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Cross-chain Liquidity: The Next Iteration of Perp DEXs
June 05, 2024
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Key Takeaways

  • Derivatives in DeFi have shown significant growth, but the proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains.
  • Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances.
  • Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.
  • Edge transforms the typical subtractive creation of new protocols on new chains, which fragments liquidity, into a synergistic, value-additive endeavor, which is groundbreaking for a multi-chain future.

The DeFi space has witnessed an impressive proliferation of perpetual decentralized exchanges, with over 150 different derivatives protocols spanning multiple blockchain networks. This rapid expansion, driven by the strong product-market fit of perp DEXs, has led to fragmented liquidity across various DEXs and chains, presenting a challenge for traders and investors. TVL in DeFi derivatives has surged from $1.8 billion to $3.4 billion since the beginning of this year, highlighting the increasing adoption and demand for these products.

Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration. Vertex Edge, Vertex’s latest product, addresses this by offering synchronous orderbook liquidity, effectively unifying liquidity across different chains. Essentially an enhancement to the Vertex sequencer, Edge extends its capabilities to operate across any supported ecosystem. To fully appreciate Edge's potential, let’s revisit Vertex’s architecture and understand how this upgrade integrates into its existing framework.

Vertex Overview

Vertex employs a hybrid orderbook AMM design. Its trading and risk engine, which encompasses all Vertex products such as spot, perpetuals, and money markets, operates onchain and is governed by smart contracts on Arbitrum. Meanwhile, the sequencer, acting as a high-performance orderbook that matches inbound orders from the protocol layer, operates offchain. This creates a hybrid model where the sequencer handles trade ordering and routing. In this system, the onchain AMM's pooled liquidity complements the bids and asks on the Vertex orderbook, serving as an additional market maker via smart contracts. The AMM liquidity is merged with liquidity from automated traders through the sequencer, providing users with a unified liquidity source. The sequencer ensures trades are filled with the best available liquidity, simultaneously utilizing limit orders and liquidity provider positions.

If the sequencer fails, the DEX defaults to a traditional xy=k model, ensuring the onchain AMM continues to function as the protocol's fallback, a mode referred to as "Slo-Mo Mode."

This liquidity model offers several clear advantages. Firstly, it guarantees more consistent liquidity since the DEX can always rely on the AMM when orderbook depth is insufficient. This makes it easier to bootstrap markets with passive AMM liquidity while still allowing for customization through limit orders on the orderbook.

Additionally, projects like Elixir facilitate easy liquidity deployment across orderbook exchanges. Users can select a pair to provide liquidity, and the protocol automatically deploys this liquidity through automated market making strategies. Currently, Elixir enhances orderbook liquidity on Vertex with 23 perp liquidity pools, adding $13.9M to Vertex’s orderbook on Arbitrum. Moreover, there are five additional pools providing spot liquidity, currently with $17.5M in TVL for Vertex.

As of now, Vertex presents a total cumulative volume of $88.72B and a user base of 26,650, with $81.37B coming from perpetuals trading. Over the past month, the total average daily trading volume for both perp and spot markets has averaged around $280M, and the TVL in money markets stands at $96.79M. Vertex gained significant traction during its initial incentives and token launch, capturing considerable market share in the perps market. Shortly after it declined as expected through the exit of mercenary liquidity, but since then, it has maintained a steady market share of around 7%, as illustrated in the chart below.

The Sequencer Orderbook

The Vertex sequencer is a custom, parallel EVM implementation of an offchain orderbook and trading engine built in Rust. Currently, the sequencer operates as an independent offchain node, with plans to decentralize it via Vertex governance in the future. The orderbook is a key feature that sets Vertex apart as a high-performance perp DEX. Compared to the onchain latency of distributed node consensus, it achieves average order-matching execution speeds of 5-15 milliseconds and supports 15,000 transactions per second (TPS), making it competitive with centralized exchanges. It complements the Vertex AMM by providing a low-latency, central-limit orderbook (CLOB) for traders who want to place limit orders, engage in faster trading, and execute automated strategies. Pairwise LPs from the AMM contribute to the orderbook, enhancing its liquidity.

Several important properties are worth highlighting. The sequencer protects traders on Vertex from validator MEV on the underlying blockchain, as validators cannot order or front-run transactions. Additionally, due to the millisecond-level operation of Vertex’s sequencer, MEV extraction becomes less attractive. It is important to note that while the sequencer is offchain, it does not have custody over user assets—custody is managed by smart contracts on the underlying chain. Furthermore, the sequencer cannot censor transactions, halt trading, or block withdrawals. Although certain trust assumptions are necessary, specifically, that the sequencer operates impartially and does not favor any entities, the ability to avoid MEV concerns can be a significant advantage.

