The Vega Protocol (VEGA) operates as a decentralized derivatives trading platform. The network seeks to provide a more open financial system to the market. To accomplish this task, the system enables anyone to develop and host permissionless, customizable markets. Notably, the Vega Protocol is currently operating as a restricted mainnet.
To understand the important role that the Vega Protocol seeks to hold in the market, it’s vital you grasp the concept of derivatives. Derivatives are direct financial contracts that derive value from underlying assets. For example, there are gold and oil derivatives. Currently, the derivatives market sits at around +$600 trillion in open agreements.
What Problems Does Vega Protocol Attempt to Fix?
The Vega Protocol seeks to solve a variety of problems faced by traders. For one, derivatives provide a unique way for regulated traders such as large hedge funds to gain exposure to the crypto market. Derivatives are regulated. As such, they are a great way for unregulated markets to become a viable option for traditional investors.
The Vega Protocol introduces a secure framework and architecture that was designed from the ground up to support trading derivatives. The network introduces a variety of systems to optimize performance and improve blockchain-based derivatives trading.
Restrictions
It would be nearly impossible for you to create a new stock market. The legal costs alone would be enough to have most people disqualified. Not to mention that most countries would only allow these actions from accredited investors. To be considered an accredited investor, you need to hold at least $1 million in liquid assets.
The protocol changes the game by enabling anyone to create new markets. The platform introduces a variety of helpful modules to lower the technical barrier to these actions. These customizing modules save developers time and money. Additionally, they ensure that the market is secure from day one.
Price delays
Price delays have long been an issue for new markets. It’s hard to get reliable and timely price information without paying a lot for this data. Vega supports active precise liquidity pricing. This system keeps you up to speed on the price and volume of your favorite assets.
Benefits of Vega Protocol
The Vega Protocol brings a lot of helpful benefits to the market. For one, the system makes it easy for developers and regular users to tokenize assets. They can create new markets, products, assets, and even settlement processes. The protocol integrates advanced risk management systems and capital efficiency protocols to help drive DeFi adoption forward.
Onboarding
It’s easy to participate in the Vega Protocol. The network was designed to mirror centralized networks. The interface enables you to create markets in a permissionless manner. These markets can operate in a fully automated manner.
High Performance
The Vega Protocol is a high-performance network that supports high throughput and low latency. Specifically, the network has a 1 second block time and competitive pricing. Additionally, the network’s instant finality makes it the ideal solution for trading markets.
Flexibility
Developers enjoy a lot of flexibility when they join the network. The system enables you to create markets to meet nearly any need. You can even decide if market makers are to be designated as active or passive. This feature makes it easier to create a fee structure for your market that makes sense.
How Does the Vega Protocol Work?
The Vega Protocol is built on a Layer 1 blockchain that supports end-to-end financial product trading and execution. The network integrates an Ethereum bridge that enables users to leverage any ERC-20 compliant asset on the network. This maneuver helped the network to improve usability and functionality.
WebAssembly Compiler
The WebAssembly Compiler is the tool that streamlines building new markets. This feature is where you find options like what modules to include in your creation. The system was designed to be simple enough for new users to navigate with success.
Wendy
Wendy is a new protocol to the market. This ordering protocol was introduced to prevent validator nodes from cherry-picking high-paying transactions. By preventing transaction favoring by validators, the developers have helped to secure future decentralization. All transactions are distributed fairly to validators using this system.
Token
VEGA is the main utility token for the network. This token can function as a cryptocurrency and be sent globally. Additionally, you can stake VEGA to secure rewards. The token also serves a vital role as the main rewards and governance token.
Consensus
The Vega blockchain operates as a Tindermint DPoS (Delegated Proof-of-Stake) network. Tindermint is a technology that enables computers to run duplicate protocols securely. In the DPoS system, there are no miners. Instead, regular users can delegate their tokens to community-elected validator nodes. These nodes earn rewards from network fees that get distributed between their delegators.
The elimination of miners brings about some major advantages. For one, it reduces the network’s carbon footprint. It also provides a more democratic and open option to users. There’s no need to spend thousands on mining rigs when dealing with DPoS networks. Anyone can secure rewards with minimum risk.
Governance
Vega is a community-led operation. The users vote on vital upgrades and the creation of new markets. Voting is accomplished via a governance staking protocol. The more VEGA tokens you hold and the more weight your votes hold. This method of governance incentivizes users to hold their tokens over time.
Vega Protocol History
The protocol entered the market in 2018. The network is the brainchild of computer scientist Barney Mannerings. Mannerings combined his digital understanding with his +15 years of capital markets experience to create the Vega Protocol.
Bottom Line
The sky is the limit in terms of creativity when discussing the Vega Protocol. It will be interesting to see what unique and intuitive markets come to fruition thanks to the open nature of the platform. You can expect the Vega Protocol to continue to see more adoption due to its easy-to-use interface and flexibility.
