can be liquidated. If the health of an account falls below a certain threshold, the account will be liquidated. This means that the trader will lose all of the assets in the account.

Here are some additional details about each of these features:

  • Subaccounts: Subaccounts are independent accounts within a single Vertex user account. This means that each subaccount has its own margin, balances, positions, and trades. This can be useful for traders who want to isolate risk and manage their capital more efficiently.
  • Isolated Margin: Isolated margin is a type of margin that allows traders to isolate the risk of a single position to that position alone. This means that if one position is liquidated, the other positions in the account will not be affected.
  • Health: Health is a measure of the financial health of a Vertex account. It is calculated based on the value of all assets in an account, as well as the riskiness of those assets. This means that assets with higher risk will have a lower health score, and assets with lower risk will have a higher health score.

Conclusion

Vertex’s subaccount system, isolated margin, and health system provide traders with a high degree of flexibility and control over their risk. This makes Vertex a great platform for traders who want to manage their risk effectively.

Vertex Exchange Liquidation Process

The liquidation model of Vertex aims to safeguard the protocol and its users from a potential systemic bankruptcy. When an account’s maintenance health dips below zero, it triggers a liquidation event. The liquidation process of assets and perpetual positions from the user’s subaccount undergoes the following stages:

  1. All pending orders are canceled.
  2. Liquidity Pools (LPs) are decomposed.
  3. The assets are liquidated, which include spot balances, long spreads, and perps.
  4. Liabilities such as borrows and short spreads are liquidated subsequently.

Users have the flexibility to acquire assets from the liquidating account at a discounted rate or repay its liabilities with a markup until the account’s initial health is restored to above zero. The liquidation process is halted once the initial health of the account surpasses zero.

Pricing Model During Liquidation

During a liquidation event, liquidators specify the asset type and the amount they wish to liquidate. The liquidation price is set at a midway point between the oracle price and the price influenced by the maintenance weight. The gross and net profits for liquidators are calculated with the following formulas:

  1. For Long positions:

Gross Profit: oracle_price * (1 – maintenance_asset_weight) / 2

Net Profit: oracle_price * ((1 – maintenance_asset_weight) / 2 )* 0.75

  1. For Short positions:

Gross Profit: oracle_price * (maintenance_liability_weight – 1) / 2

Net Profit: oracle_price * ((maintenance_liability_weight – 1) / 2 )* 0.75

Please note that the Vertex protocol deducts 25% of the profit made by liquidators as fees, which are then transferred into the insurance fund to maintain the protocol’s health.

Optimizing Liquidation Events

Liquidators can nominate any asset type and amount for liquidation, but the total can be reduced to ensure that the optimal number of liquidations occurs to restore the liquidatee’s Initial Health back to zero. This approach aims to minimize the user impact as much as possible.

Role of Insurance Fund and Socialized Losses

The insurance fund plays a vital role in maintaining the platform’s creditworthiness. The fund, primarily filled with USDC, is used to cover shortfalls when an account faces bankruptcy. Initially, the core team seeds the fund, after which it is sustained with a portion of the revenue generated from liquidations.

When an account is insolvent, the insurance fund steps in to cover the losses, thereby avoiding loss socialization. However, if the fund gets depleted, the system attempts to distribute the losses across other perpetual accounts in that market. If the account has been settled already, its losses are distributed among all USDC holders.

In summary, the steps to handle losses are as follows:

  1. Use the Insurance Fund.
  2. Implement Perpetual Account Socialization.
  3. Initiate USDC Depositor Socialization.

Vertex Protocol Fees

Vertex is a decentralized exchange (DEX) that charges trading fees to generate protocol revenue and incentivize market makers to provide liquidity.

Vertex’s trading fee model is competitive with centralized crypto exchange venues, offering cheap trading for takers and zero fees for makers on major pairs like BTC/USDC and ETH/USDC for both spot and perpetuals.

