5 detailed Vega questions with Answers

  1. How does liquidity provision work on Vega protocol?:

Answer: to ensure that market is not controlled by some organisations which offers to provide liquidity in the market, Vega introduced an incentivisation mechanism built into the protocol. The liquidity fee is determined by the volume of the trade, price of the trade and market current liquidity price. During settlement, the liquidity cost is credited to the participants responsible for the market provision. Their liquidity return depends on; trading volume, their share of the liquidity rewards and the the liquidity price.

  1. What is liquidity pricing?:

Answer: this is the protocol’s mechanism to ensure liquidity is being attracted to market that have the greatest need and that all markets operates at the most efficient costs for participants.

  1. What is the most important financial risk facing vega network and how is it handled?:

Answer: the primary and most important financial risk facing vega network is Credit Risk. This is why vega is designed as a collateralized, margined and leveraged platform with margin calculations taking into account the probability of the liquidation value of a position falling short of the available capital.

  1. How is collateral managed by Vega network?:

Answer: vega network manages collateral via links to other blockchains with funds deposited by paying in to a smart contract on the ‘host’ chain. Collateral can as well be used as margin for orders and positions, meaning the required funds will be allocated to a market until they are no longer needed and are released. Allocated funds can’t be withdrawn or used for trading in other markets too.

  1. What is Vega protocol?:

Answer: vega is a technology protocol and associated crypto-asset for an open blockchain-backed public network for fully automated end-to-end trading and execution of financial products. The network is secured with proof of stake and implements pseudonymous margin trading using a novel liquidity incentivisation scheme based on market forces to solve the problem of attracting and allocating market making resources in a decentralized system.

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