Overview

Vertex utilizes a hybrid orderbook AMM design. Its trading and risk management system, which includes all Vertex offerings like spot trading, perpetuals, and money markets, functions onchain and is controlled by smart contracts on Arbitrum. Conversely, the sequencer, which acts as a high-performance orderbook that matches incoming orders from the protocol layer, operates offchain. This results in a hybrid model where the sequencer is responsible for trade ordering and routing. In this framework, the onchain AMM's pooled liquidity supports the bids and asks on the Vertex orderbook, acting as an additional market maker through smart contracts. The AMM liquidity is integrated with liquidity from automated traders via the sequencer, offering users a consolidated liquidity source. The sequencer ensures that trades are executed with the best available liquidity, making use of both limit orders and liquidity provider positions.

Since launching in 2023, Vertex has averaged 5th place in trading volumes across all perpetual exchanges on all chains. YTD Vertex has averaged between $9-$11B in monthly trading volume, thereby capturing a 5% market share. Below we show Vertex’s monthly volume market share since May 2023.

At first glance, a 5% market share may seem relatively low. However, the perpetual DEX market has become increasingly fragmented in 2024. The increasing levels of competition and hence fragmentation may bode well for the future Vertex. Thanks to Edge, the more chains that Vertex launches on, the more liquidity each of those chains inherits (discussed below). Meanwhile, increased fragmentation could hurt the long tail of perp DEXs in the space. Below we show the volume market share among multiple participants for this sector.

Vertex Edge

Vertex Edge is a novel synchronous orderbook liquidity product for unifying cross-chain liquidity across different chains. 
To operate this performant orderbook, Vertex utilizes a sequencer that takes inbound orders and matches them offchain. Unlike sequencers on an L2 which simply order transactions before submitting them to the L1, the Vertex sequencer is “stateful.” More precisely, the Vertex sequencer has the orderbook state of each chain and updates them accordingly. The state is sharded such that independent orders on one chain can be matched against liquidity from another chain. 

Once a match is found the trades are executed on both ends, with the sequencer assuming the opposite position of the incoming trades. This mechanism enables automatic hedging and liquidity rebalancing across different chains in the backend. Edge is designed to handle this order matching across multiple chains simultaneously, allowing for elevated efficiency with matching as quick as 5–15 milliseconds. In essence, Edge acts as a performant central liquidity hub for all connected chains.

Edge has flipped the script for the number of chains vs fragmentation. With this new paradigm, the more chains that support an instance of Edge the more liquidity each chain receives. For instance, with the Sei launch last month, users on this chain now have access to liquidity (like maker orders) from Arbitrum, Blast, and Mantle (and vice versa). What’s more is that matched orders are still settled locally onchain, specifically on the user's origin chain. Onchain settlement, with increased liquidity and tighter spreads, is a powerful combination for increasing blockspace demand of the local chain. This is particularly important for general-purpose chains as app chains may be seen as somewhat parasitic by removing capital (and potentially users) from the chain. Two of the most popular perp DEXs, Hyperliquid and dYdX, used general-purpose chains to bootstrap their app chains. While the logic for app chains may be sound, token holders of general-purpose chains would prefer for that trading activity to remain on their chain. Onchain settlement benefits the chain where the order originated from while users also benefit from liquidity on other connected chains. More chains lead to greater liquidity which leads to tighter spreads and a better trading experience. This can encourage more trading and hence more fees from onchain settlement. This creates a positive-sum environment where Vertex, users, and the chains all benefit from Edge being deployed on more chains. 

When looking at Vertex’s liquidity, Vertex uses a hybrid model combining an AMM and an offchain orderbook. This means that TVL alone may not capture the full picture of available liquidity, as the offchain component is not directly reflected in onchain TVL metrics. However, TVL can be used as a general indicator for liquidity as well as size and health. Below we show the TVL for Vertex over time.

Volume (and capital efficiency) can provide a more insightful measure of liquidity. For the year 2024, Vertex has recorded over $100B in trading volume. This is less than half of the leader, Hyperliquid L1, but double its next challenger, Aevo, in 5th place. Its positioning as the fourth most liquid exchange demonstrates strong market performance, especially compared to smaller exchanges like GMX, Satori, and APX. Below we show the YTD cumulative volumes of leading Perp DEXs in 2024.

While a holistic overview of Vertex is useful, below we dive a bit further into each of the Edge instances on the various chains. 

