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Spot, Perpetuals, and Integrated Money Markets.
A decentralized exchange (DEX) is a cryptocurrency exchange operating on a decentralized network like Ethereum. It allows for peer-to-peer (P2P) trading of cryptocurrencies without intermediaries, such as centralized exchanges.
DEXs play a crucial role in decentralized finance (DeFi) as trustless and permissionless liquidity hubs for trading crypto assets. DEX users retain complete control over their assets – commonly known as self-custody.
DEXs usually operate under two models: automated market makers (e.g., AMMs like Uniswap) and central-limit orderbooks (e.g., CLOBs like dydx).
Vertex is powered by a hybrid model: unifying the central limit order book (CLOB) and AMM to provide optimal liquidity and access for all users.
Trading accounts on Vertex are cross-margined by default, meaning multiple positions’ liabilities are shared across a user’s portfolio to offset margin requirements. This allows for greater capital efficiency and increased trading activity while balancing risk.
Gas fees and MEV are minimized on Vertex as a result optimistic rollup model of the underlying Arbitrum layer two (L2), where Vertex’s smart contracts control the risk engine and core products.
Vertex is non-custodial, meaning users always retain control over their assets on-chain.
Vertex’s technical nucleus produces the optimal architecture for a vertically integrated product stack – containing three core products of DeFi. These include:
- 1.Spot Markets
- 2.Perpetual Markets
- 3.Money Market
Bundling three of the most popular DeFi products into a single DEX on Arbitrum produces an experience where users can tap into three financial primitives within one interface. As a result, users do NOT need to switch between siloed DeFi applications such as an AMM, perpetual DEX, or money market to access the most popular primitives of DeFi:
- Buying and selling assets.
- Going long or short derivative contracts with leverage.
- Borrowing/lending pooled assets.
Vertical product integration provides myriad advantages in capital efficiency, reduced costs for users, and an improved user experience overall. Liquidity and pricing are improved as arbitrage drives tight and efficiently priced markets for users to trade against. The features of each of Vertex’s three core products are defined below.
Spot markets refer to the buying and selling crypto assets for immediate delivery and payment. In other words, buying a crypto asset on an exchange’s spot market, with immediate settlement.
This is in contrast to other financial markets, where you may buy and sell assets for delivery at a future date – referred to as derivatives (e.g., perpetuals and futures) since their price is derived from the underlying asset.
Spot markets on Vertex trade 24/7 – meaning you can buy or sell assets at any time of day or night.
On Vertex, you always retain custody of your spot assets on-chain.
Vertex’s spot markets allow you to buy or sell listed crypto assets paired with USD-denominated stablecoins.
All spot assets on Vertex are quoted in USDC.
Launch spot markets on Vertex include:
- Others will be added over time
Additional resources relevant to trading on Vertex spot markets include:
Vertex plans to continually list new spot assets beyond the inaugural asset list upon mainnet launch. Eventually, it should be possible to translate Vertex across EVM-compatible chains, which will allow native spot asset listings for different Layer 1 and Layer 2 ecosystems outside of Arbitrum.
Perpetual futures contracts are derivatives that allow users to speculate on the price movements of crypto assets without taking delivery of the underlying asset. In contrast to conventional futures contracts, perpetual futures never expire and can be held indefinitely.
The contract price is tethered to the underlying asset’s spot price via funding rates. Funding rates modulate the incentive to trade long or short by assigning a positive or negative carry cost to a specific perpetual position.
When a perpetual’s price is higher than the spot price, traders with long positions (i.e., those betting that the price will go up) must pay a funding fee to traders with short positions (i.e., those betting that the price will go down). This funding fee helps to bring the perpetual price back in line with the spot price. Conversely, when the perpetual’s price is lower than the spot price, short traders are required to pay a funding fee to long traders, incentivizing the opposite behavior.
Perpetual products are primarily used for speculation and risk-hedging purposes and are the most popular futures product in crypto markets. Vertex’s perpetuals enable traders to go long or short crypto assets with up to 10X leverage to amplify price exposure or hedge risk.
Perpetual markets on Vertex trade 24/7 – meaning you can buy or sell assets at any time of day or night while retaining custody of your spot assets on-chain.
All of Vertex’s perpetual products use USDC as primary collateral.
Users can provide other spot assets as collateral in the Money Market, which Vertex’s cross-margin system can then leverage to back perpetual positions.
