Q&A with Vega protocol (Prof.David) in Vega protocol thai community.
12 june 2021
Telegram : https://t.me/vegathailand_unofficial
Q1 : Please tell us in short what is the project about?
Ans 1 : Vega is a blockchain that’s optimised for trading. It’s designed so that anyone can create new derivative markets. The trading happens via a limit order book or via auctions in special cases.
The first version of the mainnet will support only futures markets. Later we are adding a smart product language for trading all kinds of derivatives.
Q2.1 : What is the Utility of Vega protocol?
Ans2.1 : The token holders can stake the token if they’re running a validator node. Or in most cases they will “delegate” their stake to a validator.
This will earn them a cut of the trading fees. The trading fees on Vega has three components:
1) infrastructure (this part goes to validators, delegators)
2) liquidity for liquidity providers
3) maker fee: for the party that had a passive volume on the book that got hit by an aggressive trade.
The fees are paid in the settlement asset of the market (e.g. USDT, ETH).
In the short term there will also be rewards in Vega tokens for early validators because when the network launches it will take same time for the trading volume to grow to make the rewards from fees really attractive.
Q2.2 : this is short term right ?
Q2.2 : The rewards in Vega tokens for validators / delegators are in the short term (think 3–12 months after mainnet launch). This will come from the “community” portion people would have seen on the Coinlist page.
In the long term the rewards will come from trading fees as described above.
Q2.3 : I remember in the Vega whitepaper there was mention of Governance, Fee for Open Market, ETC.
Ans2.3 : That’s true, the other uses of the token are:
- voting on proposed markets
- voting on “governance proposals”
Governance proposal can be e.g. adding new assets or changing the “infractructure fee” or chaning what is the minimum auction duration.
You can see the network parameters in Testnet; all are changeable via governance.
Q3 : Could in you tell us a little about the team behind the project?
Ans : So the project was started by Barney and Ramsey in early 2018. Soon after we had Edd, Tamlyn, Chris, me and Rebecca joining with Jeremy a little later.
Barney has background in bitcoin and also exchange software development (London stock exchange), Tamlyn was a derivatives trader for many years. Jeremy is the core go engineer while Edd started on the console frontend but is now overseeing the whole engineering effort. I am looking after the quantative risk and economic modelling for the protocol (my background is mainly maths).
We have since then grown massively with about 14 engineers, Christina running a lot of the community together with other people you’ve met.
Q4 : Could you please told us about the milestone achieved and future roadmap?
Ans4 : Milestones
- spring of 2018 we had an early prototype: basically a matching engine running on top of tendermint and not much more
- September 2018 we published the white paper
- Spring 2019 we launched an invitation only testnet
- In 2020 Klaus (our amazing blockchain researcher who I forgot to mention earlier) figured out the “Wendy” fairness protocol to make sure that on Vega there is no front-running and MEV problems. You can find a paper on our site
- In 2020 we finalised our liquidity meachanism and published a pre-print describing it.
- In late 2020 we fully opened the testnet to public
- In Spring 2021 we added the liquidity provision features to testnet.
So that’s the milestones in the past.
Future roadmap: one answer is here: https://blog.vega.xyz/announcing-the-vega-2021-roadmap-4c3c0d80efc0 but to be more specific:
- alpha mainnet Q3-Q4 of 2021. This will initially be limited in the amounts that can be traded (by governance). Testing period for stability / security.
- In 2022 we will be adding more products on top of Futures as well as bridges to other blockchains (so far we only have Ethereum bridge).
- Further in 2022: smart product language and trading of arbitrary derivatives.
Q5 : Having an excellent partner is one of the factors that will contribute to the Vega protocol’s success. including customer. and I would be extremely grateful if you could tell how many partners and customers that Vega have? moreover Can you forecast the present and the near future about it ?
Ans5 : You’re absolutely right. Having the right partners is crucial.
Already more than a year ago we started talking with well known crypto trading funds about providing liquidity (market making) on Vega. We are working closely with a number of them to integrate their systems with Vega before the mainnet launch. Unfortunately I’ve not checked beforehand whether we can mention them or not so I’ll avoid naming names just now (we can do a follow up on this).
Beyond that we are working on a number of initiatives with Terra which we hope to announce soon but at the moment I cannot mention more.
And some partnerships will come as we build bridges to other blockchains beyond Ethereum. This hasn’t happened yet mainly because our engineering team has been extrememly busy with the core protocol. We feel that announcing partnerships that don’t deliver concrete functionality is pointless. So we try to build first and then announce.
Finally we have people on the team talking to a number of validators for running the first validator nodes for the Vega main net.