Edge Instances  

Arbitrum

Vertex first launched on Arbitrum in April 2023. This was beneficial as Arbitrum was and is still the L2 with the most DeFi activity. Vertex also submitted a proposal for Aribtrum’s Short-Term Incentive Program (STIP) grant, which was designed to incentivize projects within the Arbitrum ecosystem. Vertex’s proposal was approved and the project was allocated up to 3M ARB tokens. These tokens were distributed as trading rewards on the Vertex platform. Thanks to a combination of a friendly UX, an incentive program, and strong product features, Vertex quickly climbed the leaderboard in Arbitrum. At one point, Vertex was responsible for nearly half (47%) of all perps DEX volume on the chain. However, this was due to the upcoming TGE which saw volumes post-airdrop settle down to its previous steady state. Since the beginning of the year, Vertex has averaged 20% volume share on Arbitrum - the highest YTD average. Below we show the volume market share of Vertex on Arbitrum since its inception there.

When looking at the TVL of leading Perp DEXs, GMX is still by far the leader in this category with nearly $400M in deposits. Meanwhile, Vertex sits at ~$67M, more than double MUX at ~$31M. Below we show the TVL of leading Perp DEXs on Arbitrum.

Despite not being a leader in TVL, as previously discussed, volume and capital efficiency can give a more informed picture of the sector. While already a leader in volumes, Vertex also commands a strong position for capital efficiency. Below we show the capital efficiency ratios (volume / TVL) for leading Perp DEXs on Arbitrum.  

When taking into account volumes, TVL, capital efficiency, and branding, it is safe to say that Vertex had a successful launch on its origin chain, Arbitrum.

Blast

In line with Vertex’s strategy to build out its multichain platform, the second chain that Vertex launched on was Blast. The expansion to Blast showcased the first cross-chain instance of Vertex Edge, which was called Blitz. Blast was chosen in part due to the initial excitement and hype surrounding the Blast L2 launch and its incentive program. Blitz was one of the winners of the Blast Big Bang Competition (an incentive program similar to Aribtrum’s STIP). Blitz used the tokens from this program to incentivize trading on its platform.

However, after Blast’s TGE in July 2024, user activity and retention sharply declined. DAAs on Blast fell from a peak of 183K to 30K in one month and have remained at that level since. Furthermore, intense competition from other Perp DEXs who also participated in the Big Bang Competition weighed on volumes. Below we show the volume market share of Vertex on Blast since the launch of Blitz.

When looking at TVL, Vertex is counterintuitively in second place despite not having a proportionate amount of volumes. This is mainly due to the strong capital efficiency of the Perp DEXs on Blast. However, this isn’t too important as Blitz (Vertex) receives liquidity from three other chains as well thanks to Edge’s shared liquidity. Below we show the TVL of leading Perp DEXs on Blast.

All things considered, Vertex’s launch on Blast was mixed at best. However, it is still early days, and as more Edge instances arise, the spreads and liquidity on Blast should improve. Hopefully, after careful analysis, the team can take some transferable insights away from this endeavor. 

Mantle

The next chain to receive an Edge instance was Mantle at the end of June 2024. Thanks to strategic collaboration, Mantle offered 1M MNT tokens as trading rewards to early users of Vertex on the Mantle chain. This rewards program incentivized both makers and takers on the platform and encouraged active trading and liquidity provision. 

Vertex quickly amassed the majority of trading volumes on Mantle and currently stands at 60% of total volumes on the chain. Since its launch on Mantle two months ago, Vertex has already seen over $4B in trading volume - a feat that took the now second-largest perp DEX over seven months to achieve. Below we show the volume market share for Vertex on Mantle for 2024.  

In a similar vein, Vertex has also taken the #1 TVL spot among Perp DEXs on the chain with only ~$5M. Below we show the TVL of leading Perp DEXs on Mantle.

It would not be surprising to see Vertex continue to eat away at perp DEX market share on Mantle, albeit at a slower pace than the previous few months.

Sei

The last chain that Vertex has launched an Edge instance on so far was Sei - this occurred on August 14, 2024. An incentive program known as “Edging on Sei” was utilized whereby Vertex users earned loyalty points by trading, providing liquidity, or following specific social media accounts. 

Thanks to a strong commercial partnership, Vertex also launched a trading rewards program on Sei known as SEI Season 1. A total of 5.1M SEI tokens (worth USD 1.5M at the time) are currently being distributed as rewards over a six-week period, incentivizing activity on the Vertex platform. Unlike the previous chains, Sei is the first CosmWasm EVM chain on which Vertex launched an Edge instance. This launch took more engineering work than the prior EVM chains but will make launching on other CosmWasm chains more seamless moving forward. 