In addition to trading fees, Vertex also charges sequencer fees for interactions with the Vertex Sequencer, which is a central-limit orderbook (CLOB) that matches inbound orders into the protocol.

The sequencer fees are as follows:

  • Deposit = 0 USDC
  • Submitting a Liquidation = 1 USDC
  • Withdrawing Collateral:
    • BTC = 0.00004 BTC
    • ETH = 0.0006 ETH
    • USDC = 1 USDC
  • Placing an order that takes liquidity from the book = 0.1 USDC
  • Minting/Burning LP Tokens = 1 USDC

The sequencer fees are only charged if the operation is successful. For example, if you submit a collateral withdrawal request that causes your account to be under-collateralized, you will not be charged fees for the failed action.

Vertex’s fee model is designed to promote liquidity, which is defined as tight spreads and low slippage. By offering competitive fees and incentives for market makers, Vertex aims to attract a large pool of liquidity and create a more efficient trading environment for its users.

Here are some additional details about Vertex’s fee model:

  • The maker/taker fee structure is designed to reward market makers for providing liquidity to the protocol. Makers who contribute in excess of 0.25% of maker volume in a given epoch are eligible for fee rebates.
  • The VRTX token trading rewards program incentivizes market makers to provide liquidity by awarding them with VRTX tokens. The amount of VRTX tokens awarded is based on a scoring function that prioritizes market support, uptime, and fees.
  • The minimum depth and maximum spreads per market are designed to ensure that there is sufficient liquidity available for users to trade without experiencing excessive slippage.

Overall, Vertex’s fee model is designed to promote liquidity and create a more efficient trading environment for its users. The competitive fees and incentives for market makers are a key part of this effort.

Understanding VRTX Token Supply Distribution

The Vertex Token, represented as $VRTX, serves as the governance token for the Vertex Protocol, enabling decentralized governance through the involvement of stakeholders in the Vertex DAO. The VRTX token is versatile and can be transformed into two subtypes, each serving unique purposes within the tokenomics and governance structure of Vertex.

These subtypes include:

  1. xVRTX
  2. voVRTX

The xVRTX token, a liquid staking token, symbolizes a single vote in governance and eligibility to claim a proportional share of the protocol’s revenues and emissions. On the other hand, the non-transferable voVRTX token functions as a “user score,” providing users with amplified voting rights and specific ecosystem rewards, particularly for activities such as utilizing VRTX for trading fees and staking xVRTX in the Insurance Fund.

Detailed Overview of VRTX Token Supply and Distribution

The total supply of VRTX tokens amounts to 1,000,000,000. Out of this, 90.08% will be gradually distributed over a span of 5 years. This total supply is immutable and upon distribution of the entire 1 billion VRTX tokens, no additional tokens will be added to the supply.

The distribution process will commence six months post the mainnet launch, in conjunction with the initiation of the Vertex DAO’s VRTX-based governance. An introductory trading rewards program, comprising 9.0% of the total VRTX supply, will be launched simultaneously with the mainnet. These tokens will be observable on the Vertex app and claimable after six months.

Breakdown of VRTX Token Supply Allocation and Distribution Schedule

Each category of yearly VRTX token distribution entails specific descriptions. The ongoing incentives relate to the protocol’s emissions as a part of the Vertex Trading Rewards program, with a cap on the emissions at a maximum monthly value of $10M USD. Any remaining tokens will be incinerated. The token emissions from ongoing incentives will gradually decrease over time, and tokens can either be vested instantly at a 50% discount with the relinquished amount being incinerated or vested continuously over three months.

The initial token phase comprises the initial Vertex Trading Incentives Program (VTIP), which will be launched concurrently with the Vertex mainnet. This program, which encompasses 9.0% of the VRTX supply, is a one-time allocation of VRTX tokens available via trading rewards. Early investors, who participated in the Vertex seed round fundraising of $8.5 million in 2022, will have their tokens vested over a timeline that broadly spans 2-3 years from project inception.