Launch perpetual markets on Vertex will include:
- More markets will be enabled soon after the launch.
Various parameters and other documentation sections relevant to perpetual markets on Vertex are enumerated below.
Perpetual Market Specifications:
Maximum Leverage (Perpetual): 10X
Going long or short a perpetual contract is more nuanced than buying or selling assets in Vertex’s spot market. Users should be aware of the prevailing risks associated with trading leveraged perpetual products.
Additional resources relevant to trading perpetual products on Vertex include:
Vertex plans to continually list new perpetual assets beyond the inaugural asset list upon mainnet launch. Please stay tuned to the Vertex socials and community channels for new perpetual product listing updates.
Vertex users are advised to be mindful of the risk involved in trading perpetual instruments. Please read relevant documentation on Vertex to fully comprehend the instruments you are trading and the prevailing risks involved.
Decentralized money markets allowing for the borrowing and lending of crypto assets have been a widespread success in DeFi. Typically they use overcollateralized lending rules to secure yields and lend to users without the need for intermediaries such as banks.
The prevailing interest rates for assets are set by smart contracts, creating predictable market behavior.
Vertex integrates a money market directly into the DEX. Users can borrow spot assets automatically using their portfolio margin to secure loans. The money market’s smart contracts are contained on-chain (e.g., on Arbitrum) and housed within the Vertex risk engine and clearinghouse.
Depositors are the liquidity providers (LPs) to the pool, earning a proportional share of the prevailing interest rates paid by borrowers – presenting a mechanism for passive yield on deposits. Vertex users automatically earn interest on their deposited, idle assets. The money market enables borrowing/lending for a specific asset at the prevailing interest rate in the pool – with interest rates a function of both the demand to borrow and the liquidity of the asset pool.
Vertex uses a dynamic interest rate model that adjusts to real-time demand in collateral pools.
Borrowers refer to spot margin borrowers, which are different from users going long or short perceptual products with leverage.
Technical parameters of Vertex’s money market include:
- Collateralization: Collateralization is a crucial parameter to ensure that the lending process is safe and secure. Borrowers must provide a certain amount of collateral in crypto assets, which must be maintained at a predetermined minimum level during the loan period. This collateral is held in a smart contract until the borrower repays the loan.
- Dynamic Interest Rate: The interest rate in a decentralized money market is determined by the supply and demand of assets. A dynamic interest rate is necessary to support healthy borrowing and lending. The interest rate is determined by an algorithm that considers the current market conditions and adjusts the rate accordingly.
As more borrowers enter the market and loan demand increases, the loan’s interest rate will rise. Similarly, if there are more lenders than borrowers, the interest rate will decrease to incentivize more borrowing.
An algorithm that considers the current supply and demand of assets in the pool determines the dynamic interest rate.
The dynamic interest rate calculations for Vertex’s integrated money market are expressed below.
For each spot product, there are four attributes:
- small_cap, large_cap, floor, and inflection.
- borrow_rate and deposit_rate calculated according to the market parameters, and utilization ratio on average every 15 minutes.
- Protocol fees are represented by a global attribute called interest_fee, and the value is 0.2 for now.
- r is the utilization ratio.
Utilization Ratio Formula
- Small_cap is the peak interest rate in the first part of the utilization curve.
- Large_cap is the peak interest rate at 100% utilization.
- Floor is the minimal rate for borrows.
- Inflection is the utilization rate where the interest rate curve steepens.
- Interest_fee is the protocol fee taken from the borrow/lending markets.
Calculations for borrowing and depositing are then computed as follows:
- borrow_rate is defined below:
Borrow Rate Calculations Formula
- deposit_rate is defined below:
Deposit Rate Calculations Formula
Automated Loan Management: To ensure that loans are managed automatically, smart contracts are programmed to execute based on predefined rules and conditions. If a borrower fails to maintain the required collateral level, keepers will liquidate the collateral and use it to repay the lender. On Vertex, loan management is rolled into the cross-margin function associated with each subaccount – making loans easier and more efficient to manage.
You can find details on aspects related to managing open borrow positions in the sections below:
Available money market pools on Vertex for borrowing/lending spot assets currently include:
Vertex plans to list new collateral assets soon. Additional collateral types will provide better utility and flexibility for users but will undergo rigorous risk analyses to maintain healthy collateral ratios across the platform.