Vest Pre-Launch Data Download
Vest vs. Traditional DEXs: A Comparative Study in Efficiency and Profitability
As we gear up for Vest’s mainnet launch, we present Vest’s performance compared to other exchanges in past market conditions. By analyzing historical market data, we gain insights into how Vest will redefine trading and liquidity provision for perpetual futures. This analysis offers traders a deeper look into the expected costs and benefits of trading on Vest, providing concrete projections to guide their decisions. Simultaneously, liquidity providers (LPs) can explore the prospects of Vest’s LP offerings and understand the kinds of returns that can be generated by using Vest. Pre-launch analysis allows the protocol to stay on track with its vision to ensure completely fair and optimal pricing for both LPs and traders in ways that DeFi has failed to thus far.
TL;DR
Vest traders pay, on average, less than a third of what traders on traditional DEXs pay
Vest LPs consistently outperform traditional DEX LPs due to preservation of capital and risk pricing
Traders perform better on Vest than other DEXs due to lower fees on less risky trades and vice versa
Methodology
Our simulation model looked at price data from October 13, 2023, until November 13, 2023, for thirteen of the most commonly listed assets, including ETH, BTC, BNB, SOL, and more. The model made the following assumptions:
400 agents (traders) exhibiting random activity and 100 momentum traders who went long/short on a moving average crossover
Randomized trades were skewed to be slightly skewed long (51% chance of long), with a frequency of about one trade per hour.
Premium tolerance of 100bps, meaning agents would not accept that trade any time the premium of a given trade measured over 100bps due to market skew
Each agent was seeded with $10,000
Trade size was drawn randomly from 0-10% of their remaining capital
Total of $1m in starting capital for LPs.
All of the relevant assumptions from above were also applied to DEX β’s simulation. This was created to provide a baseline using a standard AMM fixed-fee DEX model with LP counterparties commonly seen today (GMX, Kwenta, Gains, MUX, etc.). On DEX β:
LPs uniformly earn fees paid by traders
Traders are charged 10bps on trade execution.
With these assumptions, we could simulate critical data points for trading fees, trader performance, and LP performance.
Trading fees
By simulating data across the two models above, we estimated trading fees for each of our given assets. Below is a histogram of trading fees on BTC/USDT for the month.
It’s clear that Vest has lower fees on average than DEX β, but the distribution shows just how high/low fees can get for Vest. Traders typically paid only 3bps in most cases on Vest, while DEX β traders paid well over three times that in their fixed fee format. Fee data for other markets shows lower fees across the board for a majority of trades:
Traders consistently enjoy lower fees on Vest as compared to not only DEX β but also as compared to most other DEX models. A trader only needs to pay fees in proportion to the risk they add to the system. There are some scenarios where traders will pay more fees, but they are few and far between, only occurring when contributing to an already significant skew. Most trades (75%) for higher liquidity markets still incurred under 5.5bps per trade, while more volatile markets (PEPE/USDT) saw an earlier spike to compensate the AMM and LPs for taking on additional risk. However, if traders pay less to trade, then LPs should also be earning less - how much would LPs be making in this scenario?
LP Performance
Most assume that if traders are paying less fees, LPs are also earning less. However, the opposite is shown to be the case in our simulations. This is due to AMM capital serving as a protective intermediary for LPs and traders directly paying for the risk they contribute. Via our simulation, we were able to visualize LP returns for the month:
Traders benefited from lower fees on Vest, while LPs experienced increased returns. Traditional DEX models might suggest that traders incurred significant losses using Vest. Yet, our simulations revealed the opposite. Due to the AMM buffer, less LP capital is needed to support trader activity. LPs still receive portions of additional Premia from riskier traders and flat execution fees. This setup makes LPs less vulnerable to profitable trading activity while ensuring they continue earning fees. As a result, they achieve more consistent returns and maintain capital, even during a substantial market upturn.
DEX β, on the other hand, had LPs suffer as a direct result of traders winning. Without a buffer and proper risk adjustment for LPs, trader PnL becomes directly subsidized by passive LP capital. This data suggests that traders may have lost more on Vest - due to the large discrepancy in LP capital. However, the opposite proved to be true instead.
Trader Performance
Trader performance on Vest is subsidized by AMM capital first and LP capital second. This allows the system to safely restabilize when traders are profitable without putting LPs at risk. Trader fees are paid in a risk-adjusted proportion to LPs and the AMM capital to support this process. These two design principles allow traders to profit more in similar market conditions, as seen below.
In a period where BTC/USD moved up nearly 30%, DEX β traders finished just under breakeven on average, while Vest traders finished up close to 50%. Part of this can be attributed to the random nature of the simulation. Still, when taken within the context of LP performance and fees paid, it’s clear how Vest improves returns and experience for all participants. By adjusting the cost of trading based on risk and providing LPs with a buffer to preserve initial capital, all participants can win using Vest.
Considerations
These simulations show that properly adjusting for risk with a math-first approach creates a more profitable trading environment and higher LP returns than traditional fixed fee models on LP-based DEXs. However, it’s important to remember that these models don’t represent exactly what will happen in reality, and it’s up to the end user to practice proper risk management regardless. The first projections are very promising and pose that Vest will be one of the top trading venues at launch - but the only way to know for sure is to take these exact measurements post-launch.
We’d encourage all users/researchers to dig into our findings more to understand Vest better leading up to launch. These projections/ideas and more are open for discussion with other like-minded users on our research forum. Any updates, news, and additional info on Vest can be found first on our X and Discord.