DeFi Revelations - Vertex Protocol

In this episode of DeFi Revelations which took place on July 17, 2024, Kirk from Revelo Intel hosted Darius Tabai from Vertex to discuss Vertex’s innovative architecture, cross-chain perpetuals trading, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Darius Tabai (Guest) – Co-Founder of Vertex

Vertex – a cross-margined DEX protocol offering spot, perpetuals, and an integrated money market bundled into one vertically integrated application on Arbitrum

Vertex Protocol’s Innovations in Perpetual Swaps and Cross-Chain Functionality

Darius shares his background in trading since 2004, including stints in currency options, metals, and commodities trading. He recounts his initial foray into Bitcoin and BitMEX in 2016-17, where he engaged in arbitrage and cash-and-carry strategies. The excitement rekindled during the 2020 COVID-19 pandemic led him to fully transition into the crypto space and co-found Vertex with a team of experienced traders from Jump, Goldman, and other institutions.
Kirk asks about what sets Vertex apart in the competitive perpetual swaps space.
Darius highlights several key differentiators:
- UI/UX Excellence: Initially, poor UI/UX in the space presented an edge. While this has become less unique as others improved, Vertex continues to excel in this area.
- Speed: Vertex maintains a significant speed advantage, which, although primarily beneficial for liquidity and high-frequency trading (HFT), remains a notable feature.
- Capital Efficiency: Vertex uniquely allows cross-collateralization and cross-margining across positions, enhancing portfolio management and enabling integrations like Pear Protocol for pair trading.
- Cross-Chain Sequencer: Vertex’s sequencer operates across multiple chains (Arbitrum, Mantle, and Blast under the Blitz brand), providing users with consistent UX, liquidity, and speed. This cross-chain functionality eliminates cold start problems when expanding to new chains, offering a network of synchronous exchanges rather than isolated ones.

Vertex’s Cross-Chain Strategy and Scalability

Kirk asks Darius about the decision to integrate with multiple chains instead of launching their own L1 or L2, considering other platforms like dYdX and HyperLiquid have chosen the latter.
Darius explains that while they considered the app chain thesis, they found that EIP-4844 significantly reduced the cost of call data gas, making cross-chain operations more appealing.
Darius compares chains to countries and Vertex to a multinational corporation, benefiting from aligning with multiple foundations rather than being confined to one ecosystem. This approach allows Vertex to consume block space, keep users happy, generate revenue, and leverage the resources and communities of various chains. Darius notes that about 50% of Vertex’s volume now happens on non-Arbitrum chains, illustrating the success of this strategy.
Kirk asks how Vertex manages Oracle dependencies and scales differently than other protocols.
Darius acknowledges that while Vertex uses Oracles for liquidations and funding, trading activities do not depend on them. He contrasts Vertex’s order book model with GMX‘s pool-based model, praising GMX’s achievements but pointing out its scalability limitations. Vertex’s order book model avoids high funding rates and adverse selection costs, providing a more efficient and scalable solution.

Exploring Vertex Edge: The Psychology of Points and Efficient Cross-Chain Trading

Darius reflects on the effectiveness of points programs, noting their behavioral appeal despite the lack of clear economic rationale. He admits to being surprised by their popularity and the willingness of users to speculate on undefined rewards.
Darius talks about how the speculative nature of points markets leads people to imagine high potential rewards, even without concrete promises. This behavioral aspect drives engagement despite the economic irrationality.
Kirk shifts the focus back to Vertex Edge, asking about the secret behind maintaining low latency and seamless cross-chain trading.
Darius explains that on-chain order books aren’t feasible due to latency issues. Vertex uses a central server with a rust-based EVM environment, maintaining chain state and executing trades in low latency. This setup allows them to predict and fast-forward the future state of chains like Arbitrum.
Darius talks about the concept of the X account, an internal account balancing positions across different chains. This system minimizes the need for frequent bridging of assets between chains, as the distribution of wins and losses typically balances out. So far, Vertex has only needed to bridge assets a few times in several months, indicating the efficiency of their model.
Kirk asks about potential challenges if one chain, like Base, attracts a disproportionate number of traders and trades.
Darius says that larger chains with more trading activity naturally balance themselves out better than smaller, newer chains with fewer traders taking large directional bets. He mentions that chains like Base, integrated with Circle’s CCTP, make bridging easier and more cost-effective.
Kirk asks about Vertex’s strategy for expanding to new chains, particularly smaller, riskier ones.
Darius highlights their goal of onboarding as many chains as possible, aiming for a model where Vertex becomes synonymous with cross-chain trading. They want to create a network of synchronous exchanges across multiple chains, making Vertex a foundational product for users regardless of the chain they choose to use.

Vertex’s Vision: Expanding Trust, Security, and Market Reach in the Crypto Space

Kirk asks about the off-chain components of Vertex and potential risks such as front running and MEV (Miner Extractable Value).
Darius dismisses the concerns about front running and MEV, highlighting that MEV is a significant issue on-chain and not unique to Vertex. He explains that Vertex does not engage in trading or front running, and the latency of their system minimizes the opportunity for such activities. More importantly, Vertex is designed to ensure low-latency trading, making it difficult for any front-running to be profitable.
Darius talks about security concerns, particularly around the sequencer. He says that Vertex operates multiple nodes with signing keys, providing an initial level of decentralization. This setup ensures that multiple team members must sign off for changes, enhancing security. The goal is to evolve this into a fully decentralized system that combines high performance with secure, distributed architecture.
Kirk asks if Vertex will ever adopt a system like AVS secured by restaking.
Darius keeps the door open for future possibilities, acknowledging that further decentralization stages might involve such considerations. For now, Vertex focuses on internal decentralization and ensuring the sequencer’s security. They remain cautious about introducing new complexities too early.
Kirk asks about Vertex’s future, specifically their plans for expansion to new chains and ongoing product development.
Darius shares that Vertex is in a good place product-wise, with user feedback driving further improvements. The focus now is on expanding to multiple chains and building strong relationships with various foundations. This strategy aims to align incentives and grow Vertex’s user base and liquidity. He highlights the importance of continuous growth and adaptation to meet user needs and industry developments.
Kirk asks about Vertex’s market maker relationships and their ability to scale liquidity across new chains.
Darius confirms that while they are always looking to expand liquidity, the current phase is about building and solidifying relationships. Expanding to new chains brings more liquidity, better incentives, more users, and broader marketing partnerships. Each new chain introduces Vertex to new users, helping to build a robust and expansive network.

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Show Information

Medium: YouTube (Video)

Show: Revelo Intel – DeFi Revelations

Show Title: How Vertex’s Architecture Achieves Lightning-fast Perps Trading Across Chains

Show Date: July 17, 2024