Q6 : In your opinion, how do you view derivative market growth in the future compared to traditional centralize exchanges? Will Vega Protocol have a chance to compete for market share?
Ans6: Great question! So the first thing to note that in “traditional finance” derivatives markets are several orders of magnitude bigger than “spot” markets.
For crypto this hasn’t necessarily been the case, partly because of regulation (on the centralised exchange side) and partly because the currently deployed defi derivatives protocols aren’t sufficiently efficient (speed, collateral requirements).
In terms of competing for market share we believe that the biggest strenght of Vega is the community and the ability of the community to come together and launch the markets they need. There has always been a gap between markets communities need and what the exchanges provide.
So we’re feeling very confident that Vega will be sucessful because of the markets our community will launch and support.
Q7 : How is the technology behind the Vega protocol considered to be more advanced than other projects?
Ans : First generation of DeFi derivatives trading protocols were built on Ethereum and this is simply too slow (and also lacks finality) for good trading experience. Moreover doing anything computationally complex is expensive (in gas) and so for example so protocols require overcollaterisation and don’t handle closeouts themselves (instead leaving this to other parties).
There are now several “next generation” defi derivatives protocols that are building their own blockchain (e.g. Injective). I think the advantages that Vega has are:
- sophisticated protocol developed by traders and people with finance experience (liquidity provision mechaninsm, protective auctions, cross-margining atomic closeouts etc.)
- sophisticated risk model architecture that allows us to support high capital efficiency keeping the protocol safe
- fairness protocol (Wendy) which makes sure validotors cannot frontrun other users.
Q8: In the near future, what is your marketing plan to build a community including the token value and attracting users to get more access to the platform?
Ans8: That’s a relatively difficult question for me as it’s very far from what I focus on at Vega.
In my mind the biggest challenge is that we don’t necesarily need a “big” community but we need “strong” and “informed” community. We need people who a) understand and can explain the protocol to others so that they can positively influence how token holders vote e.g. on new markets. We also need b) community members who can develop on top of Vega. We for example see applications of Vega where the users will access the network via a custom interface specific to their market — 99.9% won’t even know they’re using Vega.
Of course the token sale delivered tokens to a relatively large number of people and the “incentivised testnet” which should be launching soon will do more of this.
On top of that we are sponsoring a number of hackathons and generally engaging with new developers that way.
I would say that what you’ve seen so far is what to expect in the near future:
- Telegram / Discord
- Testnet Jams
- Incentivised testnet.
Q9 : I’ve noticed that Do Kwon from Terra is one of the investor in Vega, Do you have a plan to work with Terra platform? If yes, Could you please tell us about your plan?
Ans9: Yes we will have something to announce with Terra soon but at this point I cannot share more.
Q10: What factors prevent Vega from being successful in attracting users? And how do you solve that problem?
Ans 10 : I think what we have on our roadmap is very attractive. Our biggest challenge over the next 3–6 months is to launch the mainnet that is stable and secure.
What will put people off the most is if there are real problems once the mainnet launches (e.g. assts lost to a hack).
We are working very hard on developing the software and also have a very conservative launch plan which should mitigate such issues.
Q11 : Are there any major regulations from SEC which possibly affect Vega protocol, how your team gonna deal with that?
Ans11 : There are of course many regulations from various countries that apply to derivatives trading.
However the Vega team is developing a blockchain / software that will finally run independently of us. Anyone will be able to launch markets and trade and it will be up to the users of the protocol to comply with the regulations that apply to them locally.
Q11.2 : Does this mean that Vega must be placed under SEC control?
Ans11.2 : No, Vega blockchain runs independently of SEC or any other national regulator. The users of the protocol must ensure that they comply with their local regulations. This is somewhat like the tax situation: if you make a profit trading bitcoin that you have to declare that to your local tax authority.
Q12 : What are your plans to handle regulators in many countries which try to prevent new derivative market creation on DeFi? They’ve claimed that it’s illegal under their laws.
Ans12 : Again, Vega develops software. The protocol will evenually run independely of the team (the validators and token holders will ensure it runs but removing any individual validator doesn’t change anything).
BUT if the local regulation in country X prevents derivative trading (or you need a special license) then the users in country X must either not use Vega (or have the licence). The Vega team would never suggest that anyone can disobey laws and rules that apply to them in their country.
We have some plans for features that we can add to the protocol that will make regulatory compliance easier for users but that’s a different story.
Q13 : How Vega control the price of a commodity in the deverative to be so closely aligned to the real market? (eg. a premiere price stock case in the Mirror Protocol) If this happen to Vega, how to solve it?
