Cross-chain Liquidity: The Next Iteration of Perp DEXs

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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Attempted Theft of the World's Most Valuable Property, SEC Lawfare & The ETHgate Scandal

It is widely accepted that the media often spreads misinformation and hides any truth that challenge the establishments narratives. Well, this is one of those hidden truths...

Loans without Banks, Trades without Exchanges, Contracts without Lawyers. Peer to Peer Capital Markets disrupts traditional finance by removing middlemen and counter-party risk, enabling you to become your own bank by holding the keys to it all in your own privately held digital wallet.

To what lengths do you think the establishment would go to defend their control of the financial system? A system seemingly ripe with market manipulation, naked shorts, money laundering and regulatory capture.

The Myth of Open Source

For context, in the realm of open source, major corporations can engage in Intellectual Property theft by using open source projects to gain insights, technology, or legal protections without fully reciprocating to the community. Companies might contribute code to an open source project, only to later use that same code in commercial products, extending it with enhancements, essentially using open source as a low-cost R&D resource. Patents are crucial here, serving as a defense mechanism. Although open-source licenses cover copyrights, they don't extend to patents, meaning that companies holding patents can enforce legal protections against unauthorized commercial use, ensuring that any commercial application of their patented technology within open-source software requires proper licensing or recognition. This protection has historically led to the hyper-growth of industries like mobile phones and the internet, where patented technologies could be safely shared and built upon, promoting innovation and market expansion.

Validating Inventorship

In fields such as technology, pharmaceuticals, and manufacturing, patents are vital for safeguarding new inventions, with Nikola Tesla's extensive patent portfolio serving as a testament to his contributions to science.

However, Tesla's revolutionary inventions, like the Wardenclyffe Tower which aimed at providing free wireless energy, faced fierce opposition due to their potential to disrupt established control over energy markets. Financially sabotaged by investors like J.P. Morgan, legally challenged through "the war of currents" by Thomas Edison's promotion of the less efficient Direct Current system, and undermined by media smear campaigns, Tesla's work was systematically suppressed. After his death, the FBI's seizure of his documents further suggests efforts to control or conceal his ideas that could disrupt centralized energy distribution, illustrating how innovation can be stifled to maintain existing power structures.

Could this type of suppression still be happening today?

The Genesis of Decentralized Finance

Reggie Middleton first introduced Distributed Finance what would later become known as Decentralized Finance (DeFi), in 2013 when he invented and patented technologies under the title "Devices, systems, and methods for facilitating low trust and zero trust value transfers." This included groundbreaking concepts like programmable Smart Contracts, Swaps, Tokenized Assets, NFTs, Stable Coins, Digital Wallets, and even underpin Central Bank Digital Currencies (CBDCs).

https://patents.google.com/patent/US11196566B2/en?oq=US11196566+

Called by many as "The Most Valuable Property in the World", his patents US11196566B2, US11895246B2, JP6813477B2, JP7204231B2, JP7533974B2, & JP7533983B2 have been cited over 138 times by major financial institutions, underscoring their foundational role in the blockchain industry.

His patents cover:

Trustless Peer-to-Peer Value Transfers: Systems for enabling decentralized and secure value transfers between parties without the need for intermediaries. Applicable to cryptocurrency transactions, DeFi platforms, and digital payment systems.
Decentralized Financial Systems (DeFi): Methods and devices that facilitate decentralized trading, lending, borrowing, and yield generation. Impacting decentralized exchanges (DEXs) like Uniswap, SushiSwap, and similar platforms.
Smart Contracts: Implementation of self-executing contracts on blockchain networks, used to automate agreements and enforce conditions without intermediaries. Essential for platforms such as Ethereum, Cardano, and other Layer-1 and Layer-2 blockchain protocols.
Tokenized Asset Trading: Methods for creating, transferring, and trading tokenized assets, including cryptocurrencies, non-fungible tokens (NFTs), and digital securities. Platforms like OpenSea, Rarible, and asset tokenization platforms may fall within the scope.
Cryptographic Security and Wallet Systems: Systems for securing digital assets using cryptographic methods, including cold storage, multi-signature wallets, and multi-party computation (MPC). Potential overlaps with services offered by companies like Coinbase, Kraken, Gemini, and institutional custody providers.
Decentralized Identity and Verification Systems: Technologies for managing and verifying digital identities on decentralized networks, including for KYC (Know Your Customer) purposes. Likely touching on identity solutions like Civic, BrightID, and Blockstack.
Blockchain-Based Voting and Governance: Systems for implementing decentralized voting, governance, and consensus mechanisms, foundational to DAO (Decentralized Autonomous Organizations). Relevant to governance platforms like Aragon, Snapshot, and MakerDAO.
AI Economic Agentic Computing: First introduced by the VeADIR Platform refers to the application of autonomous agents in economic systems, where software entities can make decisions, negotiate, and execute transactions independently. These agents use artificial intelligence to analyze market data, predict trends, and optimize economic activities like trading, resource allocation, and supply chain management. Used by OpenAi, Claude Sonnet, Meta and xAI.

