WTF is Vega Protocol?
In a traditional financial system, all financial products and services rely on the individuals and organizations that implement technological systems to establish and execute contracts. It generally poses an issue of entry because these technologies differ in effectiveness, cost, and sophistication.
Some organizations have managed to find a solution to this problem. However, others are not that lucky. And this is the reason you will get some markets are more technology-intensive and others tend to be more manually intensive.
No matter the problem, the third party issue is still there, and with it, the availability of regulations and censorship that control the accessibility of products and the development of markets. Vega Protocol has been looking to solve this issue by establishing a decentralized network for these financial products where no particular organization or individual would pose a considerable risk to a market.
Tamlyn Rudolph leads Vega Protocol and has 14+ years of expertise trading in volatile power markets. More so, Rudolph has had interests in the trading/ settlement of derivatives. Other team members have acquired experience spanning a wide range of fields of the crypto space. They have also achieved substantial success with quality level output in the industry.
This article will serve as an overview of the Vega Protocol. Use it to learn everything you need to know.
What Is the Vega Protocol?
Simply put, this is a technology that’s uniquely made to help support a blockchain-powered public network that allows full end-to-end trading, as well as execution of financial products. Generally, the protocol helps to resolve the problem of attracting and assigning market-generating resources in a decentralized system.
It also works as a decentralized platform that allows financial products to be accessible to the general public more equally. With Vega Protocol, access to these markets tends to be available to everyone and the creation of these products and markets wouldn’t rely on central organization or authority.
Because of its smart product property, users of the platform can create new products while proposing new markets. In essence, the protocol enables markets to be decentralized and open by fully automating every process while also offering incentives for trading activities.
Furthermore, the platform enables the settling of financial products among these market participants. Typically, the protocol implements a set of the well-ordered mechanism of economic rewards/ penalties to balance the overall innovative platform. Generally speaking, it also helps to secure the market and the participants in these markets.
What Makes Vega Protocol Exciting?
Vega is basically a protocol that operates on a proof of stake blockchain. Most aspects of the network and protocol will be regulated by the community to allow it to evolve, and also to make vital decisions surrounding things such as fee rates, when and how upgrades are approved, how the protocol deals with risk, etc.
This governance needs a way to establish the amount of voting weight to offer each pseudonymous user on the network. Additionally, the proof of stake blockchain demands a way to establish the validator set and provide each validator with the proper amount of power when it comes to the block production process.
Validation of blocks and the network’s governance require to be performed by users with experience in the game. That means when somebody is delegating or staking to the network, or voting on different governance decisions, it is crucial that they gain from making informed decisions and will suffer economically when they do harmful things to the success of the network. That means that using a different coin or tokens like Bitcoin or Ether is out of the question. And using another asset that’s not directly associated with the protocol may enhance the likelihood of somebody acting in a way that opposes the best interests of the platform.
As a result, to align the needs of the participants that operate and secure the protocol, it utilizes a native token when it comes to staking and delegation, as well as the operation of the governance protocol. The token interacts with the Vega blockchain through an Ethereum-to-Vega bridge.
The most important part is that it won’t need the Vega token to apply the protocol to have orders and trade. Since there are zero separate gas fees on the platform for these activities, many users as opposed to other DeFi protocols, the only requirement is the asset(s) being traded.
Vega also possesses a few unique features that generally distinguish it from its competitors. These include things like liquidity incentive and collateral options. This is really exciting to many.
The network comprises a built-in liquidity incentive that usually matches market makers and traders together across different financial products. The market’s liquidity incentive helps the network cater to markets with varying trading volumes at varying points of the market lifecycle.
In general, the markets attain this via the facilitation of dynamically priced liquidity - this acknowledges that market making is capital intensive. As a result, it focuses on a market-driven solution that effectively deals with the demand for order book depth, as well as a preference for low fees.
Vega Protocol also requires to connect to major blockchains so that it can utilize crypto-assets like Ethereum, Bitcoin, other ERC-20 tokens, as well as stablecoins as collateral.
Besides, the protocol heavily relies on these collaterals in order to prevent being closed out. For effectiveness, the collaterals in other assets and base currency are held and regulated in a decentralized manner by the network. Typically, collaterals are placed under the control of Vega’s network.
The ease of market creation on the network also makes it much easier for any participant to establish and launch markets. More so, the participants on the platforms also have a huge variety of economic primitives and product features to easily perform cash flows, as well as settlement instructions from the actual market makers.
The Vega Protocol Token & Governance Model
The protocol is uniquely made to operate without any human supervision. Its operational governance is instead established by regulations embedded in the platform. It enables on-chain governance - this is the primary function that allows for the creation and upkeep of a highly decentralized environment.
It’s also worth noting that the network governance in Vega doesn’t plan to replace all types of other governance on the entire public Vega ecosystem, apart from the on-chain aspect.
Who Is On the Vega Protocol Team?
Barney Mannerings is the founder of Vega. As of this time of writing, there are approximately 25 individuals contributing to this protocol. And according to Mannerings, the project is focusing on expanding its engineering and community teams.
What Funds Vega Protocol?
In March 2021, Vega received $5M in a new funding round. Cumberland DRW and Arrington Capital led the round, with added participation from ParaFi Capital, CMS Holdings, Coinbase Ventures, and much more. Vega has also raised the money through a token sale as a calculated investment round. Mannerings also added that the round pushed Vega’s overall funding to “a bit under $12M”. In October 2019, the project had already raised a $5miilion seed round.
How to Participate in the Vega Protocol Network
You might be wondering how to use the Vega token? Well, it may be staked and delegated despite if it’s locked. That means that all members of the VEGA community may participate from the very first day of a live network by:
- Proposing and voting on different proposals for new Vega markets
- Delegating to a preferred validator to indicate support for that validator
- Proposing and voting when it comes to governance changes that can help distribute incentives and rewards from the on-chain treasury, adjust the network’s behavior, and set fee levels.
The token holders who stake as a validator or delegate their stake to a validator will often be rewarded from:
- the on-chain treasury. This may be funded by the team or someone else within the Vega ecosystem with any Vega-supported assets and can be distributed to participants, such as stakers or delegators, depending on governance rules.
- the infrastructure fee. This is determined by token holders themselves via the on-chain governance protocol.
Therefore, token holders will receive additional incentives in VEGA and actual fees in multiple assets for participating in the network. Originally, if the network is new and expanding, there is a high likelihood that there will a substantial “pot” of VEGA that can incentivize early usage. Later on, as the network matures, you should expect that the incentives in the system will offer different rewards to token holders in a much sustainable manner. And the parameters that determine these amounts will often be specified by token holders who could be expected to need to optimize between making the protocol appealing and affordable to users on the one hand, and having more rewards on the other.
Vega is a protocol that focuses on facilitating a decentralized marketplace where all traders may create and launch financial products. It can also help resolve many problems like attracting market-making resources, allowing a product to be accessible to the general public.
Additionally, there’s the problem of regulation and entry barriers that differ depending on the technology that central bodies utilized to create these markets. With Vega, luckily, all of these issues are solved. The protocol has made a wide range of toolkit features that could be utilized to effectively create markets.
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