Cross-Margined Accounts

A key advantage of Vertex is the capital efficiency enabled by its cross-margined accounts. By default, Vertex consolidates a user's liabilities across their trading account to offset margins between positions, meaning a user’s entire portfolio serves as collateral for multiple open positions. While cross-margined collateral has become more common on perp DEXs, Vertex takes it further by allowing multiple types of positions, including lending and spot positions, to collectively serve as margin. Additionally, Vertex employs portfolio margining, which means that unrealized profits can be used as margin for existing or new positions, further enhancing trading flexibility and efficiency.

In practice, this means that accounts generally have lower margin requirements compared to having the same positions in separate, isolated margin accounts. Vertex also features an automatic risk management system that helps traders avoid liquidations. It automatically calculates and transfers margin between open positions to maintain the required margin levels, which is particularly useful in volatile market conditions and when executing complex trading strategies.

In addition to improving capital efficiency, cross-margined accounts on Vertex enhance practicality and reduce costs for common strategies like basis trading. With linked spot and perpetual markets, Vertex offers native markets for basis trading, which is typically more capital-intensive on other exchanges due to the need for separate markets for perpetual and spot positions. For example, if you are long spot ETH on Binance and short ETH, you must maintain the full margin for the perp contract since it doesn't account for the offsetting spot position. Vertex’s onchain risk engine recognizes this redundancy, significantly reducing the margin requirement for the ETH perpetual position, making arbitrage trading more capital-efficient. Additionally, Vertex’s integrated money market allows assets to serve as both collateral and available for borrowing to leverage spot positions. This closely aligns the basis rate with the borrowing rate of stablecoins.

These advantageous arbitrage conditions on Vertex have the potential to generate greater trading volumes and improved liquidity, as traders can execute profitable basis trade strategies with leverage and lower margin requirements.

Vertex’s Portfolio Overview provides easy access to overall portfolio health and risk indicators, streamlining management for multiple open positions. All positions are linked and managed together, offering a comprehensive view of a trader’s risk. An account’s health is determined by assigning weighted values to each balance and position. Vertex simplifies risk management by distinguishing between Initial Health and Maintenance Health. When Initial Health is depleted, the account enters Maintenance Mode, preventing new risk-taking actions like opening new positions. The remaining Maintenance Health acts as a buffer, allowing users to de-risk before facing liquidation. If Maintenance Health is fully depleted, the account becomes susceptible to liquidation.

In determining an account’s health, certain special cases can offer significant benefits to traders. As always, the devil is in the details. Spreads, which involve offsetting positions on the same underlying asset, are inherently less risky than individual spot and perpetual positions. Recognizing this, Vertex assigns health benefits to these spread positions, enabling a much larger capital efficiency.

Key Details

Liquidations

Spot oracle prices are utilized for liquidations, ensuring robust pricing and shielding users from temporary liquidity shortages that might affect spot prices. Additionally, an independent oracle price is in place for USDC, enabling accurate health calculations and trading even during USDC de-pegging events. Vertex Protocol adopts a multi-oracle approach, gathering prices from various providers. Presently, most Vertex markets rely on Stork, but the recent deployment of Chainlink Data Streams on Vertex initially supports ETH markets, with plans to expand to other markets.

Any user can buy assets from the liquidating account at a discount or settle its debts at a premium until the account's Initial Health surpasses zero. If an account's Initial Health exceeds zero at any point during the liquidation process, the liquidation halts.

Vertex Protocol earns 25% of the profits generated by liquidators, with these fees going to the insurance fund to safeguard protocol health. In the event of insolvency, the account's positions are exited at a loss, resulting in bad debt. Vertex's last lines of defense are then activated: USDC from the insurance fund is allocated to the insolvent account to compensate liquidators for undertaking the underwater positions. If the insurance fund is depleted, losses from underwater positions are distributed among other perpetual accounts in the market. If this isn't feasible, losses are spread across all USDC holders. Currently, the Insurance Fund holds 1.26M USDC on Arbitrum and 0.12M USDC on Blast, totaling approximately 1.4M USDC to offset bad debt. 

Fees

Vertex offers a competitive trading fee model, featuring low fees for takers and zero fees for makers across spot and perpetuals. The current taker fee structure entails a 2 bps fee for takers, applied only after a certain minimum order size. This effectively yields a total fee rate potentially smaller than 0.02%.