The societal value of these patents to disrupt traditional financial models and fintech business practises, by essentially removing the banks as middlemen, create significant economic incentives to suppress his work.

True Decentralization

Current Decentralized Exchanges (DEXs) often fall short of being truly decentralized due to various practical and structural limitations. Although DEXs leverage blockchain technology and smart contracts to enable trading without a central authority, aspects like governance, liquidity, and user interface can introduce centralization. Governance tokens might be concentrated in the hands of a few, influencing decision-making unevenly. The frontend, controlled by developers, represents a centralized point of control or potential failure. Liquidity pools can be dominated by a handful of large providers, leading to centralized liquidity dynamics. Some DEXs implement regulatory compliance like KYC/AML, which inherently involves centralized oversight. The use of layer-2 solutions for scalability might also undermine decentralization if not fully autonomous.

However, patents like US11196566B2 and US11895246B2 could pave the way for true decentralization by introducing innovations in blockchain interoperability and decentralized governance mechanisms. These patents potentially offer solutions for more evenly distributed control over exchange operations, enhancing the autonomy and distribution of decision-making, thus moving closer to genuine decentralization in the DEX ecosystem, which can be expanded to other industries like Healthcare, Supply Chain, or any other industry that trades value.

Who is Reggie Middleton?

Reggie Middleton, through his BoomBustBlog, became a notable figure in financial analysis, particularly for his early and accurate predictions regarding the collapses of Lehman Brothers and Bear Stearns during the 2008 financial crisis. His blog was renowned for providing in-depth, contrarian insights into economic trends, investment opportunities, and corporate vulnerabilities. Reggie won the CNBC's stock draft consecutively for two years, and appeared on major financial news networks like CNBC, BBC and Bloomberg where he discussed market trends, his forecasts, and the implications of financial strategies adopted by major firms. His track record has undeniably positioned him as a significant voice in the financial commentary space.

Reggie's work gained public attention when he appeared on the Keiser Report and CNBC in 2014, premiering his innovations built on the Bitcoin blockchain called "Ultracoin", two years before Ethereum captured the crypto limelight.

His vision was to create sound markets for a financial ecosystem where loans could be issued without banks, trades executed without exchanges, and contracts enforced without lawyers, aiming to disintermediate traditional finance by removing the middleman that doesn't add value.

In 2014, Reggie pioneered a simple Apple trade using a Pure Bitcoin Wallet: The Ultracoin Client.

Ultracoin later renamed VERI short for “Veritaseum” meaning "of truth", was the

first to market in tokenizing precious metals, offering VeGold, VeSilver and even tokenized fiat currencies or so called "Stablecoins". Veritaseum also introduced VeRent creating yield through P2P lending, and the revolutionary VeADIR platform, an autonomous, blockchain-powered research platform that independently evaluates and acts on dynamic research in real-time, communicates in machine language, and operates by purchasing, analyzing, and distributing insights on various assets while allowing VERI token holders to access and trade this research.

In 2018 he created the worlds first Gold Denominated Blockchain Mortgage

with traditional written note, mortgage as well as a smart contract on a public blockchain, both of whom incorporate each other by reference. The transaction had traditional title insurance and the note was recorded with the county clerk. The mortgage was denominated in Veritaseum's VeGold product, a digital form of gold in bearer form, fully transferable and redeemable upon demand.

Merely a few examples of groundbreaking products offered by Veritaseum.

