Barney Mannerings on Vega Protocol's derivatives platform

0:01i'm ashton addison from block west capital for investment pitch media and the Crypto Coin Show and today on blockchain interviews we have barney mannerings the founder of vega protocol barney welcome to the show and thanks for taking the time to come on today thanks for having me ashton you're very welcome i'm excited to dive into the intricacies of decentralized

0:20trading derivatives all that exciting new and up-and-coming i think really crucial part of cryptocurrency that we're leading into and the team your team at vega protocols really working on some interesting innovations i'm excited to dive into so i would love for you to kick it off for us with just a high level overview on vega protocol some of

0:41the solutions that you're bringing into the cryptocurrency space awesome yeah very happy to do that so yeah vega protocol is focused as you kind of mentioned already on derivatives and trading and the reason that we that we felt the need to focus on those those areas is because they're quite complex and they actually require fairly unique and sort of niche

1:02solutions if you like and what we realized when we were looking into sort of originally trying to build stuff like this on things like ethereum was that those protocols those blockchains are designed for general purpose usage if you'd like and just in the same way that you wouldn't use wordpress to host the london stock exchange or the new york stock exchange you find the same

1:20sort of problem when you try and sort of shoehorn derivatives onto a blockchain that's not designed for it and that has all kinds of unintended and not particularly nice consequences you know whether it's sort of the cost of the cost of fees whether it's the amount of collateralization required or you know any of a number of different things and

1:38you sort of see this today when you look at you know even with even with spot protocols and you look at the fees and the slippage and the other things and you sort of see that compared to liquid trading venues and it's not so great but it's just even worse when it comes to derivatives and so what we decided to do you know i've got a lot of experience

1:54working in traditional finance before i moved over into crypto and i've built trading systems and seen how those things work and understand how to how to build capital efficient systems so we decided from the ground up to design a blockchain a system that could do capital efficient derivatives trading in a completely decentralized way and the other thing that we also decided

2:13to do was that we needed to build something that was part of the ecosystem not kind of trying to create its new ecosystem you see there's a few chains out there they've got a high performance chain and they're trying to basically move everything to that chain and ask everyone to change and we sort of didn't think that was right and actually we think that the best thing to do is to

2:30build a layer that can actually be integrated as kind of a you know an l2 or a side chain to multiple chains so you know ethereum is the first integration in erc20s you know we can we can attach vega to solana we can attach it to cosmos with to ibc we can attach it to polkadot and so we can sort of do the cross chain thing as well but the important thing is that we kind of

2:49separate the entire d5 ecosystem success and building a derivatives layer so that we can provide that extra capability and that is sort of improvement for derivatives trading to wherever the ecosystem needs it definitely great intro and great analogy you know you definitely don't want to build an exchange on top of wordpress you do need some

3:10You know more innovative technology and something that's more specific for the task at hand and i like that analogy that you had there as well about you know ethereum obviously we've been looking at trading on ethereum and the fees and how it works for years now and it's not as efficient as it could be especially when you start introducing you know high-speed trading derivatives

3:35and introducing an industry that in traditional finance is so big right now and really is i think underserved and underdeveloped in cryptocurrency so far you know we're seeing a lot of spot trading sync futures volume is actually doing decently well in cryptocurrency but options and other derivatives are there's still so much growth

4:00compared to traditional finance that i think there's a huge market for it and so what as you were building out vega protocol you know obviously looking at introducing more kind of financial products and d5 in a decentralized way into trading you know what were some of those main solutions or what were some of the main points that you were like we

4:23need to ensure that we have these things if we're going to build a proper decentralized exchange yeah great question and actually it goes towards the heart of what we do perhaps differently than a lot of other d5 projects which is we started out from the perspective that we thought that the sort of traditional centralized markets were unfair and not very good

4:44and so where you get a lot of d5 that's kind of built for you know as they call it degens or whatever you know it's built for people with their ethereum with their bitcoin wanting to trade it wanted to trade tokens and that's a that's a great use case that we care about too but what we realized was that we had seen inefficient markets we'd seen markets which are controlled by a

5:02small number of players in the real financial markets we've seen the real impact that has on small businesses medium businesses individuals on the availability of these products to certain countries and geographies and so we really started vega with the intention that you had to solve for making decentralized trading better than centralized trading not just

5:22better than the other decentralized products but actually better overall for at least some use cases than than the centralized traditional financial markets so that was always in the back of our mind and there's a few challenges that brings forth you know the first one that we talk about a lot is capital efficiency and yeah put simply like if you're a let's say you're an

