What Is Vega Protocol (VEGA)?
Vega Protocol for the decentralised trading and execution of financial products. It is designed for fully automated, end-to-end margin trading on open public networks, secured with proof of stake. They outline a novel incentivisation scheme which leverages a dynamic liquidity marketplace to solve the problem of attracting and allocating market making resources. Permissionless innovation is enabled by Smart Products, which allow anyone to create products and propose new markets, and works in tandem with decentralised risk management to enable the safe trading of arbitrarily complex instruments.
Products on a Vega Protocol can reference practically any underlying price or other data feed, allowing participants to define and trade a wide range of instruments across the full spectrum of global markets. Cross-chain settlement means that the protocol is blockchain agnostic and allows trades to settle in any crypto-asset residing on a supported chain, paving the way for physically settled and cash settled products, as commodity and asset tokenisation become widespread.
They believe that this technology can be transformational for the financial system, changing the dynamics of power and forming part of a wave of change that could radically alter the operation of markets and their relationship with society. All information in this document that is forward looking is speculative in nature and may change in response to numerous outside forces, including technological innovations, regulatory factors, and/or currency fluctuations, including but not limited to the market value of cryptocurrencies.
Vega Protocol Storage Key Points
|Coin Name||Vega Protocol|
|Circulating Supply||14,365,432.89 VEGA|
|Source Code||Click Here To View Source Code|
|Explorers||Click Here To View Explorers|
|Twitter Page||Click Here To Visit Twitter Group|
|Whitepaper||Click Here To View|
|Official Project Website||Click Here To Visit Project Website|
Overview of core Vega concepts
Vega Protocol opens and decentralises markets by fully automating the processes and incentives for trading and settling financial products between pseudonymous participants. This requires carefully designed mechanisms of economic rewards and penalties, and a protocol that balances the desire for permission less innovation with the need to protect markets and participants. Such a system is described in brief below, and more fully in the rest of this paper.
Instruments are defined by a combination of a product, risk model, and their required parameters and are traded either in open markets or over the counter (OTC), depending on the type of instrument and level of market making support. Open markets are created by market makers, and match trades between any willing and sufficiently collateralised participants, whereas OTC trading occurs on a more ad-hoc basis. Trading modes include continuous trading on a limit order book, discrete trading via frequent batch auctions  and request for quote (RFQ).
Vega Protocol Risk management is of particular importance for pseudonymous trading, as there is no practical recourse in the event that a participant owes more than they have, or is allowed to withdraw more than is rightfully theirs. To mitigate this, trading is margined, with risk models that have been selected and calibrated for a zero recovery rate environment. Margin requirements take into account the slippage incurred when closing a position, and positions that present an unacceptably high risk of loss to the network are closed automatically.
The rules are designed so that on average, closeouts will occur with a net positive margin remaining allocated to the position. This is added to an insurance pool that is used to cover the difference when a closeout leaves a negative balance. This mechanic ensures that most markets, and the network as a whole — insurance pool balances are redistributed to other markets at expiry — will become safer over time.
Vega Protocol Liquidity provision is incentivised through the protocol rather than as an offline activity. Liquidity rewards are distributed to the price makers of a trade, to the market makers of a market and to the proof of stake token holders who are supporting the infrastructure. Price takers incur a fee at the point of trade.
This fee represents a cost for accessing liquidity and the level is dynamically calculated according to how valuable that liquidity is to the market. Since liquidity providers may decide where to provide liquidity on Vega, this model effectively operates as a marketplace for liquidity, with the ultimate goal being to minimise cost per trade by efficiently.
Vega Protocol Market governance is necessary to ensure that the network can operate and grow unencumbered and without manual intervention whilst minimising the risk posed by bad actors. Vega’s market governance features are designed around the concept of stake weighted voting, with various actions such as the creation and closure of markets, and the setting of parameters that influence their behaviour being the main focus of on-chain governance. Off-chain governance around the protocol’s ongoing development and the reference implementation are out of scope for this paper and will be covered in more detail in later work.
Architecture of a public network
The Vega Protocol is designed to be implemented in a distributed and decentralised manner on a network of nodes that may be the same or distinct from trading parties participating in markets. Nodes will maintain a mirror of the state of their Vega network, and process transactions to operate markets and their governance. Nodes are included in the infrastructure through a proofof-stake mechanism a certain stake is locked by a node, and as a surety they will operate correctly.
These infrastructure nodes jointly run a byzantine consensus protocol , that ensures all honest parties sequence operations consistently, and thus feed the protocol implementation with actions in the same order across the network. Your reference implementation currently uses4 the Tendermint distributed smart contracts platform for the consensus and the proof-of-stake protocol. Clients may connect to any infrastructure node and send orders for any available market, perform market actions, and participate in the governance of the network or markets.
Vega Protocol The current reference node implementation includes a REST API for light clients to be able to access the platform, a GraphQL API for web applications, and a native (GRPC) API to interact with the infrastructure, as well as a reference HTML based decentralised trading application that can connect to a local or remote node. Clients, as anyone, may participate in the network as a full infrastructure node — and they expect institutional actors, including market makers to use this option.
Background & motivation
Traditionally, financial products are created and traded in markets consisting of various organisations (and sometimes individuals) connected by technology systems and contractual obligations that simultaneously facilitate trading and create barriers to entry. These vary in complexity, cost, and sophistication from extremely slow, manual, and error prone paper-based operations to high speed, high liquidity electronic markets.
Vega Protocol Regardless of the precise methods and systems in use, these markets all exhibit several key problems. They include the need to trust third parties, rent-seeking intermediaries that drive up costs, and the presence of organisations and structures that act as gatekeepers and censors for access to existing markets, and equally importantly, controlling the availability of products and creation of markets themselves.
Fair and trusted
To be credible, a market must operate in a way that is predictable, comprehensible, and fair. Vega Protocol Participants will not place their money on the line for a trading platform that they don’t trust to work as expected. Most markets hold the concepts of trust and fairness in high regard, however, for a decentralised solution this is even more important, as they are proposing a system that would widen access greatly. They must therefore demonstrate that your proposal treats all potential participants fairly and predictably, even in a variety of potentially hostile conditions and under the constraints of decentralisation.