VRTX tokens making up 1.5% of the supply will be unlocked at Genesis and designated for the initial liquidity of the VRTX-USDC LP pool on Vertex’s integrated AMM, referred to as the Initial VRTX Liquidity. Similarly, the Market Maker (MM) Liquidity comprises 3% of the VRTX token supply, which will also be unlocked at Genesis and earmarked for VRTX liquidity market making on third-party exchange platforms.

The Future Contributors allocation serves as a reserve for the future expansion of the team. Once vested, these tokens will be transferred into the Protocol Treasury for potential use but may not necessarily enter circulation. The Ecosystem Fund, a reserve to facilitate Vertex’s ecosystem growth, will have 50% of its allocation unlocked at Genesis (which represents 4% of the VRTX supply), with linear vesting at 1% per year.

The Protocol Treasury is a pool of assets managed by the decentralized DAO and is employed as a strategic reserve for diverse uses such as operational costs, fundraising, and ongoing costs. At Genesis, 50% of the Protocol Treasury will be unlocked (which constitutes 4% of the VRTX supply), with a linear vesting of 1% per year. The Founding Team allocation corresponds to the VRTX holdings of the core Vertex team, with the vesting timeline aligning broadly with 2-3 years post the inception of the Vertex Protocol on mainnet.

VRTX Token Emissions

The VRTX token emissions, or the annualized inflation rate, are set to decrease annually following the Token Genesis Event (TGE) until the capped total of 1 billion VRTX tokens have been distributed. The token emissions can be viewed in the context of the annualized inflation rate versus the month after TGE.

Vertex Protocol Staking Tokenomics

Vertex uses two token sub-types called xVRTX and voVRTX.

  • xVRTX is a liquid and transferable staking token that represents a single vote in governance and a share of a pooled group of assets that will grow over time as it is supplemented with a share of revenue and token emissions.
  • voVRTX is a user score for boosts to voting share and rights to certain rewards within the Vertex ecosystem. It can be earned by:
    • Holding xVRTX in voVRTX boosting
    • Insurance staking
    • Paying trading fees in VRTX
    • Purchasing a basket of cryptocurrency fees with VRTX

Here is a more detailed explanation of each of these methods:

  • xVRTX Boosting: Users can stake xVRTX for a minimum of 2 weeks to earn voVRTX. The amount of voVRTX earned per hour is based on the amount of xVRTX staked. Users can withdraw their xVRTX at any time, but their voVRTX will be set to zero if any xVRTX are unpledged.
  • Insurance Staking: Users can stake xVRTX in the insurance fund to earn a boosted voVRTX score and a share of liquidation revenue. In return, their xVRTX will be subject to a minimum lockup of 3 weeks and up to 50% of their holdings may be liquidated if the insurance fund is drained.
  • Paying Trading Fees in VRTX: Users who pay trading fees in VRTX will receive 50 voVRTX per VRTX spent. The spent VRTX is effectively converted to voVRTX, with an expiry of 3 months.
  • Purchasing a Basket of Cryptocurrency Fees with VRTX: The protocol offers baskets of cryptocurrencies for sale in auctions. These tokens come from protocol revenue and VRTX is the only accepted payment. At the end of the auction, the winners receive the coins, their VRTX payments are burned, and they also receive voVRTX. The spent VRTX is effectively converted to voVRTX for a period of 3 months.

Overall, xVRTX and voVRTX are two different token sub-types that serve different purposes within the Vertex ecosystem. xVRTX is used for governance and staking, while voVRTX is used to boost voting power and earn rewards.