Supplementing this model is the Vertex Maker Program, which incentivizes price makers with a rebate-based trading fee program and VRTX token incentives based on a scoring function prioritizing market support, uptime, and fees. All trading fees are paid in USDC, initially allocated to secure the protocol, fund ongoing expenses, seed VRTX liquidity, and drive value to the VRTX token via tokenomics mechanics. Additionally, Vertex charges a flat fee in USDC for interactions with the Sequencer to cover gas costs, with fees subject to change over time but expected to remain relatively stable within months of launch (e.g. 1 USDC for submitting a liquidation or minting/burnin LP tokens). 

The cross-chain fee accounting model maintains the same fee structure while distinguishing between fee payouts for cross-chain versus single-chain scenarios. In a cross-chain order match between two instances, the taker fee is charged on the taker chain, and the maker rebate is charged on the maker chain. In the Edge ecosystem, takers generally incur a 2bps fee and makers receive a 0.5bps rebate. So, in a cross-chain match between a taker on Blitz and a maker on Vertex, the taker fee on Blitz is 1bps, the maker rebate on Vertex is 0.5bps, and the fee accrual for Vertex is 0.5bps. This structure ensures that revenue accrues to the maker chain, keeping makers incentivized through token rewards and rebates. If the taker and maker are on the same chain, the taker fee is 1.5bps, with a 0.5bps fee accruing to the same chain.

UX

Vertex's 1-click trading (1CT) feature replicates the ease of trading on centralized exchanges, allowing users to opt-in while retaining manual signing as the default mode. 1CT simplifies trading by generating a secure private key for automated transaction signing, requiring two signatures upon activation. Users must confirm ownership at the start of each session, and 1CT enables trigger orders for uninterrupted trading. Vertex supports stop market, take profit, and stop loss orders (excluding stop limit), with trigger prices based on Mark Price or Last Price for the entire position size. Partial position orders and advanced trading strategies like TWAPs or scale orders are currently unavailable.

Vertex Edge - Cross-chain Liquidity

Vertex Edge introduces cross-chain liquidity through a synchronous orderbook, consolidating liquidity from various instances and settling transactions onchain at the source base layer. This extension of the sequencer's capabilities broadens its reach across supported base layer ecosystems, with the sequencer's state sharded and updated across all chains. Inbound orders from each chain are aggregated and matched against the total liquidity pool, with the sequencer (Edge) automatically hedging and rebalancing liquidity between chains. Essentially, Edge operates as a virtual market maker, focusing on resting liquidity (maker orders) across sharded states of Edge instances, while taker orders are submitted directly to Edge's unified liquidity layer from independent instances.

This innovation opens up possibilities for accessing unified liquidity on any chain. It's particularly beneficial for launching new perp DEXes on different early-stage chains, eliminating the need to attract liquidity initially, crucial for competitive price execution. Blitz on Blast, the inaugural instance by Vertex Edge, illustrates this transition: initially, volume predominantly stemmed from Edge, and is gradually drawing liquidity from the chain (Blast) over time. Since March 13th, shortly after Blitz’s launch on Blast, until May 22nd this year, Edge has contributed to 62% of Blitz’s maker volume. For total maker and taker volume, Edge’s contribution is 27%. As illustrated in the chart below, the trend indicates an increase in direct volume from Blast.

With each new Edge instance, benefits extend to both the new and existing instances. Increased liquidity in one instance translates to more liquidity available across all existing ones. Liquidity from non-Arbitrum instances, like Blitz, merges into a synchronous orderbook, combining liquidity from Vertex on Arbitrum and Blitz on Blast. Deploying on more chains adds liquidity rather than fragmentation, enhancing usage across all chains and providing value to apps on other chains. The chart below illustrates how Vertex, despite having more established liquidity, is progressively benefiting from Edge’s cross-chain liquidity.

It's crucial to highlight that matched orders are settled locally onchain to the user's origin chain, ensuring a net-positive impact on the local chain's blockspace demand. Each Edge instance showcases the combined orderbook liquidity of all interconnected chains on the app's trading interface, allowing access to this shared liquidity from any base layer.

Up next is Mantle, slated to receive its own Edge instance. With a TVL of $331.57M, approximately 11% of Arbitrum's TVL, Mantle stands to benefit significantly from access to deeper liquidity than currently available onchain. This expansion allows Mantle to accommodate a much broader user base.

Recently, the team unveiled plans to launch an Edge instance on Botanix, the Spiderchain EVM L2 on Bitcoin. The Edge deployment on Botanix introduces novel concepts for decentralizing the sequencer, with further details to be disclosed as development progresses. This move expands liquidity availability from Arbitrum and Blast to the Bitcoin L2 ecosystem, potentially bridging these two very separated worlds and catering to diverse user types.