Despite only launching in the middle of August, Vertex is already the largest derivatives exchange on Sei when measured by both volume and TVL.  The volumes on the only other competing perp DEX quickly fell as Vertex launched its 4th Edge instance on Sei. Before Vertex, Sei only saw around ~$45M in cumulative volume, an achievement that took the new Edge insurance only a few days. It currently dominates the sector with nearly 100% of monthly trading volumes. Below we show the volume market share for Vertex on Sei for 2024.  

Vertex also dominates the sector with nearly 100% of the perp DEX TVL. Below we show the TVL of leading Perp DEXs on Sei.

Furthermore, the Sei network has been performing relatively well during the overall downturn in the crypto markets. DAAs, TVL, and trading volumes are near all-time highs. However, daily fees and the SEI token price remain close to all-time lows. As the dominant player in the sector, Vertex has a chance to grow with the network while retaining its monopolistic position.

TVL Breakdown 

In aggregate, Vertex has a TVL of $75M. However, because of the shared liquidity, users on each of Vertex’s four chains have access to the same maker liquidity. Below we show a breakdown of Vertex’s TVL by chain.

However, it should be noted that as of September 2, 2024, Edge constitutes over half (57%) of the taker volume for Vertex users. This highlights the efficacy of the combined Edge instances. Below we show the (normalized) daily taker volume over the last six months (excluding Mantle).

Launching on New Chains

Looking ahead, Vertex’s next course of action would be to continue its expansion of Edge and launch on a fifth chain. Vertex has been entirely focused on EVM-based chains which makes each new launch a smoother process than the previous one. Sei was a standout launch as it is a Cosmos-based EVM chain that utilized CosmWasm. However, even then the time to launch on Sei was relatively short. Below we show the time to launch between each chain.

While the time to launch between each chain has been materially reduced, this is not a trend that should be extrapolated. Rather, it should be viewed as an indicator of the project’s progress over time. For Vertex, the team working on the backend infrastructure can be ready to deploy on a new EVM-based chain in a couple of weeks. Meanwhile, the ramp-up can even be a bit less for the team working on the front end.

Despite the swift capabilities of the Vertex engineering teams, the largest dependency in the critical path is its GTM strategy. The team can rapidly launch but it is more apparent that they have been selective in doing so. A comprehensive cost-benefit analysis must be carried out before each chain is decided upon. The first three chains were all Ethereum L2s with promising teams, EVM-based, written in Solidity and initiated a rewards program coinciding with the launch. Sei was similar in most of these regards but instead was written in CosmWasm and was not an L2. After fulfilling the internal launching criteria, the commercial agreements between Vertex and the chain would likely take some time, whether that be through a DAO grant program or directly through a commercial partnership (especially if the chain hasn’t released a token yet). These discussions are vital as the benefits of an Edge instance on the target chain are not immediately obvious. 

This playbook has performed well for the most part. Vertex is one of the more popular and most capital-efficient perps DEX on Arbitrum. It is also the leading perps DEX on both Mantle and Sei after a relatively short time. However, despite the Blitz incentive program, its success on Blast never materialized to the same extent due to intense competition and a plethora of mercenary capital. 

We can examine the existing playbook and create a funnel system for the next likely chain on which Vertex will launch an Edge instance.

As no chain currently meets all the criteria, one from the second to last phase could be chosen. With precedence favoring L2s, Base and Optimism remain and if those two were weighted on each phase of the funnel head to head, Base would likely win due to its higher performance and greater levels of DeFi activity. However, if Gravity can gather meaningful activity it could also be a potential option to launch on. 

SVM-based chains would likely pass each stage of the funnel except the first. It would be challenging to rewrite an Edge instance to interoperate with an SVM-based chain. More time would be needed for these chains to prove themselves in the market before assigning resources is considered. 

New Features

• Fast withdrawal - Similar to an L2, Vertex batches transactions and submits them to the chain - these batches are submitted to the chain when gas fees are low, thereby reducing costs for users. Vertex Protocol has introduced "Fast Withdrawals," a feature designed to enhance user experience by significantly reducing the time it takes to withdraw funds from their platform. This allows Vertex users to bypass the chain’s bottleneck if the chain becomes congested. This process operates through a dedicated liquidity pool which sends assets to users before the sequencer submits the withdrawal transaction onchain. When the transaction is eventually submitted, the user’s original funds are used to refill said liquidity pool. This of course comes with an additional fee to the user.
   
• Multiple Accounts - Multiple Accounts on Vertex Protocol works by allowing users to create up to four sub-accounts under their main wallet address. Each sub-account functions as an independent trading entity with its own unique identifier, risk management, balance, and trading history. With an upcoming update, users will be able to transfer assets between these sub-accounts without external transactions, enabling them to manage different trading strategies or risk profiles separately.
   
