Upcoming protocol release and Arbitrum asset bridge

🌻 Uncategorised/General Discussion
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The upcoming major release of Vega includes an Arbitrum asset bridge, the first new asset bridge since the launch of restricted mainnet.

This has been released and node operators will likely propose and vote to upgrade the network soon after.

A major reason this was prioritised was to address community feedback around the cost of deposits and withdrawals on Ethereum mainnet.

However, because Arbitrum and Ethereum ERC20s are different assets, and the Vega chain does not (yet) support burning host chain assets and issuing a native stablecoin in the deposit process, it is necessary for the Vega community to decide how the new bridge will be used once the feature is available in order to get the benefit of cheaper transactions.

This boils down to the fact that either markets need to settle with Arbitrum assets or a spot market needs to be available to swap Arbitrum assets for Ethereum mainnet assets, or markets settling with Ethereum assets will still require deposits and withdrawals to go via the much more expensive Ethereum mainnet bridge.

Whatever happens will be done by user and community actions, including on-chain governance proposals, and LPs/traders moving assets and updating their trading integrations if needed.

This post is intended to start the discussion to make sure everyone is aware and able to participate in decision making and any governance actions once the release is available.

Due to the decentralised nature of Vega, these are not actions that the team can take unilaterally, so it’s important that the community engages with this process to get a good outcome.

There are a number of options, with various pros and cons.

  1. Migrate markets to an Arbitrum settlement asset in one go. Create each existing market using Abirtrum settlement assets and close the the original markets some time later, once users have had time to port positions and liquidity across. Switching Ethereum for Arbitrum assets can be supported via a spot market. Taking this option would give the benefit for users of supporting the cheap to deposit Arbitrum assets by default and thus providing the simplest route and best UX for users coming via the Arbitrum bridge. The downside is that existing users and LPs would have the most work to do to transition.

  2. Leave markets on Ethereum mainnet USDT. With this route, users would need to swap Arbitum deposited assets for Ethereum mainnet USDT using a spot market before being able to trade but there would be no migration step for existing markets and liquidity.

  3. Migrate piecemeal / more gradually. Use individual discussions for each existing market (or groups of markets) to determine whether/when to migrate to assets on the new bridge. Users will need to pay attention to which asset each market needs, but this option would make the most sense if the community is unable to come to consensus covering all or most existing markets, or in order to get the most liquid markets migrated quickly without needing to change all markets at once.

Given there are currently a relatively small number of markets, LPs supporting those markets, and traders with positions, my instinct is to suggesting taking this opportunity to galvanise around a quick move to Arbitrum assets that priotitises the simplest and cheapest possible new users experience, at least for the most important markets to the community, if not all markets.

If all or most liquidity suppliers and traders are able to get behind the migration, and create and vote for the governance proposals to do so, it feels to me like that might be the preferred solution, although it does create more upfront work.

If nothing happens then it’ll be ad-hoc. I suspect this would add friction for users and be the most confusing, difficult option overall, though the team is working on new UI features to improve asset handline, deposits and withdrawals, and to provide a simple asset swap UI.

We in the team can assist with technical questions and preparing proposal bundles, and can also make sure docs and UIs are going to work as well as possible whichever option is chosen, but the main actions will be on users and LPs when migrating.

Please add your thoughts and comments below, some key questions:

  • Would you like to see most or all markets move to an Arbitrum settlement asset?
  • Are you supplying liquidity? Would you be keen/willing to support such a move?
  • Would you like to see a crossover period when both markets operate and liquidity gradually migrates, to smooth over moving of positions? How long should it be?
  • Would you prefer to keep things as they are and have any migrations be ad-hoc, or to only see certain specific markets move initially?
  • Do you plan to join the network as an LP, or make new market proposals once the Arbitrum bridge is live and have thoughts about what you want to see?
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Thanks Barney,

I think it makes the most sense to have all markets migrated to Arbitrum-based settlement assets, to ensure that in the long-run vega is no longer constrained by the bridging costs of Ethereum. I think this is okay given the most popular perp settlements assets exist on Arbitrum in a canonical form.

For LPs with considerable amount of ETH based USDT I doubt they will use Vega’s spot markets to migrate to Arb based USDT (I assume there will be a lack of liquidity to begin with on Vega’s spot markets). So they will likely withdraw their usdt and bridge it to arbitrum to then redeposit as transaction costs will be lower. This will impede migration of liquidity across the newly deployed arbitrum markets

With this in mind, I think it makes the most sense to duplicate all existing markets (minus the points markets) with settlement in arb usdt, migrate VEGA incentives to these new markets over a 3 week period (1/3 of VEGA incentives gets shifted to the new duplicate markets each week), and then wind down the ETH based markets once most liquidity has migrated.

I also think acting fast and across all markets makes the most sense while TVL and active traders is relatively low

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As an user I’m with Jubi, but I would also like the opinions of the LP’s.

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The option with the least amount of friction and most benefit for the end user should be chosen. It seems to me that moving all markets to an arbitrum settlement asset from the get go is the best option.

New market proposals sure if they can be created more organically with more dynamic assistance creating one. Currently it is too static and cumbersome but that is a later upgrade which hopefully will get the amount of attention and priority it deserves.

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I would prefer to stay all as it is. ETH USDT. But if the team think that we should replace USDT(ETH) to USDT(ARB) - I will support. I am not sure that we will have enough liquidity to swap one asset to another inside vega. So i will have to stop LP and withdraw USDT… bridge it to ARB and then deposit again. And we have to close all previous markets and settle open orders. I think we should not have markets with both settlement assets simultaneously - it will bring mess.

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Let us assume for a moment that our goal is to make life as easy as possible for the average liquidity taker to try trading on vega markets.

I would assume average liquidity taker will come via Arbitrum (given how much lower the deposit / withdraw fees are this is valid).

Then it would be a bit crummy (and more to the point, confusing!) if they first have to swap arbUSDT for ethUSDT no matter how good the front end is.

So IMO we should aim to have all the “mainstream peprs markets” settling in arbUSDT. The points and MCAP futures can wait, partly because anyone who’d want to use those will be more sophisticated and can probably copy with arbUSDT for ethUSDT swap.

That said I don’t know how fast (all in one go, one by one, how much overlap with having both running).