Unleashing the Potential of Decentralized Perpetual Markets
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Perpetual DEXs are rapidly carving out a significant niche in DeFi, offering a compelling alternative to the centralized giants that once monopolized the market.
Amidst regulatory crackdowns and growing demand for transparency, these decentralized platforms are not just gaining traction—they’re defining a new standard for financial innovation.
Today, we explore the rise of perpetual DEXs in crypto, the technological advancements propelling them, and the standout Vertex protocol that’s leading the charge.
𝑃𝑒𝑟𝑝𝑒𝑡𝑢𝑎𝑙𝑠 𝐷𝐸𝑋𝑠 𝑎𝑟𝑒 𝑑𝑒𝑓𝑖𝑛𝑖𝑡𝑒𝑙𝑦 𝑎 “𝑧𝑒𝑟𝑜 𝑡𝑜 𝑜𝑛𝑒” 𝑣𝑒𝑟𝑡𝑖𝑐𝑎𝑙 𝑖𝑛 𝐷𝑒𝐹𝑖…
With the inception of a multi billion dollar perpetual trading market on CEXs like Binance, BitMEX, and others over the last several years…
𝐈𝐭𝐬 𝐟𝐚𝐢𝐫 𝐭𝐨 𝐬𝐚𝐲 𝐰𝐞 𝐚𝐫𝐞 𝐣𝐮𝐬𝐭 𝐬𝐜𝐫𝐚𝐭𝐜𝐡𝐢𝐧𝐠 𝐭𝐡𝐞 𝐬𝐮𝐫𝐟𝐚𝐜𝐞 𝐨𝐟 𝐰𝐡𝐚𝐭𝐬 𝐩𝐨𝐬𝐬𝐢𝐛𝐥𝐞 𝐢𝐧 𝐃𝐞𝐅𝐢.
In addition to that, with regulators moving in from all angles and “moguls” like Arthur Hayes being accused of trading against their customer base, decentralized perpetual solutions have quickly achieved PMF.
Today, we’ll take a walk through what perpetuals are and how they got started in crypto, where I see the innovation happening on a tech level, and a particular protocol pushing the needle 👇
Crypto as a whole went through a huge growth spike in terms of PMF when CEXs unlocked perpetual futures contracts.
As you can see above, throughout 2022 and Q1 2023, perps dominated in total volume averaging $2.5T in volume (nominal size) per month.
A “perp” as we call them is derivative product that allows you to take leverage without an expiration date.
𝐇𝐞𝐧𝐜𝐞 𝐭𝐡𝐞 𝐧𝐚𝐦𝐞, 𝐩𝐞𝐫𝐩𝐞𝐭𝐮𝐚𝐥 𝐟𝐮𝐭𝐮𝐫𝐞𝐬.
These futures are a commonplace tool to long/short the market, protect gains, or hedge your bets. Traders can enter and exit freely and pay (or earn) a small funding fee throughout the duration of their position being open.
DeFi has had its zero to one moment with bringing these perps onchain in a fully decentralized manner.
There are several popular options in DeFi today, but for the sake of todays piece, were going to focus on Vertex Protocol.
What sets Vertex apart from other DEXs is its unique hybrid unified CLOB and integrated AMM, powered by an off-chain sequencer architecture.
This architecture minimizes MEV characteristics of Ethereum L1 while enabling lightning-fast trading with execution speeds between 10 – 30 milliseconds, competitive with most centralized exchanges (CEXs) out there.
The integrated AMM is located on-chain, and the liquidity from this AMM is combined with liquidity from automated traders via the sequencer.
Another feature that is nice is the universally cross-margined trading accounts.
Your portfolio is your margin, and it’s shared across a single trading account to offset the margin between open positions. This means that the capital efficiency is maximized, and you can manage the margin requirements of open positions across the three primary products:
𝗦𝗽𝗼𝘁, 𝗣𝗲𝗿𝗽𝗲𝘁𝘂𝗮𝗹𝘀, 𝗮𝗻𝗱 𝗠𝗼𝗻𝗲𝘆 𝗠𝗮𝗿𝗸𝗲𝘁𝘀.
This leads to reduced initial margin requirements, improved risk-reward optimization, and better risk management.
𝗧𝗿𝗮𝗱𝗶𝗻𝗴 𝗼𝗻 𝗩𝗲𝗿𝘁𝗲𝘅 𝗶𝘀 𝘀𝗶𝗺𝗽𝗹𝗲 𝗮𝗻𝗱 𝗶𝗻𝘁𝘂𝗶𝘁𝗶𝘃𝗲.
Its distinct trading design appeals to traders familiar with popular CEX trading interfaces. Because of its hybrid orderbook AMM model and the scalability of L2s, Vertex Protocol provides a powerful, streamlined trading experience for DeFi, replacing the need for CEXs and handing control back to the user.
For example, you can trade spot on margin or utilize leverage on perpetuals to amplify exposure or hedge risk.
You can also take advantage of portfolio margining, managing one universal margin account comprising of all of your balances and positions to maximize capital efficiency.
Vertex’s integrated money market lets you earn a yield on deposits automatically. You can borrow assets against my margin with multiple collateral types.
Soon, Vertex’s hybrid orderbook + AMM design will enable users to provide spot or perpetual liquidity to earn fees and token rewards.
𝗔𝗻𝗱 𝘁𝗵𝗲 𝗯𝗲𝘀𝘁 𝗽𝗮𝗿𝘁? 𝗢𝗻𝗹𝘆 𝗜 𝗵𝗮𝘃𝗲 𝗰𝗼𝗻𝘁𝗿𝗼𝗹 𝗼𝘃𝗲𝗿 𝗺𝘆 𝗮𝘀𝘀𝗲𝘁𝘀.
The Vertex Protocol app is intuitive and streamlined. It has integrated on/off-ramps which direct you to the right protocols to do so.
All spot assets on Vertex are quoted in USDC. Launch spot markets on Vertex include wBTC/USDC and wETH/USDC, with others to be added over time.
Each component of Vertex’s trading stack coalesces into a powerful on-chain trading platform. It maximizes advantages across performance, flexible liquidity expression, and a diverse product suite. It is divided into three core pillars: a fully on-chain trading venue (constant product AMM), a fully on-chain risk engine, and an off-chain sequencer for order matching.
Trades are always executed at the best available price, meaning a trade could fill against limit orders and LP positions concurrently as the sequencer automatically sources the best liquidity available. This results in always having some liquidity to clear trades, benefiting both illiquid and liquid assets.
Traders can always trade directly on-chain without using the sequencer if they wish. The ability to passive LP asset pools and earn trading fees is another advantage, especially for long-tail DeFi asset support for less liquid tokens.
In conclusion, I’m quite excited to see how the niche of derivs DEXs grows in the coming months-years and where Vertex Protocol will fit in. Nothings guaranteed, but after coming through on an Arbitrum STIP grant, things are looking good.
𝐆𝐨𝐨𝐝 𝐥𝐮𝐜𝐤 𝐢𝐧 𝐭𝐡𝐞 𝐨𝐧𝐜𝐡𝐚𝐢𝐧 𝐟𝐨𝐫𝐞𝐬𝐭, 𝐚𝐧𝐨𝐧.
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⚠️ DISCLAIMER: Investing in cryptocurrency and DeFi platforms comes with inherent risks including technical risk, human error, platform failure and more. At certain points throughout this post, we might get a commission for promoting certain projects, if this is the case we will always make sure it is clear. We are strictly an educational content platform, nothing we offer is financial advice. We are not professionals or licensed advisors.