Amplifying User Benefits

Vertex Edge's architecture facilitates multi-chain liquidity sharing through a unified, synchronous orderbook. However, thanks to Vertex's vertically integrated offerings (spot, perpetuals, and money markets) and cross-margined account structure, this entails more than just additional perp DEXs accessing consolidated liquidity. Instead, Vertex's design offers amplified benefits to all users across each instance and underlying network.

Through Vertex's spot market, users will be able to trade native spot assets across chains without needing to access the network of any specific asset. This is a significant step in the roadmap that will be key to reduce friction between networks and bridging risks. With the synchronized orderbook aggregating liquidity, sellers on one chain gain access to buyers on multiple chains, optimizing market depth and potentially reducing slippage.

Additionally, Vertex's cross-margined accounts with spot and perpetual products enhance basis trading opportunities across ecosystems, further optimizing market efficiency through Edge. Unified funding rates on Edge streamline trading, mitigating liquidity fragmentation.

Edge's money markets enable users to maintain collateral on their preferred chain without asset bridging, again reducing friction and expanding collateral options to enhance liquidity and trading efficiency. The synchronous orderbook layer retains Vertex's embedded money markets through cross-margin accounts, ensuring consistent interest rates across chains. This consistency facilitates easier cross-chain spot trading, enabling traders to access assets in different ecosystems without the need for stablecoin bridging, optimizing yields for passive lenders.

App Layer Alignment

Vertex Edge offers three distinct benefits to base layer networks: increased blockspace demand, better onchain liquidity, and reduced development/integration costs. Vertex Edge's batched settlement model increases blockspace demand, as evidenced by Vertex contracts consistently ranking among the top gas spenders on Arbitrum in 2024. This alignment encourages more blockchains to integrate Vertex Edge, possibly offering native incentives such as the Arbitrum STIP.

Edge's cross-chain liquidity access alleviates obstacles for users moving assets between chains, and retaining onchain capital by diminishing outflows seeking better DEX liquidity. Each new chain added to Vertex Edge's network enhances liquidity for all chains, creating a virtuous cycle of growth and liquidity. Additionally, Vertex Edge reduces development costs and resources for launching DEXs on L2s by leveraging existing liquidity, avoiding the need for extensive new technology development and deep liquidity creation.

Implications For The Token

VRTX functions as a utility token within the Vertex ecosystem, providing several benefits to users. It primarily serves as an incentive for the Vertex community, rewarding user activity, efforts, and transaction volume within the Vertex Protocol. These rewards vary based on contributions and commitments, encouraging ongoing participation over the long-term.

Staking VRTX is necessary to join the protocol's incentive program, signaling a user's commitment and adherence to standards. Staked VRTX generates voVRTX, a non-transferable token that acts as a multiplier for incentives, proportional to the staking duration. Users who stake longer (up to 183 days) can earn 1 to 2.5 times more rewards. Besides staking, voVRTX can also be earned through active and consistent participation, making it a comprehensive incentive model. This system encourages continuous contributions, creating a positive feedback loop.

Vertex's primary revenue comes from trading fees, which scale with trading volume. Up to 50% of trading fee revenue, excluding sequencer fees, is allocated to the Protocol Treasury for rewards, with the specific percentage determined each epoch based on the protocol's needs.

Just recently on May 16th, the team announced a VRTX Buyback & Burn program to replace the previous Buyback & Stake, meaning that VRTX purchased with protocol revenue will be periodically sent to a burn address instead of staked moving forward. It is designed to use a portion of retained protocol revenue from the Vertex protocol (e.g., trading fees) to purchase VRTX on a forward-looking basis.

The expansion to other chains through Edge instances is set to generate more trading fee revenue, leading to progressively more VRTX being burnt. With a fixed total supply of 1 billion tokens, and 90.85% of it to be distributed over the five years following the TGE, this supply reduction could drive significant value back to the token. Notably, 34% of the supply is allocated to ongoing incentives to be distributed over the next 6+ years, starting from Epoch 8. As more tokens are burnt due to rising revenue and fewer incentives are given out over time (as per the emission schedule), this could create buying pressure. The portion of revenue allocated to Buyback & Burn will vary based on the protocol's needs.

Risks

Cross-margined accounts offer significant capital efficiency and advantages for strategies like basis trading. However, they also present higher solvency risks compared to isolated margin systems. An example of this vulnerability is the Mango Markets hack in October 2022. Although oracle design and security measures have improved since then, it is important to acknowledge that more complex margin systems can inherently provide more opportunities for exploitation.