5:39importer exporter you're exposed to the euro dollar exchange rate you might want to hedge that you know your head you get 100k of liabilities and dollars you know to hedge that in euro dollars and you're going to take out a futures contract you're not going to take out a futures contract if the if the collateral required is two and a half times

5:57the amount that you need to hedge because you probably don't have that much working capital for that kind of thing right it's just not going to be worthwhile and so you need the capital efficiency to be sufficient and so you know we need to be able to offer those kind of products where eventually someone could use stable coins to make that kind of hedge and they're

6:12paying a fraction of it because that relates to the volatility of the product and that's that's something you can do so capital efficiency is important fees are also important price discovery is very important as well so you know one of the problems with very high fees and well two problems that you see on sort of decentralized exchange today is very high fees but also lack of

6:30limit orders so that means that if someone has a view about the price they have very little incentive to tell the world because it might cost a hundred dollars in fees to do that but also maybe no mechanism to do so on the decentralized exchange and you know people like gauntlet have put out the paper that shows that amms are a great source of price if there's a centralized

6:49exchange to arbitrage to but now you're dependent on the centralized infrastructure again so you know we wanted to solve for that problem as well and if we solve all of those things together you end up with high capital efficiency you end up with a decentralized exchange that can be a venue for price discovery and then you can really start talking about saying

7:04this infrastructure can replace the need for the centralized exchange at all definitely great points barney and you're right it's the decentralized exchange ecosystem has to be easier and you know more intuitive to use than centralized exchanges and i don't think it's at that point yet never mind having to pay the fees and not having those extra functionalities you know

7:27where you can put limit orders without having to pay fees so definitely things that potentially be solved with vega protocol you know i would i would love to get your take you know being in the derivatives options and decentralized exchange space on where the space is at right now is it being underserved and you know how quickly with vega protocol and the

7:52industry moving into decentralized derivatives is this space going to explode yeah is it underserved that's a really really interesting question because on the one hand yes i think you know compared to what we all think that this technology can do right now it's really just sitting on the sidelines demonstrating the sort of some core competencies but equally i think you

8:14alluded this it has to become easier to use and all of that and so you know is it underserved given what it can currently do maybe not like maybe actually first we need to get a few things sorted out in terms of ux in terms of accessibility in terms of even the regulatory side of things you know obviously on the one hand you've got to you know make a case as an industry for

8:35A slightly different approach to regulation perhaps than than there is with centralized exchanges because the counterparties that you might regulate don't exist or don't make sense in the decentralized world so there are there are differences and there's a lot that needs to go on there but equally people work and live in a regulated world and so if your small businesses

8:52and individuals are afraid to use something because they're worried about the risk rightly or wrongly then that's going to cause a problem so ultimately the industry's got to get past some of that and with the help hopefully of you know the regulators and hopefully the governments and regulators will kind of step back from the brink of some of the things you know sort of

9:07happened in the cryptography that crypto was in it originally so hopefully that stuff will get sorted but also then there's the ux but you know metamask is a hundred times better than what we had when we first started playing with ethereum and we were signing contracts on the command command line and all of that but it's also 10 or 100 times worse than what you get

9:25when you open your bank's mobile app and you know metamask or mobile again is a bit of an improvement but we're still really just at the very edge of those things you know account recovery is difficult there's a few people like argent doing good work there but i think we need to get to this point where it's all much more familiar and recognizable and usable to people and we

9:42need to get to the point where the ux has got to a point where sort of mainstream use cases can get get get there because there's actually a huge amount of demand that is not satisfied and you can see this because you can see the amount of uptake we have just within crypto from a small number of people jumping through hoops and paying hundreds of dollars of fees a

10:00time so if you imagine when we sort those problems out i think the amount of demand is going to explode and i think you know we're probably somewhere between one and three years away from seeing that sort of next next leap from the kind of the d phi explosion of techie d5 crypto obsessed people to the kind of the real world explosion of use cases when

10:20it actually means something and probably if you're looking at the sort of emerging economies and the places with you know perhaps less stable monetary regime let's say that's probably where you're going to see some of that explosion first whether where there's less less trust in the traditional system definitely and i completely agree and i'm glad

10:40that you mentioned that about d5 and really expanding it to you know not just the crypto djinns but traditional retail investors and institutional investors as well moving from derivatives in tradify over to a decentralized exchange where there could be more opportunities and i would love to get your perspective on as this explosion grows and moves

