Vertex Edge — EVM Alignment & Advantages for Base Layers
The recent introductory post for Vertex Edge provided a conceptual foundation for the underlying technology and upcoming plans for Blitz — the first non-Arbitrum Vertex Edge instance.
Now, let’s dig a bit deeper into some of the nuances and advantages that Vertex Edge provides to various types of market participants.
EVM Protocol & App Layer Alignment
At its core, Vertex Edge introduces an innovative synchronous orderbook design. This design packages Vertex’s powerful DEX into a shared liquidity layer spanning multiple blockchains with features such as:
- A Cross-Chain Orderbook that integrates liquidity across different blockchains, enhancing market depth and reducing slippage.
- Unified Money Markets offer more consistent and reliable lending and borrowing opportunities.
- Spot and Derivatives Trading with enhanced efficiency and lower latency.
Primary to Vertex Edge is the emphasis on alignment between EVM chains and the app layer which is embedded in its design.
Since trades from Vertex Edge’s cross-chain trading engine settle on-chain, all on-chain activity remains on the host chain. Each Vertex instance displays the combined orderbook liquidity of all connected chains on the app’s trading interface (e.g., the orderbook), but activity and value accrue to the host chain, rather than an alternative settlement or execution layer (a problem with many cross-chain solutions).
Matched orders aggregate at the Sequencer level but still settle locally on-chain to the origin chain of the user. A trade can match between a user on Blast and a user on Arbitrum, with settlement occurring on both chains simultaneously.
On-chain trading activity is never extracted from the supported base layer to be settled elsewhere, a common problem for DEXs built on app chains, or with simple on-chain deposit contracts.
Vertex Edge aligns incentives between the protocol and app layer by solving for the inherent conflict of interest between general purpose chains and DEXs built on sovereign app chains. As Vertex co-founder, Alwin Peng, describes:
“To general purpose chains, [app chains] are small, independent countries that open up predatory trade routes that suck up capital and activity — activity on the app chain doesn’t happen on the main chain.”
This fundamental goals of a general purpose base layer include:
- The growth of native apps instead of outsourcing their economy elsewhere.
- Bootstrapping network effects and building a community with shared values that ossify the bedrock for anything built on top of the protocol layer.
To achieve these aims they tariff foreign apps by only incentivizing native ones, and encourage users to support the local economy.
Considering the on-chain scaling issues facing performant trading engines built on L1 / L2s, many DEXs increasingly choose to utilize the app chain model. App chains are new execution environments tailored specifically to optimize the sovereign app, where interoperability with the base layer (e.g., Arbitrum) allows for the transfer of assets between the app chain and the base layer.
However, this performance comes at a cost. The need for a distinct execution environment means app chain DEXs are effectively bridging deposits and withdrawals in and out of the underlying base layer. Trading activity is confined to the app chain’s execution layer instead of the protocol layer (e.g., Arbitrum).
As a result, the app chain design nullifies one of the primary advantages of a native L1 / L2 DEX — on-chain settlement of trading activity. Thus, separating the success of the app from the execution layer of the L1/L2.
Both app chain and general purpose chain contend for competitive blockspace markets (e.g., fees), creating an inherent conflict of interest between the two.
Vertex Edge renders robust incentive alignment via trading activity on an innovative synchronous orderbook.
The benefits of unified cross-chain liquidity span multiple chains, benefitting users while on-chain settlement spurs local blockspace demand to benefit base layers.
In effect, any Vertex Edge deployment creates what amounts to a native DEX for the host base layer, producing a similarly positive impact on blockspace demand and activity as any other dApp deployed to that chain.
Liquidity is synchronized on one orderbook spanning multiple chains, and alignment is created between the protocol and app layer by Vertex Edge.
Advantages of Edge — Base Layer Networks
Examining the advantages Vertex Edge provides to supported base layers requires diving a bit deeper into the topic. Primarily, base layer networks derive 3 distinct benefits from Vertex Edge instances on their chain:
- Increased Blockspace Demand
- Better On-Chain Liquidity
- Reduced Development / Integration Costs
Increasing Blockspace Demand
Vertex Edge produces net increases in blockspace demand for the underlying base layer due to the batched settlement model the Vertex sequencer deploys natively on-chain.
Similar to how Vertex’s hybrid on / off-chain settlement model currently happens on Arbitrum, Edge simply extends the design to encompass independent settlement on multiple chains rather than just a single chain.
Let’s revisit one of the original examples from the Introductory Blog to illustrate this point.
- Assume there are two Vertex instances (Arbitrum and Blast).