The Insurance Fund’s capability to cover bad debt in extreme scenarios must also be monitored. As new Edge instances are launched, it takes time for protocol revenue from liquidations to sufficiently bolster individual insurance funds. However, funds can be utilized where necessary in emergencies and losses can be socialized, resulting naturally in a poor user experience but avoiding protocol insolvency.

The offchain sequencer is a single point of failure, with its consequences increasing with the addition of more instances. This risk is mitigated by the Slo-Mo fallback, which allows trading against AMM liquidity. However, execution in this mode is not as efficient, potentially leading to losses and high opportunity costs, which may not be ideal at times for sophisticated and professional traders.

The perpetuals landscape is highly competitive and liquidity is known to be mercenary, with the current craze for points programs and typical inflationary token rewards making user retention challenging. Nonetheless, Vertex’s market share has remained relatively stable since its token launch, and its ability to expand into multiple protocols with additive liquidity is promising for its future.

Final Thoughts

Vertex Edge’s cross-chain liquidity addresses the growing need to aggregate liquidity in an increasingly fragmented blockchain landscape. As more blockchains (L1s, L2s, L3s) are created, trying to convince users to use one protocol on one network can become futile. Edge embraces the multi-chain future, finding a solution to unify liquidity across chains. By ensuring that deployment on more chains means increased liquidity for every chain, Edge offers a future-proof approach. Edge transforms the typical subtractive creation of new protocols on new chains, which fragments liquidity, into a synergistic, value-additive endeavor. This perspective is groundbreaking for a multi-chain future, allowing users to trade on their preferred chains without missing out on the best price execution and overall trading experience. For anyone who believes in the multi-chain future, Vertex is a standout project in the perps landscape.

App layer alignment with the underlying network means that more blockchains can welcome Vertex Edge into their ecosystems, potentially offering native incentives. This boosts adoption, especially if Edge launches on established networks to leverage local liquidity and users. While competition is stronger on these chains, the value add could be significant.

Low trading costs and increasing liquidity can sustainably attract more volume and drive value to the token. With the initial token phase incentives involving a 7-month lock period concluding soon, and with monthly emissions on a fixed schedule, combined with growing protocol revenue leading to more tokens being bought and burnt, the token could have a clearer path for value accrual.

Finally, improvements to the perp DEX trading UX, including reduced latency and fees, along with deep cross-chain liquidity that Edge offers, are paving the way for perp DEXs to gain market share from CEXs, growing the total market and changing market dynamics.

This research report has been funded by Unlimited Technologies PTE. By providing this disclosure, we aim to ensure that the research reported in this document is conducted with objectivity and transparency. Blockworks Research makes the following disclosures: 1) Research Funding: The research reported in this document has been funded by Unlimited Technologies PTE. The sponsor may have input on the content of the report, but Blockworks Research maintains editorial control over the final report to retain data accuracy and objectivity. All published reports by Blockworks Research are reviewed by internal independent parties to prevent bias. 2) Researchers submit financial conflict of interest (FCOI) disclosures on a monthly basis that are reviewed by appropriate internal parties. Readers are advised to conduct their own independent research and seek the advice of a qualified financial advisor before making any investment decisions.

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Fund Tokenization Prepares Asset Managers for ‘Perfect Storm’

Synopsis:

  • Great Wealth Transfer will see $84 trillion of intragenerational asset transfer over the next 20 years
  • Gen Y and Z investors favor investment in alternative asset types, which tokenization makes more investable for HNW clients
  • Tokenization encourages platform changes, and will ultimately bring additional operational benefits

A triumvirate of large-scale market changes are set to transform the asset management industry over the next decade.

With trillions of dollars worth of assets set to flow into the wallets of Gen X, Y, and Z investors, much of which will accumulate onchain, asset managers who move first to serve this new market will gain an advantage in capturing this revenue opportunity. The immediate opportunity is similar to when the ETF format was introduced in 1993, with first-mover State Street launching the SPY (SPDR S&P 500 ETF)—now one of the largest ETFs globally. The tokenized asset format is today’s generational opportunity.

Tokenization can unlock accessibility to alternative asset types and more composable assets and structures, enabling a significant change in how investors manage portfolios. With greater automation and rules-based investment allocations, entirely new strategies could also become economically viable. Integrating existing platforms with next-generation digital systems will enable the industry to modernize in stages, ultimately allowing for the adoption of new asset types at scale.

The forthcoming vicennial transformation of the industry will enable it to transform and emerge triumphant. Those at the forefront of this technology evolution stand to dominate and shape the future of asset management.

 

Great Wealth Transfer prompts global investment shake-up

The asset management industry is on the cusp of the largest wealth transfer event ever, set to last for the next two decades. Consulting firm Cerulli Associates estimates $84 trillion in assets is set to change hands as wealth passes from the baby boomer generation to Gen X, Y, and Z investors.

