After the collapse of FTX in November, decentralized exchanges have grown in popularity as users sour on a model where companies control their assets. Even as Crypto Winter deters trading, data from The Block demonstrates that the market share of platforms like Curve and Uniswap has grown compared with centralized competitors.
On Wednesday, the Vertex Protocol—a DEX (decentralized exchange) built on the Ethereum layer-2 Arbitrum—is launching to offer high-speed spot and derivatives trading. Initially, the exchange will offer trading only for Bitcoin and Ether, but Vertex Protocol cofounder Darius Tabatabai told Fortune in an exclusive interview that the platform plans to expand to 14 markets in perpetuals, a type of derivatives futures contract, within the next three to six months. Vertex raised an $8.5 million seed round in April at a $100 million valuation.
While the exchange will be equally focused on retail and institutional traders, Vertex is launching with a number of prominent backers in the market-making and proprietary trading space, including Jane Street, Dexterity Capital, Hudson River Trading, and GSR.
“Five good market-making firms can provide great liquidity for thousands of retail traders,” said Tabatabai. “It’s well worthwhile putting in the time to make sure that those firms have a low-friction experience and could provide value for the masses.”
Tabatabai has a background in traditional finance, working as an options trader and running desks in metals trading at Credit Suisse and Bank of America before working at a hedge fund. He became interested in crypto in 2017, trading on the side before running crypto-focused proprietary trading at different firms.
He initially had the idea to build a decentralized exchange on Terra, the infamous blockchain that hosted the algorithmic stablecoin TerraUSD, but decided to switch to Arbitrum after the project’s spectacular collapse last year.
The goal for Vertex was to build a multi-currency trading platform with an efficient market trading structure. As Tabatabai explained, users can deposit whatever tokens they have that Vertex accepts as collateral, and then they can trade them, as well as use them for collateral to trade perpetuals, a popular derivatives contract in the crypto ecosystem that allows users to speculate on future price movements of tokens.
Vertex uses a combination of an off-chain order book with an on-chain automated market maker, which Tabatabai says allows the platform to combine the best features of decentralized and centralized exchanges, with trading speeds that surpass other decentralized platforms and rival centralized ones.
“If you’re a market maker, you can come and provide liquidity as if we were a centralized exchange,” he told Fortune. “But then also in the background, we can open up the ability to retail [traders]…to do AMMs [automated market makers] to find liquidity that way.”
The prevalence of retail traders embracing complex derivatives is a unique feature of crypto, and inexperienced users have been exposed to heightened risks, especially in the prolonged bear market. This also creates specific dynamics that can drive exchanges like Vertex, which is seeking parity when it comes to the breakdown between retail and institutional traders.
“It tends to be a market that’s more driven by momentum because it’s driven by a kind of FOMO, fear-of-crowds type thing—people piling onto trades,” said Tabatabai. “That’s part of the behavior of the market.”
With Vertex launching today out of private beta, it will begin to offer users an incentive program where they will receive a native token called VRTX for trading that will drop in October.
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