Introducing Vertex Protocol — FX on Terra
Vertex will establish the first facility for crypto FX trading on Terra, powered by perpetual swaps.
As crypto continues to spread into every corner of global markets, certain participants have notably been left behind. Vertex believes that decentralized finance has the potential to democratize finance for all citizens of the globe but to do so, DeFi must ultimately replace the current tools available in TradFi.
Specifically, DeFi predominantly revolves around the use of USD-denominated stablecoins, primarily USDT and USDC. The limitations of not having a multi-currency market is poignant — chiefly in that non-dollar markets are ill-served by decentralized finance as a result.
Vertex sets out to create the infrastructure and mechanisms necessary to bring real-world money markets and genuine financial products on-chain.
Specifically, Vertex will create a trusted marketplace for decentralised stablecoins and their perpetuals enabling:
- Expansion of utility for non-UST stablecoins
- Facilitation of hedging and speculation in crypto FX markets
- Inclusion of non-USD participants across a range of blockchains and protocols
Why Terra? — Decentralized vs Centralized Stablecoins
The current stablecoin market is dominated by USDT and USDC. Both products have faced several controversies but continue to be the largest portion of the market share.
Centralized stablecoins suffer weaknesses in:
- Issuer Risk — Qualms remain on the asset-backing of their tokens, as well as the issuing entities themselves
- Jurisdiction Risk — Centralized stablecoins are over-exposed to specific regulatory jurisdictions depending on their denomination or physical location, not suiting the decentralized nature of crypto markets at large
- Liquidity Risk — It is incredibly challenging to generate liquidity in most local currency stablecoins
Terra solves for the above as per below:
- Issuer Risk — Terra is completely decentralized, with no custodial risk
- Jurisdiction Risk — Terra stablecoins are governed by an on-chain swap mechanism and impervious to external influence or censorship
- Liquidity Risk — Terra supports the creation of virtually any stablecoin via its minting mechanism and oracle network, with stablecoins linked to the price of USD, CNY, JPY, GBP, EUR, KRW, etc. already in circulation.
Terra’s high throughput and low-fee architecture, enable seamless cross-border value exchange for anyone, anywhere making Terra an ideal candidate for the emergence of a multi-currency stablecoin architecture in crypto.
Why Perpetuals? — Flexibility and Innovation
Perpetual swaps serve as a flexible backbone for derivatives in crypto markets and have proven robust in a number of use cases. Moreover, derivatives markets enable a range of hedging and speculation that would otherwise be impossible due to lack of liquidity.
To empower the adoption of DeFi around the globe while expanding the utility of terra stablecoins, Vertex proposes to create perpetual markets to facilitate leveraged trading across various stablecoin pairs.
The protocol will utilize a virtual AMM model (inspired by Perpetual Protocol v2’s ‘Curie’ model) to allow fast, deep, liquid trading on an advanced, user-centric platform. Users will be able to open leveraged long and short perpetual positions with Terra stablecoins and eventually aUST as collateral.
What next? — Financial Products for all
As crypto evolves and becomes more sophisticated, new stakeholders are starting to demand new products that replicate and improve upon TradFi primitives. Current concentration in USD-denominated stablecoins helps avoid fragmentation of liquidity pools, but means local currency stablecoins struggle to find utility, limiting their adoption.
Building on-top of our Terra Perpetuals framework, Vertex protocol will facilitate a whole host of new DeFi products that will unleash the power of decentralized finance for all people around the globe.
The problem of liquidity fragmentation must be addressed to create multi-currency utility: derivatives markets can be a solution.
The greatest opportunities are byproducts of innovating on problems users face in the real world. Vertex will leverage leaps made in technology to become the connective tissue for all of crypto, powered by elegant and efficient mechanism design, and bring the benefits of crypto and decentralised finance to users everywhere.
This drives a simple philosophy: empower users and protocols to maximize their potential by removing barriers to adoption.
We are excited to start this journey.