However, the investment behavior of these younger benefactors differs significantly from their forebears in two ways. Holding Web3 wallets and accounts on Robinhood, rather than brokerage accounts like their parents, millennials are opting for a more self-service model in their long-term holdings. Add to that the shift in risk appetite, searching for higher growth through less conventional asset types like private markets and crypto, and the need for the industry to transform quickly is clear.

Whilst the industry is not currently set up to offer this new investor class more customization, as opposed to one-size-fits-all product offerings, an 80% majority of asset managers believe customization for the masses will be an important investment strategy in the next five years.

 
 

                                          Ryan Lovell, Chainlink Labs

 

While asset managers could build their own proprietary blockchain infrastructure and smart contract systems from the ground up, that approach would require significant resources and specialized engineers, extend time to market, and be at higher risk of technical vulnerabilities or implementation errors. On the other hand, fully outsourcing the implementation would leave them with limited roadmap control, interoperability, and customizability, along with dependency risks.

Ryan Lovell, director of capital markets at Chainlink Labs, commented: “That’s why leading asset managers are taking a hybrid approach, leveraging both existing systems and Chainlink’s decentralized infrastructure to implement modular solutions that can scale across multiple blockchains.”

 

Industry transformation through tokenization

The launch of tokenized funds by firms such as BlackRock, Franklin Templeton, and Fidelity International has created a need for the fund administration industry to evolve to an onchain format. However, nearly all, 93% of fund services firms, have not automated data inputs, data checks, and key workflows, so their operations are still manually intensive, leading to increased operational costs, reduced liquidity, and missed investment opportunities. Standard transfer agent processing can take between one and three days for routine transactions, and between five and seven days for complex cases requiring additional compliance checks, cross-border settlements, or manual document verification.

“Operational efficiency is just the starting point of tokenizing funds,” said Lovell. “The real value is meeting the needs of future investors who are increasingly accumulating wealth across multiple blockchain networks.”

In order to reach this new onchain world, asset managers and their service providers may not want to make a huge investment to completely change their infrastructure, but instead adapt their existing systems to make them compatible with multiple blockchains.

For example, in November 2024, SBI Digital Markets, UBS Asset Management, and Chainlink completed the implementation of a tokenized fund to demonstrate how existing fund administration processes can be successfully made compatible with tokenized funds.

SBI Digital Markets, as a custodian and fund distributor, used smart contracts, oracle networks, and multiple blockchains to automate its processes. One of the key components was the digital transfer agent smart contract, which used multiple oracle networks from Chainlink and its blockchain-agnostic architecture to create a unified golden record.

Lovell compared the digital transfer agent to an offchain/onchain coordinator that does everything that a traditional transfer agent does, but in digital form.

“It does not replace the existing system but enables firms to be compatible with blockchain and then offer a service that can scale to all their customers,” he said. “Asset managers should be demanding this from their service providers.”

The pilot showed that a tokenized fund could maintain its share register on one blockchain while using Chainlink’s Cross-Chain Interoperability Protocol (CCIP) to enable the processing of intensive fund lifecycle activities such as subscriptions and redemptions on different blockchains while meeting institutional security and compliance standards.

Swift, UBS Asset Management, and Chainlink also settled tokenized fund subscriptions and redemptions using the Swift network, which enables payments with fiat currencies across more than 11,500 financial institutions in over 200 countries.

                                     Winston Quek, SBI Digital Markets

Winston Quek, CEO at SBI Digital Markets, said in a statement: “This new way of launching fund structures and administering them via smart contracts empowers both fund managers and their service providers to deliver new onchain financial products and lower operational costs to investors, both things they are actively looking for.”

In addition to lowering costs, using blockchains increases transparency and allows real-time reconciliation between the fund distributor and the fund issuer. Lovell highlighted that Chainlink can also use the same architecture to enable investors who want to hold tokens that are backed by offchain assets, settle these tokens across any blockchain, incorporate data that is needed to process transactions onchain, such as NAV data, and coordinate payments between distributors and the asset managers.

In the U.S. there are requirements around private and public funds and Chainlink enables asset managers to consolidate and consume onchain record keeping while fulfilling regulatory obligations. U.S. funds also require the distributor to onboard users and buy and sell the fund while the custodian and fund accountant provide reporting data.

“We allow all of those service providers to coordinate outside of their firewalls,” said Lovell. “Chainlink’s goal is to enable the TradFi and DeFi worlds to seamlessly connect, which increases utility.”

