Vega white paper some interesting points to conjecture about

[Zoume_0x]

PS. just to be clear at the begining. This is just a critical conjecture attempts for learning purposes.
1.
" environment with zero expected recovery in the event of default" isn’t that a big tradeoff for losing a centralized counter party risk manager. Yes they act as gatekeeper and charge more. But in case of default they are the party paying and there is always a gatekeeper. And if we want to hedge default on chain we have to add an attributional cost for protection

My second concern is that the degree of freedom provided by the protocol to create market. It can lead to a plethora of market which is going to hurt the overall individual market liquidity. I just imagine most of the participants are not even into the specification of the instrument but more interested into the dynamics of the trade and returns. Besides the possibility of creating new derivatives. As i can recall from Barney presentation at EthDenver. I do not know if that is the case or it was more a relaxation of the concept of derivation and expressing a mental experimentations. But if it is the case, isn’t it going to v=create the same market condition of chaos that characterized the conventional derivatives market early date -also as mentioned in Vega documentations-

Matched trades. Trading parties managed peer-peer trade. I have to say this is vey well though to be covered by the protocol. because the B2B big deals are all done that way. Having a platform to execute that with all the settlements advantages is the least to say, very attractive. But, there is always a but :D. Is there a possibility to tokenize specifications contracts and associate them with such trades. I mean, say two parties want to use the platform to do a trade of some grains. They agree to settle the trade in Vega. Is it possible to tokenize the contract and all its specification as part of the trade.

Trading modes. I have read and encountered the limit order in the whitepaper and on the Vega github. But are other modes like buy and sell stoploss. Will there be a possibility to write algorithmic logic/conditional trading execution methods?

Relieved to read this the paper "peer-to-peer trading venue has no natural incentives for any individual party to source liquidity. This creates a bootstrapping problem in which low volume
markets are unprofitable for market makers " This is precisely the question i wanted to raise since i read the abstract. There was a lots of mentioning of relying on incentivization for liquidity. the bootstrapping problem is still questionable even if we assume people will deploy liquidity on what is returning most. But initially who is willing to bootstrap for the creation of such environment they are going to share its benefits with other who did not go the cost of creation. This same cost of bootstrapping can also incentivize the LP providers to overweigh another platform with another LP model or already bootstrapped.
I call it The LP bootstrapping cost problem. And i leave it with you.
PS. i would love to refer to the LBP and that they are not the favorable way fro TGE’s

[barney]

Hi @Zoume_0x, welcome to the Vega community!

I’ll try some quick answers below:

@Zoume_0x

" environment with zero expected recovery in the event of default" isn’t that a big tradeoff for losing a centralized counter party risk manager. Yes they act as gatekeeper and charge more. But in case of default they are the party paying and there is always a gatekeeper. And if we want to hedge default on chain we have to add an attributional cost for protection

Whoever your counterparty is, if they default in a centralised market (or more importantly, any market where you know who they really are), you can take them to court and often get some % back (this is called the “recovery rate” and is often assumed to be ~40% on average but this depends on the counterparty and type of exposure). Additionally, there are layers of insurance and reinsurance as well as collateral rules for clearing houses, etc.

The Vega insurance pool system as well as the potential in future to add reputation etc. into the mix perform the same purpose, and I believe that over time this will not be a substantial disadvantage, as the protocol can eventually do as good a job (but wil certainly be much riskier for a while!).

@Zoume_0x

My second concern is that the degree of freedom provided by the protocol to create market. It can lead to a plethora of market which is going to hurt the overall individual market liquidity. I just imagine most of the participants are not even into the specification of the instrument but more interested into the dynamics of the trade and returns. Besides the possibility of creating new derivatives. As i can recall from Barney presentation at EthDenver. I do not know if that is the case or it was more a relaxation of the concept of derivation and expressing a mental experimentations. But if it is the case, isn’t it going to v=create the same market condition of chaos that characterized the conventional derivatives market early date -also as mentioned in Vega documentations-

The hope is that the token holders’ role in approving markets will help Vega to curate a set of differentiated and useful markets while avoiding lots of spam/noise, low liquidity market of limited use, and outright fraud. Remains to be seen if this works out, but it should be better than a complete free for all

@Zoume_0x

Matched trades. Trading parties managed peer-peer trade. I have to say this is vey well though to be covered by the protocol. because the B2B big deals are all done that way. Having a platform to execute that with all the settlements advantages is the least to say, very attractive. But, there is always a but :D. Is there a possibility to tokenize specifications contracts and associate them with such trades. I mean, say two parties want to use the platform to do a trade of some grains. They agree to settle the trade in Vega. Is it possible to tokenize the contract and all its specification as part of the trade.

In V1 of this you will need to do matched trades on markets that already exist. You get the settlement and risk management and the ability to set your own price and do the trade privately but not the ability to do it on any arbitrary instrument.

Later, you should be able to do matched trades on arbitrary instruments of your own creation. The reason this comes later if because current risk management assumes a fresh price form the Vega market to do margin calcs. In future you will be able either use an oracle for this or have a part warehouse the risk and provide the margin quotes. In this case, you wouldn’t exactly tokenise the specification but you would provide a specification/definition of the instrument to go with the trade — it is perhaps more like an NFT then.

@Zoume_0x

Trading modes. I have read and encountered the limit order in the whitepaper and on the Vega github. But are other modes like buy and sell stoploss. Will there be a possibility to write algorithmic logic/conditional trading execution methods?

Stop loss / take profit will appear at some point. As for algos on chain there may be scope for a highly limited version of this but it’s not at the top of our list. Atomic strategy orders (where you place orders to trade a strategy across a bunch of markets and they either all trade or none do) will also likely be possible at some point. These are particularly hand once you get options markets.

@Zoume_0x

Relieved to read this the paper "peer-to-peer trading venue has no natural incentives for any individual party to source liquidity. This creates a bootstrapping problem in which low volume
markets are unprofitable for market makers " This is precisely the question i wanted to raise since i read the abstract. There was a lots of mentioning of relying on incentivization for liquidity. the bootstrapping problem is still questionable even if we assume people will deploy liquidity on what is returning most. But initially who is willing to bootstrap for the creation of such environment they are going to share its benefits with other who did not go the cost of creation. This same cost of bootstrapping can also incentivize the LP providers to overweigh another platform with another LP model or already bootstrapped.
I call it The LP bootstrapping cost problem. And i leave it with you.
PS. i would love to refer to the LBP and that they are not the favorable way fro TGE’s

As for bootstrapping liquidity. Firstly there will be $VEGA reward pools on chain that pay out for early LPs, market creators, and traders (just like what happens for early stakers, too). Secondly, the creators / “bootstrappers” of the market don’t share the spoils equally. It works a bit like investing in companies — committing liquidity in a small market early on, including as the market creator — will get you more of the revenue share than doing so later when it is established and doing much more trading volume.

I recommand taking a look at this notebook that shows an example. I’ve pulled out a couple of graphs below that show this (but I recommand checking out the whole notebook anyway). Notice how how LP A’s share of the stake (i.e. the amount of liqudiity they are providing) goes from around 30% to less than 10% but at the end, in this example, they are still receving over 20% of the rewards: that’s the benefit of begin early and helping bootstrap a market.

Hope these answers helped… let me know if you have any more thoughts or questions.