What properties should a Decentralized protocol like Vega embody?
Fair and trustworthy - A decentralized market must be trustworthy, fair, and predictable to gain credibility and attract participants. It is especially important for a decentralized market to treat all participants fairly and predictably, even in hostile conditions.
Liquid: In order for a trading venue to succeed, it is important to ensure that there is sufficient liquidity to support and grow the market. This can be achieved through various mechanisms depending on the maturity and size of the market, including market maker commitment, incentives for liquidity providers, and low fees for mature, liquid markets.
Low latency: Low latency is important for accurate price reflection and to ensure that traders are not disadvantaged compared to other venues. While there is a limit to the usefulness of decreasing latency, it is still important for a market to operate with low enough latency.
High throughput: A fair and widely appealing trading venue must support the needs of many participants and minimize the risk of external network disruptions. It should also avoid congesting the system or creating high costs for traders.
Scalable: Scalability is important for supporting both individual markets and a large number of markets. The underlying protocol should not rely on shared global state or resources, such as writing all transactions to a single blockchain.
Flexible and widely applicable: This project aims to create a flexible and widely applicable infrastructure for financial products that can support the current and future needs of various industries and organizations. It should allow for the creation and evolution of complex and customized financial instruments.
Trust-minimizing: To maximize the benefits of decentralization, it is important to minimize the need for participants to trust each other. This requires measures to protect against unrecoverable defaults, prevent unfair advantage for market creators and liquidity providers, and disincentivize malicious behavior.
Self-governing: A pseudonymous and permissionless global trading network requires strong decentralized governance to mitigate risks such as fraudulent instruments, fragmented liquidity, and reputational damage from unethical markets, while still preserving its permissionless nature.
Product and market independent: A decentralized network must be neutral and product/market independent to accommodate regional differences in financial legislation, with responsibility for compliance falling on the participants in each jurisdiction.
How does Vega handle collateral management?
The protocol tracks the balance for individuals in a large number of digital assets and allow for the easy addition of more assets based on demand. It also has a simple system for depositing and withdrawing assets and allows for quick movement and use of assets within the protocol, regardless of the speed of the asset’s own system.
How does Vega handle extreme price moves?
The protocol has a feature called a “circuit breaker” that helps make sure the prices in the market are based on real supply and demand. If the price change on a market is too big, the circuit breaker is activated.
What governance system does Vega operate?
Vega is a self-governed system that allows anyone to create financial instruments and can handle a large number of markets. Its governance rules are built into the code and help ensure that markets in the system are high quality and work well. Network participants can vote on important decisions based on their stake in the system. This helps manage the system in a decentralized way.
What could lead to a market closure?
It may be necessary to close a market, such if it is found to be fraudulent, there is a problem with a price source, or for ethical reasons. When a market is closed, all open trades are settled immediately. Participants can vote on how to settle the trades, either as if they had not been placed or at the price at the time of closure. Closing a market is a serious and irreversible decision, so a higher majority and minimum participation is required compared to other votes.