Non-crypto perps providing hedging infrastructure for DeFi

Non-crypto perps providing hedging infrastructure for DeFi

This thread is inspired by the idea that Vega should provide financial infrastructure that is useful to other applications and protocols to be successful. Vega cannot be successful by acting only as a retail trading platform – the market is simply too crowded and other players have vastly more resources available at their disposal.

In this thread I want to discuss what markets we might create first, and finalise the market config so that a proposal can be submitted on-chain for a governance vote. Subject to governance voting, I’d like to launch the first non-crypto market before Friday the 5th of July.


While it would be cool to list perps on popularly traded securities, such as NVDA, AAPL, TSLA, MSFT or AMZN, I think the regulatory scrutiny that might arise at this time would be too damaging to Vega. These products fall under the remit of the SEC, and as such should be avoided until Vega is sufficiently decentralised to withstand heat from regulators.

At this time, there remains a centralised team that has significant influence and control over the product direction, and while they don’t operate nodes on the network, act as market makers, or propose new markets, they could still be targeted if contentious markets are created. They would be required to act within their power to censor these markets however possible, and it would distract from more important work that needs to be completed.

Potential Markets

The CFTC have been clear that Bitcoin and other crypto assets fall within their remit, and generally adopted a light-touch approach when it comes to enforcement. As things stand today, several crypto assets are listed for trading on the Vega network and so I suggest we limit our focus to markets that are likely regulated by the CFTC.

While I am not a lawyer, I hope this means that the full range of FX and Commodity markets fall within our risk appetite for listing, as that would create an of opportunity for Vega to differentiate from every other perp DEX. The SEC is not responsible for regulating these markets AFAIK, and indeed, the CFTC’s enforcement reach ought to only apply when those markets are offered to Americans.

Highly liquid markets will be most useful for hedging, as smaller-cap assets with thinner liquidity typically correlate heavily with liquid markets within the same asset class. Take commodities for example, Gold has a market cap exceeding $15tn and Crude Oil’s market cap exceeds $2tn. Meanwhile wheat is estimated to be only $125bn in size and Copper has a market cap of around $30bn. We could, in theory, calculate the beta-coefficient of smaller-cap commodities vs e.g. Gold, and then list Gold perps on Vega, which would have useful utility for hedging delta-risk in a diverse commodity portfolio.

The same exercise can be carried out with FX, if we calculate the beta coefficient of “minor” and “exotic” FX vs the EUR/USD. The table below shows the beta coefficient of a number of different FX pairs, measured vs EUR/USD returns.


Note: the data used for this calculations was daily FX returns between 1 Jan 2024 and 30 May 2024.


Suppose somebody holds a portfolio of FX positions and wishes to delta-hedge their exposure on Vega to approximate market-neutrality, they would be able to do this using EURUSD perps by leveraging the beta coefficients shown above.

If we take FX as an example, the beta coefficient of AUDCAD vs EURUSD can be seen to be 0.55, meaning that any 1% increase in the value of EURUSD can be expected to cause AUDCAD to rise by 0.55% (on average). Conversely, USDJPY has a negative beta coefficient of 0.74, meaning that an increase in the EURUSD of 1% would likely result in a decrease in USDJPY of -0.74%.

Traders wishing to hedge their exposure across a basket of FX positions would therefore use these beta coefficients to calculate the size of the EURUSD hedge needed so that their risk approximates zero. Let’s look at an example:

Assume that a trader has the following positions:

Long $10,000 AUDCAD
Long $15,000 USDJPY
Short $5,000 USDRUB
Short $20,000 USDSEK

We can adjust these position sizes by multiplying by the beta-coefficient to workout the size and direction of the EURUSD hedge needed to neutralise the risk in this portfolio:

AUDCAD hedge = $10,000 x 0.55 = $5,500
USDJPY hedge = $15,000 x -0.74 = -$11,100
USDRUB hedge = $5,000 x -0.38 = -$1,900
USDSEK hedge = $20,000 x -1.58 = -$31,600

Next we need to sum these values and then mutliply by -1 to determine the net position size needed. Negative position size implies short exposure, while positive implies long.

EURUSD position size = ($5,500 - $11,100 - $1,900 - $31,600) * -1
EURUSD position size = $39,100

While this is not a perfect hedge, it can be seen that listing just one FX pair on Vega has provided useful utility to sophisticated traders that need to hedge the risk in a diversified FX portfolio.


While it would be better to use dated-futures to provide hedging infrastructure, due to their predictable pricing and lack of funding payments, it has been highlighted by @Jubi that crypto-native traders have a strong disposition for perps at this time. Given the short-term focus on retail adoption outlined in VGT-2, I agree with this thesis, and think we should begin with listing perps on our chosen market(s).

This conclusion presents one obvious challenge, which is how to construct the funding interval and how to source reliable index price price data with sufficient granularity. If index price data is sourced too infrequently, it can result in unpredictable funding rates that prevent market makers from providing tight spreads and the market becomes useless to traders. The funding rate caps recently introduced on Vega provide some respite for this, but I am undecided on how to construct the funding configuration when high-frequency price data is not available on Pyth.


I’m looking for feedback from the community on the following open questions:

  • How should we deal with funding rate config when high-frequency price data is not available for a new perp market? How frequently should funding be paid? How frequently should we input prices to Vega? Should a funding rate cap be in place, and if so, what should it be?
  • Which market(s) would the community like to create first, given the regulatory considerations outlined above?
  • Do we have smart contracts ready out-of-the-box to do the UMA settlement for this kind of market, or is more coding required to support e.g. Crude Oil perps?
  • To any lawyers out there – have I misunderstood the risks associated with listing perps on commodities and FX, or is my assessment of the regulatory landscape broadly correct?

Thanks for your time – I look forward to discussing these ideas with the community.


Here’s an example XAU (Gold) / USDT market running on mirror. It’s set up as a perps with pyth oracle providing the underlying gold price for funding purposes (and also for mark-to-market):

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Other than that I would recommend:

  1. anything that has a feed on Pyth can run as a perp with similar config to the above. That would include e.g. FX like EUR/USD.
  2. if there is no frequent price feed on Pyth (e.g. Oil) then the best is probably a dated future backed by UMA optimistic oracle. This would work fine for oil.

With 1) above you can also rely on the oracle for mark prices if you want to configure the market that way. This has the advantage of being relatively safer even if it’s illiquid. With 2) you don’t have a choice and mark price has to come from what’s happening on vega (trades / order book) and thus you’d rely on LPs to be active to prevent easy mark price manipulations.

In principle I don’t see a problem in designing a perp with long funding period (e.g. one month) that only has weekly external price input… but it would be a very different product to what people are used to and I am not convinced it will be more popular than a sequence of dated futures.

What would happen if we created a perp that pays funding, e.g. once daily, and only receives a single index price sample immediately before funding is paid?

Wouldn’t funding therefore be predictably low and then the perp can just roll forever and there’s lower maintenance overhead for the community wrt market creation?

IMO perps are popular with retail because they don’t have to think about settlement. I don’t think they care or even think about funding all that much.