With crypto trading activity picking up on Arbitrum, a new protocol called Vertex is setting its sights on the institutional clientele seeking to trade on decentralized exchanges (DEX) atop the Ethereum layer 2 system.

Vertex recently opened beta testing of its platform for spot and derivatives trading to a small group of institutional traders, said co-founder Darius Tabatabai, who declined to name names. For now the test is API-only, meaning those clients plug directly into Vertex’s trading engine rather than access it through a website.

The limited launch comes ahead of a wider debut expected for later in 2023. Then, Vertex will more directly take aim at Arbitrum DeFi leader GMX, which relies on user-supplied liquidity via automated market makers (AMM) to keep trades flowing. By contrast, Vertex employs an order book, the traditional setup found on centralized exchanges.

“You can never scale the way we’re planning to scale if you’re just AMM-driven,” Tabatabai said.

Vertex is the latest entrant to Arbitrum’s fast-growing decentralized finance (DeFi) ecosystem. In the last 24 hours, decentralized exchanges on Arbitrum have processed over $300 million in volume, per DeFiLlama, second only to Ethereum. It’s the fourth-largest chain by total value locked and ahead of Optimism and Polygon.

In an interview, Tabatabai said GMX is unlikely to keep pace with the future growth of the Arbitrum ecosystem because GMX relies on a liquidity pool instead of market makers – a model that might not scale if the zeroes add up.

“With the mechanism as they have it set up, I can’t see it being bigger than, like, a billion dollars. And that means that they really will struggle to do more than, like, a couple of billion dollars a day of volume, which is really decent,” but not enough to beat a centralized exchange, he said.

GMX could not be immediately reached for comment.

By contrast, Tabatabai said, Vertex “will work as much like a centralized exchange platform as possible” despite being a DEX.

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