Coinbase's Challenge: The Patent Infringement Suit

Coinbase, a dominant force in the cryptocurrency exchange market, enlisted the services of Perkins Coie, one of the largest patent law firms, to contest the validity of Reggie Middleton's patents.

They launched an Inter Partes Review (IPR) at the Patent Trials and Appeals Board (PTAB), arguing that Middleton's patents lacked novelty. An overwhelming 85% of patents are invalidated through this process. However, Coinbase's challenge was denied along with the appeal, thereby upholding and strengthening the validity of Reggie's patents.

This IPR challenge came after Veritaseum sued both Coinbase and Circle USDC for $350 million each over patent infringement. Unfortunately, Reggie's patent attorney and close friend passed away during this suit, so the cases has been dismissed without prejudice, meaning they can be negotiated or the cases reopened at any time. This leaves Coinbase in a precarious position, especially if shareholders have not been properly informed of this risk.

This lawsuit details how Coinbase's infrastructure, specifically its Ethereum and Solana validator nodes, engage with client devices to facilitate transactions. Exhibit #3 meticulously outlines the patent's claims, detailing the roles of computing devices, the use of memory for key pair storage, network interfaces for transaction terms, and the generation and dissemination of transaction data records. It provides concrete examples such as the processing of NFT transactions on Ethereum and the management of transaction fees on Solana, supported by in-depth references to code and API interactions. Furthermore, the exhibit explains the verification of transactions through an external state, illustrating how Coinbase's technology aligns with the patent's principles for decentralized transaction processing without a central authority.

SEC's Intervention: A Turning Point

In 2019, with promising negotiations on the horizon with both the Jamaican and the Nigerian Stock Exchanges for digital asset platforms, Reggie's world was turned upside down.

The SEC accused Reggie of fraud, alleging he misled investors about the functionality of Veritaseum's VeADIR platform, which the SEC ordered to be shut down following a live demonstration. The SEC also made claims on the validity of Reggie's patent applications, which have since been approved by both the USPTO and the Japan Patent Office. Oddly enough, the SEC may actually infringe on these very patents through the disgorgement and storage of seized crypto tokens.

Despite Veritaseum's cooperation with the SEC over a two-year period, along with a detailed response addressing the SEC's allegations, and not one token holder claiming to be defrauded, these allegations still led to a Temporary Restraining Order (TRO) that froze millions in assets, destroying the company's operations, and forcing a consent judgment "neither confirming or denying the allegations". The SEC would top it all off with a gag order that barred Reggie from publicly discussing the matter.

Keep in mind, the SEC is claiming jurisdiction by calling Utility Tokens "Digital Asset Securities" but recently SEC Commissioner @HesterPeirce stated:

"...by using imprecise language we've been able to suggest the token itself is a security, apart from that investment contract, which has implications for Secondary Sales, it has implications for who can list it...

We've fallen down on our duty as a regulator not to be precise. So, tucking into a footnote that yes we admit that now that the TOKEN ITSELF IS NOT A SECURITY, that is something we should have admitted long ago and then started wrestling with the difficult questions."

This calls into question if the SEC even had jurisdiction to bring forth this case to begin with. The Veri Community would later challenge the SEC's unproven allegations against Reggie with

a Dossier supporting the Vacating or Setting Aside of this case, and suggesting possible misconduct by the SEC.

Allegations of SEC Misconduct:

Misrepresentation of Facts: Assertions that the SEC deliberately mischaracterized the
functionality of the VeADIR platform, along with the patents and their value, by labeling them as lacking novelty and part of fraudulent activities.
Misleading Evidence: The SEC's use of declarations from Patrick Doody and Roseann Daniello, which contained misleading information about the personal ownership of a Kraken account used to misappropriate funds. Doody would later correct his statement, but the SEC did not update the court with this new information, potentially misleading the judicial process.
Conflict of Interest: Doody's undisclosed financial interests in the digital asset space through Lily Pad Capital LLC could suggest a bias in his testimony, which was pivotal in obtaining the TRO.
Coercion and Intimidation: Witnesses like Lloyd Cupp and John Doe provided affidavits claiming coercion by SEC attorneys to alter their testimonies, pointing towards witness tampering and intimidation.