Ans13 : For futures there is the concept of an oracle i.e. a trusted price source. This can be many things, for example a Uniswap market or even something from Coinbase / Bloomberg.
Let’s take an example of TSLA/USD Sep 21 future. Say the settlement date is 30th Sept. 21. When the market is created the proposer must specify the oracle. If the oracle is not good the community will vote against the market and it won’t get created.
Once the market gets to the settlement date (30th Sept. 21) the oracle will submit the price information to Vega (let’s say 550 USD per TSLA). The final mark-to-market settlement cashflow will use this information.
So this way the market is always “anchored” to the real asset.
Q14 : In leverage trading, when the market faces up with flash crashes (eg. swiss franc crash in 2015), there is not enough money from liquidate position to pay the profitable people. If this situation happens in Vega, how will it be managed?
Ans14 : Great question. On Vega there are three mechanisms:
1) price monitoring will place a market into a short auction in case of a big price move. This is just to collect liquidity and “confirm” the move is real. This prevents e.g. trading errors causing liquidations because of a temporary crash.
2) insurance pool: whenever vega closes out someone with insufficient margin it places any excess in the insurance pool. Most of the time the insurance pool should grow. But in case of a big crash balance in the insurance pool will be used to make sure all parties get the profit they are due.
3) loss socialisation: when the insurance pool is depleted the parties that are on a winning side of any mark-to-market transfer receive slightly less, proportional to the size of their position. This way the market can recover — even if the winners win a little less than they hoped for.
This also shows that anyone proposing a market has to think about the risk model carefully. If you set parameters that allow a lot of leverage then people are happy and they trade more. But if there is a crash there may be not enough in the insurance fund and so loss-socialisation will happen — and traders will be unhappy.
If the market creator is too careful then the leverage won’t be so high but perhaps not many people will want to trade.
It’s a balance that needs to be found. Of course the risk parameters can be changed via governance once the market launches — so the creator of the market doesn’t need to “get it right” the first time.
Q15 : From regulation issues, at the early stage, it seems difficult for Vega to draw the institutional investors. As I understand, your team need do a lot of marketing to attract retail investors right? What is the marketing plan you will apply?
Ans15 : We believe that over the years more institutional investors will move towards blockchain based solutions like Vega.
For retail investors we don’t expect them to use Vega directly. But we do expect enterprenauers to launch markets on Vega — where they will supply the liquidity — and perhaps create their own custom UI and they can then market this to retail clients — as appropriate for their market and jurisdiction.
Q16 : In Vega Protocol, Can we see what each person trades like we can follow the track address of other people who trade on Dex?
Ans 16 : Yes, it is possible, certainly once you’re running a validator node. You can also get a lot more information than what you see in the UI via the API. And there is always the GraphQL playground: https://lb.testnet.vega.xyz/playground
Q17 : As you tell us that to make regular customers use it without knowing that they are using Vega. Is it going to work with other platforms? And can customers add fait to trade directly?
Ans17 : Yes we expect other “platforms” to be built on top of Vega that are product or market specific.
Q18 : Depositing funds to trade in vega, what methods can be used?
Ans18 : At the moment there is an Ethereum bridge. We will have bridges to other blockchains developed eventually.
Q19 : It appears as though the Vega protocol is a marketplace of the Decentralized Exchange?
Ans19 : That’s a good way to think about it yes. It’s the “Web3 derivatives layer” so others will build applications on top.
Q20 : Does he mean he can customize the UI to his liking? like FTX platform.
Ans20 : The UI is already very customizable: many views and any view can include any panel; panels can be moved around.
Though it only really works well on desktop / iPad. We need to develop a special UI for phone sized screens.
Q21 : Can users add fiat money to Vega directly?
Ans21 : No. Only assets that are on some blockchain can be used directly.
At the moment that means anything on the Ethereum network so stablecoins like USDC yes. Fiat directly, no.
**Any exchange that supports fiat would be centralised (like Coinbase)
Q22 : what do you think about Decentralize Derivatives Privacy ?
Ans22 : Our blockchain expert Dr Klaus Kursawe is looking into including enhancing privacy (ZeroKnowledge proofs etc.) but we haven’t got anything specific yet. You can ask on the #r-and-d channel on Discord, he will give you a better answer.
Q23 : How many of VEGA compettitors?
Ans 23 : We are keeping an eye on: Injective, Serum, DerivaDEX, Demex, etc
* If you want to learn everything there is to know about the Vege Protocol.
please visit : https://linktr.ee/vegaprotocol