What is Vega Protocol all about?
Vega is a technical protocol and related crypto-asset allowing a completely automated end-to-end trading and execution of financial goods on an open, blockchain-backed public network. To handle the difficulty of recruiting and allocating market making resources in a decentralized system, the network uses proof of stake and conducts pseudonymous margin trading utilizing an unique liquidity incentivisation scheme based on market forces. Smart products offer permissionless innovation by allowing anybody to design products and suggest new markets. This works in unison with a decentralised margin system that employs a suite of risk models based on consistent risk metrics to allow for the safe trading of arbitrarily complex instruments in a zero-recovery situation.
The core protocol transactions of Vega includes Governance, Trading and Collateral which individually, Governance has to do with pending markets, closed market and changed parameters while Trading has to do with Settlement instructions as well as new trades and lastly Collateral involves updated balances and withdrawal parameters.
What does the Vega architecture look like?
The Vega protocol is intended to be deployed on a network of nodes that may or may not be the same as trading parties participating in markets in a distributed and decentralized manner. Nodes will keep a mirror of their Vega network’s current state and process transactions to run markets and governance. A proof-of-stake mechanism is used to include nodes in the infrastructure: a node locks a particular stake as a guarantee that it will work successfully. These infrastructure nodes execute a byzantine consensus protocol , which assures that all honest participants sequence operations in the same order across the network, and hence feed the protocol implementation with actions in the same order. The Tendermint distributed smart contracts framework is presently used in our reference implementation. The consensus and proof-of-stake protocols are currently implemented using the Tendermint distributed smart contracts platform.
How does Vega apply to the real world? What is the use case?
There is sufficient provision for the creation of an active and educated trading community with considerable transaction volume, increasing sophistication, and institutional interest, given the expanding need for decentralised platforms for trading in multiple crypto-asset derivatives.
There is a clear demand for innovation that is not being met by the current system in a situation where the cost of generating products and operating markets has previously been exorbitant, and there are barriers to entry. Vega sees the potential for such a decentralized and highly automated system to replace costly, cumbersome, and error-prone methods governing many types of business transactions and agreements as the larger crypto-economic ecosystem grows.
Financial products are traditionally developed and exchanged through markets made up of a variety of organizations and individuals linked by technology systems and contractual commitments that promote trading while also erecting obstacles to entry. These range from highly slow, manual, and error-prone paper-based operations to high-speed, high-liquidity electronic markets in terms of complexity, expense, and sophistication. Regardless of the specific methods and procedures employed, these markets all share a number of common flaws. They include the necessity to trust third parties, the presence of rent-seeking intermediaries who drive up costs, and the presence of organizations and structures that operate as gatekeepers and censors for entry to current markets, as well as managing product availability and market development.
That being said, Vega is motivated to create a decentralised platform for financial products.
How Vega is built to operate
Vega is built to operate without the need for centralized human intervention, therefore operational governance is specified by rules encoded in the code, allowing for permissionless instrument development and infinite horizontal scalability. In Vega, network governance is not meant to replace all other types of governance for the publicVegaecosystem34, but rather to provide on-chain governance for the core activities required to develop and maintain high-quality, well-functioning markets in a decentralized setting.