- Alice submits a market order (taker) on Blitz, to long the ETH-PERP at price X.
- The sequencer (Edge) matches the order against the best liquidity after examining the orders aggregated across the two Vertex instances on Arbitrum and Blast.
- The best offer is from John who is trading on Arbitrum.
- John is now short on Arbitrum and Alice is long on Blast.
- In the middle, the sequencer (Edge) takes equal opposing positions on each chain. Edge is now short on Blast and long on Arbitrum.
- Edge injects Alice’s matched order into the sequencer queue of batched orders to render and settle on-chain to Blast — simultaneously sending John’s order to be settled on Arbitrum.
- Over time, Edge will continually build long and short positions on local chains.
- Periodically, liquidity between chains will be aggregated and settlement will be made on the backend.
Notice how the settlement of both Alice’s and John’s orders, originating from 2 different chains (Arbitrum and Blast), occurs locally to each origin chain for both sides of a matched order.
- Alice’s order originates from Blitz (Blast).
- John’s order originates from Vertex (Arbitrum).
- Vertex Edge matches the orders at the Sequencer level.
- Alice’s matched order settles on-chain to Blast.
- John’s matched order settles on-chain to Arbitrum.
As you can see, on-chain settlement occurs on both chains that Edge utilizes to match a given order with its combined liquidity profile. This produces positive-sum effects on the local blockspace demand for any chain supported by Vertex Edge — beyond simply unifying liquidity between the chains.
The beneficial impact of Vertex’s hybrid on / off-chain settlement model on blockspace demand is already displayed lucidly by the Vertex contract’s gas consumption on Arbitrum.
For example, the Vertex contracts have consistently ranked amongst the top 5 gas-spending entities on Arbitrum.
Higher gas spending apps typically provide a net increase to blockspace demand for a given base layer because the apps pay gas fees to settle matched orders from the sequencer (off-chain) as batches of transactions on-chain.
Better On-Chain Liquidity
Layer two ecosystems want the following to congregate on their chain:
- TVL
- User Activity
- Trading Volumes
Achieving all 3 naturally correlates to better on-chain liquidity. But it’s an elusive goal, plagued by some notable problems facing a multi- chain world of DeFi.
While most cross-chain technology seeks to enhance liquidity and user access across disparate blockchain environments, often it inherently disperses TVL and user activity.
Ideally, any cross-chain technology integrated with a base layer should pool or increase liquidity synergistically rather than splintering it between different chains. Additive liquidity between chains helps to alleviate obstacles for users to fluidly move assets between different chains.
Models such as cross-chain deposits via bridging or app chain DEXs do not achieve the above goals efficiently. Instead, they create a burdensome user experience, introducing additional smart contract risks and lowering base layer blockspace demand, diluting the perceived value and utility of individual base layers.
DEXs, which often serve as hubs of liquidity on any layer one or two, should prioritize an additive liquidity model in an increasingly competitive L2 environment where EVM alignment is paramount.
Users of a given base layer receive direct cross-chain liquidity access with Vertex Edge.
Underlying base layer ecosystems retain on-chain capital since capital outflows seeking better DEX liquidity are diminished. Each chain added to the network helps achieve economies of scale. Every chain benefits from the addition of the chains that preceded it, and every existing chain on the network benefits from the activity of the new additional chain.
A healthy, virtuous cycle of growth and liquidity is created.
Reduced Development / Integration Costs
In an increasingly competitive L2 space, every time a new cross-chain solution or native L2 DEX arises, the cost of building both architecture and basic liquidity is prohibitively expensive.
Additionally, integrating cross-chain deposits via bridges, messaging protocols, and other bridge tooling is a resource-intensive task in both engineering and financial capital that is frequently strewn with risk.
But the latent demand for cross-chain DeFi is evident, illustrated by the total volume of bridged assets surpassing $9 billion in the past 30 days alone.
Vertex Edge significantly reduces development costs and resources for launching DEXs on an L2.
Not only does it maintain a unique cross-chain liquidity profile via its synchronous orderbook model, Vertex’s powerful orderbook DEX already has a proven product-market fit on Arbitrum with deep liquidity on 30+ markets. Upon deployment, every instance benefits from this scale avoiding the time to develop new technology, and saving the capital needed to develop deep liquidity.
In summary, Vertex Edge aligns the success of EVM chains with the success of users. If Vertex wins, the underlying chain wins.
Next up, we’ll explore some of the specific advantages to users — answering some FAQs about Vertex Edge along the way. Stay tuned for more details!