FOIA Responses: The SEC's FOIA department initially denied any communications with Kraken, only later admitting to subpoena issuance, suggesting an attempt to obscure facts.
RICO Allegations: A 95 page RICO Dossier, supported by extensive evidence, alleges that the SEC's actions could resemble an organized crime syndicate, with systemic coercion, misrepresentation, and procedural misconduct aimed at Reggie Middleton.
Bar Complaint: The Veri community lodged a Bar Complaint against the SEC's Lead Attorney
over the use of misleading evidence, coercion and intimidation of witnesses.

Summary Articles of the B ar Complaint and RICO Dossier

Comparisons with the SEC Misconduct in the DEBT Box Case

The DEBT Box case shares a troubling parallel with the Veritaseum case. In both cases a Temporary Restraining Order (TRO) freezing funds was issued using dubious evidence which suppressed the ability to defend themselves. This behavior was already admonished by five US Senators

in a letter to Commissioner Gary Gensler in which the SEC presented misleading claims in this now high-profile cryptocurrency case.

"Regardless of whether Commission staff deliberately misrepresented evidence or unknowingly presented false information, this case suggests other enforcement cases brought by the Commission may be deserving of scrutiny. It is difficult to maintain confidence that other cases are not predicated upon dubious evidence, obfuscations, or outright misrepresentations."

Given the similarities in alleged procedural misconduct between the cases, it raises systemic questions about the SEC’s litigation approach in cryptocurrency matters.

This parallel underscores a potential agency-wide issue that could involve either implicit biases against crypto companies or an explicit strategy to pursue aggressive, potentially misleading tactics in court.

Is The Fox Guarding the Hen House?

In a significant development, the Attorney Grievance Committee (AGC) has decided to forward a complaint against SEC attorney Jorge Tenreiro to the SEC's Office of General Counsel (OGC) for investigation. This controversial move suggests a potential conflict of interest, given that the OGC is part of the SEC, the very agency where Tenreiro was recently promoted to Chief Litigation Counsel. The complaint, filed by the Veri community, accuses Tenreiro of misconduct including alleged coercion, witness tampering, and misrepresentation during SEC investigations. The Veri Community argues that this decision undermines the integrity of the legal process, as the OGC's role is to provide legal advice and defend the SEC, not to independently investigate its own employees. This raises questions about the impartiality and transparency of the disciplinary process for attorneys, especially when it involves high-profile figures like Tenreiro.

"As noted in re Rowe, 80 N.Y.2d 336 (1992), the public’s confidence in the legal profession depends on transparent and impartial disciplinary processes. Delegating oversight to the SEC, where Mr. Tenreiro remains a senior official and where the OGC has a clear institutional stake, jeopardizes this confidence and risks the appearance of protectionism.”

The VeriDAO has submitted a response letter to the AGC along with creating a PDF generator
to help the estimated 100 complainants and anyone else interested in requesting the AGC to reconsider this action.

Legal and Judicial Trials

The legal battles would only continue for Reggie. The case of Hall v. Middleton, in which Hall, a 1% shareholder sued Reggie, raises concerns of judicial bias and procedural mishandling. In this case, Reggie was denied Due Process and barred from presenting crucial evidence or calling witnesses due to his former attorneys' "Office Failures" that missed deadlines to submit evidence without the knowledge of Reggie or the firm Brundidge & Stanger that outsourced his counsel as detailed in their affirmations.

"In my many years of practice it is a rare instance where I have witnessed an attorney intentionally not file critical documents as required by Court Order without the permission or knowledge of his client, who had an established and fully developed attorney client-relationship with said attorney, and then misrepresent that the requirements of the Court Order were being satisfied. This is one of those instances and I hope not to see another."
~ Carl Brundidge

The judge ruled that Reggie must:

Pay a $1M fine to his company Veritaseum Inc., in which he owns 99%
The plaintiff was awarded costs of $495k against Veritaseum Inc.
The Judge ordered Patents (filed before the creation of Veritaseum Inc.) to be assigned to the company without compensation.

Attorney's "Office Failures":

Sheridan England missed critical deadlines, resulting in the striking of exculpatory evidence. England’s inaction or inadequate defense exacerbated Middleton’s legal vulnerability, directly leading to adverse outcomes.

