Competition in the derivatives DEX field is fierce. The leading ones include GMX, DYDX, and SNX, and the second-tier ones include Gains, MUX, Level, and ApolloX. At the same time, there is a steady stream of new protocols coming online.
Vertex is a derivatives DEX protocol that has performed well recently. Since its launch at the end of April 2023, its recent daily trading volume has accounted for approximately 10% to 15% of the capital pool model derivatives DEX market, and it obtained Wintermute in June 2023. strategic investment.
Note: This chart does not include the data of DYDX, but compares the derivative DEX with a fund pool model.
1. Business data
l Trading volume: Mainly through trading incentives, a high trading volume has been created, with the average daily trading volume in the last seven days being approximately US$40 million. The purple part is derivatives, and the yellow part is spot, mainly derivatives trading.
The daily trading volume is lower than that of the top derivatives DEX (DYDX/GMX/SNX), and the daily trading volume of the second-tier derivatives DEX is similar. Judging from the trading volume in the past seven days, Vertex has ranked among the top ten.
TVL: US$6.22 million, still relatively small, including four tokens, the specific composition is as follows:
DAU: The cumulative number of users is 1,842, and the number of daily active users in the past 7 days is about 200. In comparison, the number of daily active users of GMX exceeds 1,000, DYDX is around 700, and SNX is about 500.
Open Interest: There are a total of 7 trading pairs, with BTC and ETH occupying the main shares. The current holdings are approximately US$5.37 million. The position amount is also relatively low.
The holding amount of DYDX is about 300 million, the holding amount of GMX is about 150 million to 200 million, the Gain Network is about 30 to 50 million, and the Mux is about 20 to 50 million.
Fee: The accumulated gross income is approximately US$540,000. After deducting the rebate of US$86,000 to the maker, the net income is US$460,000.
2. Team and investors
Co-founder Darius is mainly responsible for external marketing activities.
Co-founder Alwin Peng previously worked at Jump trading as a blockchain engineer.
Vertex received strategic investment in June 2023 from Wintermute Ventures, the venture capital arm of cryptocurrency market maker Wintermute. Wintermute provides market making services for many well-known projects such as Arb, OP, and Blur.
Announcing its investment in Vertex, Wintermute said: “Vertex is led by a strong team of traders and engineers with a proven track record in the TradFi and DeFi markets and is at the forefront of smart contracts and market innovation.”
Previously, in April 2022, Vertex received US$8.5 million in seed round investment, led by Hack VC and Dexterity Capital, Collab+Currency, GSR, Jane St., Hudson River Trading, Huobi, JST Capital, Big Brain, Lunatic Capital and others also participated in the investment. Early investors received 8.5% of the tokens, which means Vertex’s seed round valuation is US$100 million.
Vertex was originally a project built on Terra. After Terra collapsed, the protocol migrated to Arbitrum.
3. Products
Provides one-stop DeFi business, including spot, contract, and lending markets. It mainly conducts business around the contract market. Most of the transactions are perpetual contract transactions. Spot and lending are mostly for contract services, so they are classified as derivatives. Product DEX.
Liquidity supply model: hybrid order book-AMM model
The liquidity supply model is the main difference between Vertex and other derivatives DEX. Vertex believes that off-chain order books are processed through FIFO (first in, first out), which can reduce MEV attacks and increase transaction execution speed. The on-chain AMM provides permissionless liquidity support, and traders can force transactions to ensure effective trading when the order book has insufficient liquidity.
Vertex implements the hybrid order book-AMM model through the following components:
On-chain trading venues (AMMs);
On-chain risk engine for fast liquidation;
Off-chain sequencer for order matching.
Figure: Vertex core component architecture
This means that in the Vertex trading platform, there are two types of liquidity, one is the order book liquidity provided by market makers through API, and the other is LP funds provided by smart contracts.
These two types of liquidity are combined through the sorter, and what you see on the front end of the page is a unified liquidity, which is traded according to the best available price. The figure below shows how the sorter uses order book liquidity and LP liquidity to complete transactions.
Process analysis:
The ETH-USDC pair is trading at $1,200.
Alice wants to buy 75 ETH on the market and sets the maximum slippage to 1%.
There is an order for 25 ETH worth of it on the order book at $1,200, so one-third of the trades are filled at $1,200.
The next set of order book sell orders (60 ETH in total) is for $1210.
However, there are 25 ETH LP positions with prices between $1,200 and $1,210. Therefore, the next third of the transactions are purchased from LP positions, with transaction prices between $1,200 and $1,210.
The final third of the trade was executed at $1,210.
Fund Efficiency: Universal Cross Margin Expands Margin Range
Vertex wanted to improve the efficiency of capital utilization and proposed the concept of "Universal Cross Margin", which mainly expanded the scope of margin.