 

The Great Wealth Transfer is driving asset management onchain

With $84 trillion set to flow from baby boomers to Gen X, Y, and Z, their demand for alternative asset types and customization will shape the future of asset management. While today’s systems may be prohibitively expensive to offer these benefits at scale, tokenization changes the economics.

Tokenized funds by BlackRock, Franklin Templeton, and Fidelity International have already proven the demand for onchain assets, while a solution by SBI Digital Markets, UBS Asset Management, and Chainlink has demonstrated the operational efficiencies of blockchain technology and how onchain assets can be provided at scale.

The choice is clear for asset managers and service providers: embrace the tokenization revolution and lead the next era of finance or risk being left behind. Those who act now will not only gain a first-mover advantage but also shape the future of the industry.

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Stellar's Ecosystem Surges Forward: Smart Contracts, Lightning Speed, and Real-World Impact in 2025

The Stellar blockchain ecosystem is experiencing remarkable momentum in 2025, with groundbreaking technical achievements and expanding real-world adoption that position it as a major player in the decentralized finance landscape. From lightning-fast transaction speeds to innovative smart contract capabilities, Stellar is demonstrating that blockchain technology can deliver both performance and practical utility.

Technical Breakthroughs Drive Performance

The Stellar Development Foundation's Q1 2025 quarterly report reveals impressive technical milestones that showcase the network's maturation. The platform now processes an astounding 5,000 transactions per second with remarkably fast 2.5-second block times, putting it among the fastest blockchain networks in operation today.

This performance leap isn't just about raw numbers—it represents Stellar's commitment to creating infrastructure that can handle real-world demand. Whether it's cross-border payments, asset tokenization, or decentralized applications, the network's enhanced capabilities provide the foundation for scalable blockchain solutions.

Smart Contracts Get Smarter with Soroban

One of the most significant developments has been the launch and continued evolution of Soroban, Stellar's smart contract platform. The introduction of Contract Copilot represents a major advancement in developer experience, enabling faster and safer smart contract development through enhanced tooling and guidance.

This focus on developer experience is crucial for ecosystem growth. By lowering barriers to entry and improving the development process, Stellar is positioning itself to attract innovative projects and talented developers who might otherwise choose competing platforms.

New Token Standards Meet Market Needs

The Stellar Development Foundation has introduced new token standards developed specifically based on feedback from developers and institutional users. This responsive approach to platform development demonstrates Stellar's commitment to building technology that meets actual market needs rather than theoretical requirements.

These standards are particularly important as institutional adoption continues to grow, with organizations requiring robust, compliant, and flexible token frameworks for their blockchain initiatives.

Global USDC Integration Expands Utility

The integration of USDC across Stellar's global network represents a significant milestone for practical cryptocurrency adoption. Stablecoins like USDC provide the price stability necessary for everyday transactions and business operations, making them crucial for blockchain platforms seeking real-world utility.

This integration is particularly impactful in emerging markets, where access to stable digital currencies can provide financial services to underbanked populations and facilitate more efficient cross-border transactions.

Industry Events Build Community Momentum

The Stellar ecosystem's growing influence is evident in its presence at major industry events. The foundation's participation as a sponsor at Consensus 2025 in Toronto and Digital Assets Week in New York demonstrates its commitment to engaging with builders, investors, and institutional leaders across the blockchain space.

These events serve as crucial networking opportunities and platforms for showcasing innovative projects within the Stellar ecosystem. Recent Meridian events have highlighted creative projects like Skyhitz and HoneyCoin, illustrating the collaborative spirit and diverse applications being built on the platform.

Real-World Impact in Emerging Markets

Perhaps most importantly, Stellar's growth isn't just about technical metrics—it's about real-world impact. The platform's focus on emerging markets addresses genuine financial inclusion challenges, providing efficient payment rails and access to digital financial services where traditional banking infrastructure may be limited.

This practical approach to blockchain implementation sets Stellar apart from projects that focus primarily on speculative trading or theoretical use cases. By solving actual problems for real users, Stellar is building sustainable demand for its technology.

Looking Ahead: Enterprise-Grade Infrastructure

Stellar positions itself as offering enterprise-grade asset tokenization alongside its DeFi capabilities and payment infrastructure. This comprehensive approach makes it attractive to institutions looking for a single platform that can handle multiple blockchain use cases.

The combination of fast transactions, low costs, smart contract capabilities, and regulatory-conscious development creates a compelling value proposition for enterprises considering blockchain adoption.

The Road Forward

As 2025 progresses, Stellar's ecosystem appears well-positioned for continued growth. The technical infrastructure improvements, developer-focused enhancements, and real-world adoption initiatives create a strong foundation for expanding use cases and user adoption.