Judge Schecter’s Conduct:

Ignoring Exculpatory Evidence: Despite knowledge of its existence, Schecter struck Middleton’s post-trial memorandum.
Procedural Bias: The judge’s decisions systematically favored Hall, including allowing him to collect attorney fees from Middleton personally, contrary to the principles of derivative law.
Forced Patent Transfers: Schecter’s order to transfer patents to an underfunded entity (Veritaseum) which were court restrained by the same judge, rendering them defenseless against attacks and IP theft.

This ordeal was compounded when Reggie was held in Contempt for using personal funds (while Veritaseum’s funds were court-restrained) to successfully defend his patents against an IPR challenge by Coinbase in the PTAB of the USPTO in an attempt to invalidate these patents. The Forced Patent Expropriation to Veritaseum without compensation or the ability to defend them could be seen as coordinated as it benefited very large competitors seeking to avoid licensing fees or infringement claims, or possibly even IP Theft.

Judicial Complaint: A formal complaint has been filed with the NYS Commission on Judicial Conduct by the Veri Community.

ETHgate: The Broader Conspiracy Allegations

Parallel to Middleton's struggles, "ETHgate" emerged, involving allegations by Ethereum co-creator @StevenNerayoff. Nerayoff claimed a government conspiracy aimed at controlling or monopolizing cryptocurrency development by targeting key figures. This narrative suggested that by attacking innovators (like Reggie Middleton as the Veri Community contends), the SEC might have indirectly cleared a path for Ethereum, which, despite its decentralized claim, benefited from a regulatory environment less scrutinized than its competition.

The term "ETHgate" encapsulates the belief that Ethereum's "Free Pass" from regulatory scrutiny might not just be due to its technological merits but also due to strategic regulatory maneuvers, where attacking smaller or less established DeFi projects could safeguard larger, more influential platforms like Ethereum.

Back in 2021, @JohnEDeaton1 from @CryptoLawUS explained XRP's side of Ethereum's "Free Pass". More recently, further SEC RICO Claims are insinuated in "RIGGED from the start" a documentary by @Fruition_News , along with posts by @KuwlShow and the XRParmy involving the SEC, Ethereum, a16z, and Consensys surrounding the Bill Hinman speech. Active FOIA requests by @EleanorTerrett seek to shed light on meetings between Hinman and Ethereum members.

Given the SEC protection of ETH and the high probability of Ethereum infringing on Reggie Middleton's patents as meticulously detailed in Exhibit #3 of the Coinbase case, is it ridiculous to believe Reggie Middleton could have been targeted?

Community Support: The Backbone of Resilience

Despite the SEC's narrative labeling them as "The Defrauded," the Veritaseum community rallied around Reggie.

SmartMetal with embedded NFT avalaible through VeriDAO.io

Financially devastated and with his funds frozen, Reggie faced foreclosure and was threatened with jail time after contempt charges for defending his patents using personal funds. In a remarkable show of support, the Veri Community rallied, raising an impressive $149,000 in less than two weeks to cover the fine while the case is under appeal.

They funded legal battles largely through donations and more recently with innovative means like NFT silver rounds called SmartMetal using Reggie's patented technologies, underscoring their belief in his vision. The first minted round was auctioned off for an astonishing $14,000 won by "M S"

"There is no better witness to the veracity of any defense than the alleged defrauded defending the alleged fraud at their own expense"
~ The Veri Community

This community support was not just financial but also moral, with efforts such as an Amicus Brief in the case against XRP, a No Action Letter (NAL) seeking clarity on secondary market sales of tokens, a Bar Complaint against the SEC's newly promoted Chief Litigation Counsel, and the @dao_veri's

#ProjectSunlight The SEC RICO Revelation.

A Call for a New Regulatory Paradigm

Reggie Middleton's saga is emblematic of the challenges faced by pioneers in the blockchain and DeFi arenas. His patents, now granted, underscore their foundational nature, yet the path to their recognition was marred by legal battles, suggesting a systemic issue where the regulatory framework might not fully comprehend or support emerging tech. His resilience, supported by an unwavering community and the validation of his intellectual property, underscores the need for a regulatory environment that fosters rather than stifles innovation. As blockchain technology continues to evolve, Reggie's story serves as a critical reference for balancing innovation with legal and ethical governance, ensuring that the future of finance remains open to all, not just those with the resources to navigate the legal maze.

For more information visit https://veridao.io/

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