There are two common margin models in derivatives trading. One is the isolated margin model, where a trading pair is an independent isolated margin account. Only the currency of the trading pair can be transferred, held, or borrowed in a specific isolated margin account. Each isolated margin account has an independent risk rate, which is calculated independently based on the assets and liabilities held under the trading pair. The risk of each isolated margin account is isolated, and once a margin call risk occurs, it will not have any impact on other isolated margin accounts.
The other is the Cross Margin model. Generally, a user has only one Cross Margin account, which can trade all supported currencies. The assets in the account are cross-collateralized and shared. The risk rate is calculated based on all assets and liabilities under the Cross Margin account. Once a margin call occurs, all assets under the account will be liquidated.
It can be seen that the capital utilization efficiency of the full-margin model is higher than that of the single-margin model. Based on this, Vertex proposed the Universal Cross Margin.
All funds (deposits, positions, and investment gains and losses) of users on the platform can be used for margin, including open positions in spot, perpetual contracts, and money markets. For example, users can earn fees by providing liquidity to the spot fund pool, and on the other hand, this LP fund can also be used as margin for contract trading. This improves the efficiency of fund use.
Universal Cross Margin also allows for portfolio margining, where unrealized profits can be used to offset unrealized losses or used as margin on existing positions or to open new positions.
In order to help users better manage the risks of their accounts, Vertex also provides account risk level prompts, so that users can directly see the health of their accounts on the page.
Accounts can be divided into two states: Initial and Maintenance. In the Initial state, it can also be divided into three types: medium, low and high risk according to the ratio of margin to liability. Maintenance status means that the initial margin usage exceeds 100% and no more positions can be opened. The margin needs to be replenished as soon as possible, otherwise it may face liquidation.
Due to Universal Cross Margin, liquidation is also a full position mode and will be closed in the following order:
The order is canceled and the order funds are released;
LP assets are released and sold;
Assets are liquidated (spot balances/contract positions);
Liabilities are liquidated (borrowed money).
If during the liquidation process the account's initial health returns to above 0, the liquidation will stop.
Lower transaction fees
Vertex's transaction fees are relatively low. Whether it is spot or contract, the maker fee is currently 0, and the taker fee is 0.01%-0.04%.
In order to encourage maker transactions, makers whose transaction volume exceeds 0.25% of the total transaction volume within a specific period (28 days, one epoch) can also receive rebates. The rebate ratio is as follows:
Compared with several major derivatives DEX markets, GMX's transaction fees are relatively high, with both opening and closing fees of 0.1%; DYDX's transaction fees are 0.02% to 0.05%, and decrease with the increase in trading volume; Kwenta's transaction fees are 0.02% to 0.06%.
4. Token Economic Model
VRTX is the governance token of Vertex Protocol, with a total supply of 1 billion, of which 90.08% will be distributed within 5 years.
The token distribution is shown in the figure below. A total of 46% is used for community incentives, of which 9% is used for initial token incentives and 37% is used for continuous incentives; a total of 41% is used for the team, treasury, ecological fund, and future contributors; 8.5% is allocated to early investors; and another 4.5% is used for liquidity. It should be noted that this allocation chart was disclosed to the public in early June 2022 and does not involve the Wintermute investment part. In general, it may be allocated from the treasury to new investors.
Vertex tokens will be distributed six months after the launch of the mainnet, which is expected to be in October 2023. The token release schedule is as follows:
Part of the tokens in the Initial token phase are used for transaction incentives before the token issuance. Users can track it on the reward page of the Vertex application. The official website clearly states that the relevant incentives can be claimed in October 2023.
There are 6 epochs in the Initial token phase, each epoch is 28 days, and each epoch rewards 15 million tokens. It is currently the 3rd epoch. The proportion of transaction incentive tokens is mainly considered by the weight of transaction fees. In addition, different transaction pairs have different rewards, as shown in the following figure:
The Vertex protocol tokens have not yet been issued, and due to the existence of trading incentives, it is impossible to avoid wash trading. Currently, the launch of derivatives DEX protocols relies on trading incentives. For example, Vela provided trading incentives in its beta version to stimulate the growth of trading volume. After most protocols go online, they still maintain trading incentives, such as DYDX, Kwenta, etc. Vertex is able to receive more adoption at this stage, indicating that funds have a positive view on the protocol token.
5. Summary
The competition for derivatives DEX is already a red ocean. A large number of projects use the Fork GMX model and deploy it on new public chains or the second layer, giving higher APR in an attempt to attract funds and earn profits. In comparison, Vertex provides some mechanical innovations, which are worthy of attention if it wants to create better liquidity and higher efficiency of capital use.
The risk that needs to be noted is that while its Universal Cross Margin improves the efficiency of capital use, it also increases the risk exposure of user assets, and traders need to control risks accordingly.
website: ldcap.com
medium：ld-capital.medium.com