• Skate Vaults - Through a partnership with Skate-Fi, users can now passively provide liquidity to major Vertex orderbook pairs and earn yield. This platform is the first stateless app and liquidity layer for multiple blockchains with non-custodial infrastructure. The vault employs advanced market-making strategies that generate yield on BTC and ETH perpetual futures. Specifically, the vault utilizes high-frequency orderbook market-making and funding rate arbitrage to maximize returns and minimize risks for liquidity providers. The vault's capital efficiency is enhanced by focusing on tighter spreads, maintaining a delta-neutral position to minimize market risk, and leveraging Vertex’s cross-margining system. During a two-month backtesting period, the Skate Vault settled over $250M in trading volume with a TVL of approximately $140K. 

Risks

While promising, there are some risks associated with this novel cross-chain protocol. Key risks for Aptos include technical execution, sector competition, and market risks.

Loss of liveness becomes more severe the more Edge instances that exist. The offchain sequencer will need to be even more performant and reliable as Vertex continues to expand. However, if the sequencer were to go offline, the protocol has a built-in fallback mechanism to ensure continued trading functionality. In this scenario, Vertex automatically switches to "Slo-Mo Mode" where the protocol defaults to using only the onchain AMM until the sequencer is up again. 

The perps DEX sector is characterized by intense and fragmented competition, with Vertex Protocol facing numerous established and emerging rivals, each striving to offer unique features and advantages. The landscape is further complicated by the emergence of app chains that are designed specifically for trading perpetual futures with no competing blockspace demand. Vertex aims to differentiate itself by offering a CEX-like experience with DeFi principles such as composability and self-custody. However, the protocol must contend with challenges such as attracting liquidity, navigating regulatory uncertainties, and continuously innovating to stay ahead in this highly competitive space.

Given the nature of perpetual contracts and leveraged trading, there exists inherent market risks. Extreme market volatility could potentially lead to cascading liquidations or other systemic issues. The team has a robust risk management system to handle market turbulence. Vertex’s multi-oracle approach means that price data is retrieved from both Stork and Chainlink. Liquidations are programmed to happen in a timely fashion and there is also an insurance fund of USDC to help maintain the creditworthiness of the platform. However, if the insurance fund is depleted, the system will attempt to socialize against other perpetual accounts in that market. If the account has already been settled, its losses will be socialized against all USDC holders.

Conclusion

Vertex has established itself as a formidable player in the perps DEX landscape. Its innovative hybrid orderbook AMM design, coupled with the groundbreaking Vertex Edge technology, has allowed it to capture a respectable market share and expand across multiple EVM chains efficiently.

The platform's success on Arbitrum, where it consistently maintains a strong position in terms of volume and capital efficiency, demonstrates its ability to compete effectively in established markets. While the expansion to Blast yielded mixed results, the rapid dominance achieved on both Mantle and Sei showcases Vertex's adaptability and the power of its cross-chain liquidity model.

Vertex's strategic approach to chain expansion, focusing on EVM-compatible networks and leveraging incentive programs, has proven largely successful. The reduced time-to-launch for each new chain integration highlights the team's growing expertise and the scalability of their technology. As Vertex continues to expand, it is well-positioned to capitalize on the increasing fragmentation of the perpetual DEX market, potentially consolidating liquidity across multiple chains through its Edge technology.

Looking ahead, Vertex's ongoing development of features like Fast Withdrawals, Multiple Accounts, and partnerships such as the Skate Vaults indicate a commitment to enhancing user experience and expanding its ecosystem. As the platform continues to evolve and potentially expands to new chains, it will be key to observe how Vertex navigates the competitive landscape and leverages its unique cross-chain liquidity model to further solidify its position in this competitive sector. 
 

 

Disclosure: This research report has been funded by Unlimited Technologies PTE dba Vertex Protocol. By providing this disclosure, we aim to ensure that the research reported in this document is conducted with objectivity and transparency. Blockworks Research makes the following disclosures: 1) Research Funding: The research reported in this document has been funded by the Aptos Foundation. The sponsor may have input on the content of the report, but Blockworks Research maintains editorial control over the final report to retain data accuracy and objectivity. All published reports by Blockworks Research are reviewed by internal independent parties to prevent bias. 2) Researchers submit financial conflict of interest (FCOI) disclosures on a monthly basis that are reviewed by appropriate internal parties. Readers are advised to conduct their own independent research and seek the advice of a qualified financial advisor before making any investment decisions.