The Vertex Vision 🏔️

In the wake of changes wrought by the collapse of the Terra ecosystem, the team at Vertex has been hard at work thinking about what constitutes the future of DeFi.

Subsequent crises with centralized entities such as Celsius and 3AC have also led us to assess DeFi from first principles. Whilst we are still reeling from the collapse of UST, Luna and the ramifications for the broader crypto community as a whole — the future of DeFi looks brighter than ever.

We are excited to announce Vertex’s new vision for the most capital-efficient, decentralized facility for all of crypto. Let us explain.

A bear market is natural selection at its best. Much of DeFi 2.0 was purely unsustainable growth and low utility, and in a number of cases, amounted to outright ponzi schemes. CeFi wrappers, which popped up in abundance to help ‘civilians’ capture some of the yields on offer, have failed users. Funds have been trapped in failing institutions or just totally vanished with no hope of return.

As these centralized entities collapse into a wave of insolvencies, it is worth asking: given the benefits of DeFi, why do users still gravitate towards centralized operations?

Let’s look at the most successful and largest exchange in the space: Binance.

Binance’s success has been broadly predicated on its status as the ‘everything app’. When a user wants to get into crypto, Binance has everything they need including:

• On- and off-ramps
• Spot trading
• Margin trading
• Lending and Borrowing
• Perps trading
• Options Trading
• Yield Opportunities
• Token Launchpad

Viewed in isolation, it would be easy to say that none of their features is better than other narrower offerings (in fact we believe large parts of their UI/UX fall short), but the combination of different functions in one place is attractive for users as it enables ease of use and relative capital efficiency.

We believe DeFi must evolve and deliver a fully-integrated user experience to onboard the next generation of users.

In the current market, numerous protocols provide each of the above functions independent of one another.

Spot trading on Uniswap, money markets on Aave, derivatives on DYDX. We believe that in order for users to stay on-chain and reap the same capital-efficient, all-in-one experience, an ideal protocol should:

• Integrate all these functions into one account
• Enable cross-margining to be as efficient as possible

One solution could be to simply consolidate some of the existing protocols mentioned above on one frontend. However, given the differences in logic and risk parameters, this leads to a lot of risk for users in positions that could ultimately be fairly low risk in nature (spot/perp basis anyone?).

Instead, all of these functions should be contained in one protocol leading to massive efficiencies, improved risk management and serving as the core for a host of other capabilities.

This leads to the natural question: why would users choose a DEX over a CEX as DEXes struggle to match centralized performance due to the current limitations of on-chain computation? The answer lies in the breadth of opportunity and the protection from bad centralized actors.

An integrated dApp

would offer far superior security and composability with other DeFi primitives and allow access to the cutting edge of DeFi innovation. This would enable yields and trading opportunities far beyond what is achievable by CEXes. Additionally, it offers the transparency and immutability that are the hallmark of DeFi. No paused withdrawals. No over-extended balance sheets. No deceptive messaging from conflicted CEOs. Code is law.

Given the complexity and the relative competition that such a project will be working against, there are really two major considerations for the success of such a project:

• How do you attract liquidity?
• How do you maximize performance?

Given current events and the likelihood of a persistent bear market over the near future, it is our belief that the majority of TVL will converge on the Ethereum ecosystem given its network effects and current standing as the largest chain by TVL. In order to enable the desired level of interoperability we require, it will also be necessary that we write smart contracts that operate in the dominant language in the space, which points us towards Solidity.

When it comes to maximizing performance, we must consider the needs of both DeFi and non-DeFi-native users. This means great UX, robust features, composability and security. Ethereum is the most decentralized smart contracting platform and rollups continue to make transactions faster and cheaper while still benefiting from the security of Ethereum. Its tools, integrations and user onboarding enable the building of a robust, feature-rich decentralized exchange that competes with CEXs.

Given these assumptions, it is our strong belief that Ethereum L2s will be the dominant technology of the future and will provide the optimal performance for the dApp we are building. That is why we have decided to launch our testnet on Arbitrum. We are currently redesigning our smart contract code to function on EVM-based chains, and plan to launch within the coming months.

Vertex will introduce a decentralized, vertically-integrated, cross-margin orderbook for spot, perps and yield products that is entirely on-chain.

The user experience and capital efficiency will rival that of centralized incumbents and help free users from the compromises that currently trap them.

Decentralized money needs decentralized facilities for trade. We hope you are as excited as we are to enable this without compromise.

The Vertex Team

Social links

Twitter: https://twitter.com/vertex_protocol
Telegram: https://t.me/vertexprotocol
Website: https://vertexprotocol.io/