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Staking Hub: Vega Protocol

Vega is a proof-of-stake protocol for creating and trading margined financial products on a fully decentralized network. Vega will facilitate fully automated margin trading and anyone will be able to build decentralized markets using the protocol. On August 24th, Barney from the Vega team joined us for an AMA.

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Quick takes:

  • Vega is a decentralized derivatives and trading protocol
  • The blockchain architecture allows better performance and capital efficiencies than other DEXs
  • Vega allows optimization for things like low fees and order fairness (anti-frontrunning/MEV)
  • Vega poses as competition to all types of derivatives
  • Anyone can create a market on Vega

Current Project Status 

Vega is about to enter the second phase of the launch of it’s “Restricted Mainnet.” In this phase, the decentralized mainnet and Ethereum bridge will initially be launched by a set of 13 validators for governance and staking, but initially without trading. 

This is an important step in Vega’s launch, and once this step is complete the network will move on to the “Alpha Mainnet” phase with the first trading function enabled.

Getting ready for Mainnet Launch

At launch, Vega will consist of a network of validators, with a staking & delegation function, along with governance. At launch, staking rewards and transfers will be enabled. 

The market creation and trading functionality for Vega has already been built, and is viewable here. Once Vega is stable post-launch, the market creation and trading functionality will slowly be enabled by the community. Initially, there may be some size limitations on Vega to ensure stability. An expected timeline to enable full trading functionality is around 1-3 months post launch. 

Typical Vega Users

Typical Vega users fall into a couple different categories. On Vega, there are token holders, node operators, deleagators, market creators, liquidity providers, and traders. Together, all of these users help power Vega protocol. 

“Token holders, node operators, and delegators, are involved in running the hardware and participating in governance to make sure everything runs smoothly. Market creators and liquidity providers are rewarded by the protocol for launching markets and supplying liquidity to existing markets, satisfying demand from traders. Traders will use these markets to make trades.”

– Barney M. 

What can users trade on Vega? 

Similarly to how Uniswap is challenging centralized exchanges, Vega eventually will pose a challenge to all types of derivatives, as Vega offers a decentralized trading platform. On Vega, users have the ability to trade a wide range of assets. 

“There can be derivatives on absolutely anything. If you can measure it and get an oracle source for it, you can build a market and trade it. Vega is designed to be super flexible in that regard.”

– Barney M.

Vega protocol intends to replace traditional financial systems for real world use cases, such as small businesses hedging different currency risks. Vega creates an open landscape for all types of derivatives. 

“Freedom to both create and trade on a wide range of markets from anywhere is an obvious benefit, as is the speed at which decentralized markets controlled by the community can adapt and new markets can be created.”

– Barney M.

Regulatory Considerations

Vega is not US based, and does not have US entities or operations. Vega at its core is just infrastructure with no products on its own. Users should consider their own jurisdiction before participating in trading on Vega. 

New markets on Vega are created by the community, and there is a token holder voting component that allows the community to reject dangerous, unethical, fraudulent markets.

The VEGA Token: Staking Information 

The VEGA Token is used for staking as a validator and delegation to validators, which receives revenue from fees generated on the network as well as from the token supply. The VEGA token is also used for governance votes using the on-chain governance system, and is needed to propose and vote on new markets.

The full staking process on Vega Protocol will be released soon, but the typical user flow is a two step process. The first step in the staking process is so associate the VEGA tokens with your Vega key using MetaMask. Afterwards, the second step is to delegate the VEGA tokens to validators using the Vega Console or another decentralized application connected to your Vega wallet. 

“Most transactions on the Vega chain relate to financial activity and being a custom built blockchain we’ve been able to design a fee system that’s better suited to trading and more predictable. For instance, you do not pay for orders (client side proof of work prevents spam) and fees are relative to the value of the transaction.”

– Barney M. 

Market Creation Process

To create a market on Vega Protocol you need to:

  1. Pick a product
  2. Provide the parameters for the instrument you want to trade
  3. Choose a risk model and risk parameters
  4. Find a suitable oracle
  5. Submit the market proposal
  6. Commit liquidity and/or convince others to

If the proposal passes the vote, then the market gets created and trading starts with an (on chain) opening auction.

“Market creators and liquidity providers are rewarded by the protocol for launching markets and supplying liquidity to existing markets, satisfying demand from traders.”

– Barney M. 

Vega Protocol: Next Steps

An exciting aspect of Vega is seeing people build services and products on Vega that compete in real world use cases outside the cryptocurrency ecosystem. Next steps for Vega are the Restricted Mainnet code release, followed by iteration of feedback and fixes.

Afterwards, trading will go live on mainnet. Once trading is live on Mainnet, the Vega team will look to new features, like completely customizable programmable products and risk models.

“I’m really interested to see the innovation that people will create with Vega and how it can get deeply integrated with other top quality defi protocols.”

– Barney M. 

Special Thanks

Special thanks to Barney from Vega for spending an hour with Staking Hub to answer all of our questions! 

Thank you to Gavin for co-hosting. Feel free to join our Staking Hub Telegram group if you haven’t already.

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