Vertex Edge Sequencer

Off-Chain – Sequencer Orderbook

The Vertex Edge sequencer is a central-limit orderbook (CLOB) located off-chain as an independent node, which will eventually be decentralized via Vertex governance.

The orderbook is Vertex’s primary edge in the context of a performant trading engine. Liquidity is augmented as positions from pairwise LP markets populate the orderbook. An HFT-friendly API enables traders to plug into the orderbook, execute automated trading strategies, and trade against the combination of the orderbook and AMM’s liquidity at lightning-fast speeds.

The on-chain latency of distributed node consensus does not constrain performance. Instead, it’s competitive with CEX-grade trading engine speed – achieving average order-matching execution speeds between 5 - 15 milliseconds (ms).

In the case of maintenance, downtime, or other unforeseen circumstances, the AMM layer on-chain functions as the backstop of the protocol, enabling users to trade solely against the AMM without needing the orderbook.

This functions as an essential pathway for users, where transactions always settle on-chain no matter the state of the sequencer.

For example, if the sequencer goes down, instead of CEX-like order book performance and liquidity, you’d get a Uniswap-style experience but with cross-margined accounts for spot, perps, an integrated money market, and lower fees on Arbitrum.

Initially, the sequencer will operate as an independent node run by the Vertex team, with a TPS of 15K and latency time of 5 - 15 ms.

The Vertex sequencer maintains various properties that are important to define.

• Sequencer order book operates similarly to a centralized exchange: Traders can place orders with the sequencer’s order book on a scale similar to centralized exchanges, receiving order feedback with comparable latency to centralized exchanges based on accurate optimistic states – analogous to Arbitrum as an ETH L2.

• Limit on validator's ability to modify trades: Validators on the underlying chain (Arbitrum’s L2 for ETH) cannot reorder or front-run transactions. Traders on Vertex are safe from validator MEV on the underlying blockchain.

• The sequencer has no custody over user assets: Asset custody is controlled at the smart contract level on the underlying chain Arbitrum (Slo-Mo Mode). The sequencer cannot censor transactions either; users can force their transactions to be included on Arbitrum. Vertex’s default state is always the on-chain AMM – not the sequencer.

• The sequencer also has no ability to stop trading or withdrawals: Users can still trade (on the AMM) and withdraw by going directly to Arbitrum.

• Users do not need to trust the sequencer to report accurate optimistic states: Users can wait for confirmations directly on the underlying chain – Arbitrum.

• MEV Protection: Vertex's sequencer operates on millisecond timescales (<20ms for a response), rendering MEV extraction less valuable. A general trade-off exists between latency & MEV ability.

Arbitrum, as an L2 on Ethereum, also minimizes MEV since it periodically submits batches of transactions to Ethereum L1. As a result, in both contexts where Vertex is either functioning with an off-chain sequencer or in its default on-chain state, MEV is minimized, mitigating one of the key shortcomings of on-chain DEXs.

Risk checks for matching orders are conducted on the sequencer level instead of on the Arbitrum chain to minimize transaction costs for users.

Note that only the sequencer is able to match orders, and all other actions, such as withdrawing collateral, liquidating an account, or swapping against the AMM, require risk checks to happen on-chain.

Orders still require explicit signatures from both parties to be executed on-chain.

At the moment, this is a necessary trade-off for the initial stages of Vertex. In the future, as the Vertex sequencer becomes decentralized, this will no longer be necessary.

During Slo-Mo Mode, users can still swap assets, open and close perp positions, and interact with the rest of the Vertex protocol, just with increased latency and tighter liquidity analogous to trading on Uniswap with more slippage and wider spreads susceptible to larger market-moving orders.

Key Takeaways:

• The sequencer orders transactions but cannot forge them and does not have custody of user assets. Users can automatically fall back to the decentralized smart contracts on Arbitrum. Funds are never at risk.

• Vertex’s performance is on par with centralized exchanges.