Trade to Earn on Vertex Decentralized Exchange

Vertex is offering a trading rewards program to acknowledge long-term users. Rewards will be distributed in two phases:

  • Initial Token Phase: 9% of the total $VRTX supply will be distributed over 24 weeks, starting from April to October 2023.
    • Rewards will be split 50/50 between takers and makers.
    • Takers are the majority of regular traders who pay fees for trading on Vertex. Rewards to takers will be distributed proportionally according to the fees they pay.
    • Makers are traders who provide liquidity to the exchange and typically trade electronically to help support trading by updating prices on a 24/7 basis. To be eligible for maker rewards, traders must meet the requirements set out in the Market Making Programme.
  • Ongoing Emissions Phase: 37% of the total $VRTX supply will be distributed in the ongoing emissions phase, which will commence in October 2023. More details will be provided closer to the date.

How to Earn Rewards:

To earn rewards, you simply need to trade on Vertex. The more fees you pay, the more rewards you will earn.

Here are some additional details about the Vertex trading rewards program:

  • Rewards will be distributed in real time, so you can start earning rewards as soon as you start trading.
  • Rewards will be paid in $VRTX tokens, which are the native token of the Vertex protocol.
  • $VRTX tokens can be used to participate in governance and share in the protocol’s revenue.
  • The Vertex trading rewards program is designed to incentivize long-term trading and market making on the Vertex protocol.

If you’re interested in learning more about the Vertex trading rewards program, please visit the following link: https://vertex-protocol.gitbook.io/docs/community-token-and-dao/trading-rewards-detailed-mechanism

Conclusion:

Vertex’s trading rewards program is a great way to earn $VRTX tokens, which can be used to participate in governance and share in the protocol’s revenue. If you’re a regular trader, I encourage you to sign up for Vertex and start earning rewards today.

Final Verdict on Vertex Protocol – Lets Add Vertex to our arsenal!

Lets summarize what we’ve worked through to better understand the Vertex Protocol Exchange.

  • Vertex is a decentralized exchange (DEX) that offers a hybrid orderbook-AMM design.
  • Vertex’s trading fee model is competitive with centralized crypto exchange venues, offering cheap trading for takers and zero fees for makers on major pairs like BTC/USDC and ETH/USDC for both spot and perpetuals.
  • In addition to trading fees, Vertex also charges sequencer fees for interactions with the Vertex Sequencer, which is a central-limit orderbook (CLOB) that matches inbound orders into the protocol.
  • Vertex uses two token sub-types called xVRTX and voVRTX.
    • xVRTX is a liquid and transferable staking token that represents a single vote in governance and a share of a pooled group of assets that will grow over time as it is supplemented with a share of revenue and token emissions.
    • voVRTX is a user score for boosts to voting share and rights to certain rewards within the Vertex ecosystem. It can be earned by:
      • Holding xVRTX in voVRTX boosting
      • Insurance staking
      • Paying trading fees in VRTX
      • Purchasing a basket of cryptocurrency fees with VRTX
  • Vertex is offering a trading rewards program to acknowledge long-term users. Rewards will be distributed in two phases:
    • Initial Token Phase: 9% of the total $VRTX supply will be distributed over 24 weeks, starting from April to October 2023.
      • Rewards will be split 50/50 between takers and makers.
      • Takers are the majority of regular traders who pay fees for trading on Vertex. Rewards to takers will be distributed proportionally according to the fees they pay.
      • Makers are traders who provide liquidity to the exchange and typically trade electronically to help support trading by updating prices on a 24/7 basis. To be eligible for maker rewards, traders must meet the requirements set out in the Market Making Programme.
    • Ongoing Emissions Phase: 37% of the total $VRTX supply will be distributed in the ongoing emissions phase, which will commence in October 2023. More details will be provided closer to the date.

Vertex is a promising new DEX with a number of unique features. The hybrid orderbook-AMM design, competitive trading fee model, and trading rewards program are all designed to attract users and create a sustainable ecosystem. I encourage you to learn more about Vertex and consider participating in the trading rewards program.

Vertex Protocol Exchange

Save 10% on trading fees on Vertex Protocol – activate now.