The blockchain industry has seen many projects promise revolutionary capabilities, but Stellar's focus on delivering measurable performance improvements and practical solutions suggests a mature approach to blockchain development. With transaction speeds that rival traditional payment systems and growing institutional adoption, Stellar is demonstrating that blockchain technology can move beyond experimental phases into mainstream utility.

For developers, institutions, and users looking for blockchain solutions that prioritize both performance and practical applicability, Stellar's 2025 developments represent significant progress toward a more accessible and useful decentralized financial ecosystem.

Source: The Dinarian ⚡ Claude AI

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Soroban Security Audit Bank: Raising the Standard for Smart Contract Security

The Stellar Development Foundation (SDF) is deeply committed to helping ensure that the highest security standards are available for projects building on the Stellar network. Last year SDF launched the Soroban Security Audit Bank, an initiative to provide projects access to auditing experts and tooling that are proven to help prevent hacks by catching potential bugs, inefficiencies, and security flaws before contracts go live. Through the Soroban Security Audit Bank, we’re empowering teams building on Soroban with comprehensive security audits from leading audit firms, enhanced readiness support, and robust tooling, significantly elevating the ecosystem’s safety and efficiency.

Since launch, the Soroban Security Audit Bank has successfully conducted over 40 essential audits, deploying over $3 million to support security of the smart contracts on Stellar. Check it out!

 

Ecosystem Success Stories: How the Soroban Audit Bank Drives Security Forward

By making automated formal verification available to developers, in addition to allocating significant budget for securing many of the top DeFi protocols built on top of Stellar, SDF has established a new security standard in the Web3 ecosystem. Mooly Sagiv, Co-Founder of Certora
SDF has been a strong partner as we’ve worked with teams across the Stellar ecosystem. SDF’s Audit Bank initiative allows for a smooth and streamlined review process, and is a clear reflection of the Stellar ecosystem’s enhanced commitment to security. Robert Chen, CEO of OtterSec
 

Leading projects within the Soroban ecosystem have highlighted the impact of the Audit Bank

Finding a good auditor is difficult, expensive, and high-stakes. The Audit Bank streamlines the process and supports ecosystem projects with security review at critical growth milestones. Markus Paulson, Co-Founder of Script3
The audit firms we worked with deeply understood the full ecosystem and the underlying protocols used. Their expertise and the tools from the Audit Bank strengthened our security and supported user and investor trust. Esteban Iglesias Manríquez, Co-Founder of Palta.Labs

What's New in 2025: Enhanced Audit Support for Soroban Builders

Teams building financial protocols, high-dependency data services, high-traction dApps funded by the Stellar Community Fund are able to request an audit and will typically be matched with a reputable audit firm within two weeks. We recently restructured the program for this year to enhance audit efficiency and incentivize accountability, and rapid and complete vulnerability remediation:

  • Complimentary Initial Audit: Projects will need to contribute 5% of the audit cost upfront, but this co-payment amount is eligible for a full refund, provided that critical, high, and medium vulnerabilities identified are swiftly remediated within 20 business days of receiving the initial audit report (learn more).
  • Incentivized Security at Key Traction Milestones: Complimentary, extensive follow-up audits are available as projects achieve critical traction milestones (e.g., $10M and $100M TVL). These audits include deeper assessments such as formal verification or competitive audits, significantly boosting project security at pivotal stages.
  • Advanced Security Tooling: Projects can enhance their security self-serve through complimentary or discounted access to specialized tooling, which provide vulnerability detection and formal verification capabilities (see full list of available tooling). These tools are encouraged to capture ‘easy-to-spot’ issues prior to audit as well as a final check post-audit to increase the effectiveness and thoroughness of audits.
  • Enhanced Audit Readiness Support: Projects receive structured preparation support, including the implementation of best practices and security standards based on the STRIDE threat modeling framework. This ensures project teams are thoroughly prepared, optimizing audit efficiency and minimizing delays.

Get Started Today

If you're already funded through the Stellar Community Fund, meet the criteria and ready to secure your smart contracts, check your email for an invitation to submit an audit request–if you haven’t received one, contact [email protected].

If you haven't built on Stellar yet, we encourage you to start your journey with the Stellar Community Fund to become eligible for future security audits and ecosystem support. For any broader questions on the program, contact [email protected].

Also, we’re organizing an exciting series of workshops–join us for the kick-off on Soroban Security Best Practices on Friday, May 30, 2025 at 2 PM ET on @StellarOrg. Together, we're shaping a secure and resilient future for smart contracts on Stellar.

Source

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If you find value in my content, consider showing your support via:

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