11:06into institutional investors that aren't in crypto and getting more people in that haven't been involved in decentralized exchanges before how do we follow along with that growth and sort of what are the d5 metrics that we should be looking at that are important to look for opportunities and to see where the industry is moving question i think you know the number

11:30one metric and the number one metric that i think we should we should be replacing tvl with trading volume and the reason i say that is because tvl proves that you've locked up a lot of money it doesn't prove that it's working efficiently and so once you start to get more and more efficient things it's going to be actually a race to a race to lock up as

11:49little as possible while doing as much volume as possible so perhaps the amount of trading volume we're doing as an industry is an important metric but equally perhaps you know the amount of trading volume divided by the tvl is some kind of measure of efficiency that actually says you know how well are we doing and how does that compare to tradify whereas you know as you know

12:06some of these things are incredibly efficient especially if you're a large institution so that's probably one of the main metrics and then i think the other ones would probably be usage metrics and these probably differ depending on whether you're looking at some retail usage whether you're looking at institutional but actually some of the more traditional

12:21business metrics of kind of you know what are your daily active users monthly users are people coming back to it is it taking off in sectors outside crypto because let's face it if you're definitely huddling ethereum then you know you can lend your ethereum and you can get some usdc and you can use that in a d5 protocol but it doesn't necessarily prove the demand because it

12:39kind of capped it once you're if you're already decided you're huddling ethereum that's captive a captive market so actually seeing seeing how much the growth comes into the sort of the market where there's a choice that isn't decentralized i guess is something that we want to see definitely great point and yeah it's interesting to see people comparing tvl

12:59with trading volume and ensuring that you know all of that isn't just in collusion or just the team or you know watch trading or just money that's locked up that's not really usable so i'm excited to see how that plays out as the industry continues to mature and speaking of you know metrics i just wanted to go back to the protocol itself right now and you know for the viewers

13:19that are just unfamiliar give a snapshot of where vega protocol is at with you know all of these decentralized financial products so yeah vega has vigor is very very close to i think the first main net launch in earlier this year we completed a sort of a coinless sale to the community we are the token is now sort of officially launched if you like which is the

13:44governance token that actually powers the protocol and the governance decisions and this kind of precursor if you like to the main net launching there's a few few stages had the kind of initialization phase in phase in which the token has now been launched then there's a kind of a main net launch phase where initially it'll be a governance and staking mainnet and

14:01that's really about making sure that the network is running and the validators are there and you can follow along on our blog and see the selection of the validation the launch of that network which i can't give you a date because it's actually you know the validators are doing that and it's out about out of our hands if you like but should be coming soon as all good

14:19decentralized things are out of our hands and then you know from there on really it's a case of launching the first products which is you know the mvp is to have cash settled features so keeping it fairly simple there's a lot to bed down in a new protocol like that around market making and liquidity provision around how the order books work and how the

14:38sort of price protection and the other sort of protections that are built into the network work so vega actually has some pretty sophisticated you know price monitoring protection and things to prevent sort of massive slippage and big flash crashes and stuff like that and so it's a bunch of stuff that we really want to get out there and there's so much you can test in testnet and

14:54we've been in test net with all of those features for a year or so now but you know at a certain point in time you actually need to put it onto real money and see how it behaves so and that'll be the first goal not not lots and lots of trading volume or anything we're just actually getting it live and demonstrating it working and seeing what we need to fix what needs to be tweaked

15:11and then we'll keep making code releases and you know over the next few months get it into a place where it's really ready for people to start building lots of exciting markets on top of so i think the next few months are gonna be really really exciting for the protocol and for the ecosystem you know as we sort of launched the first network and as the

15:29first sort of code releases get out there then your partners and you know ecosystem members and community can start building on it and really playing with it so a really exciting time definitely that sounds very exciting and yeah i'm looking forward to seeing that main net launch and you're right it's it's one thing to build a decentralized a derivatives exchange and then it's

15:48another thing to you know have it truly fully decentralized with the community governance and having other people be able to contribute and have a role in essay in the market so it does sound like quite a big fee but i know your team has been working on for quite a while and it looks like it's going to be very promising as it comes out so i'm looking forward to

16:09seeing it released for the viewers that are looking to follow along with that mainnet launch all the other updates from vega learn more about the token what's the best way for them to get involved and learn more yeah but probably the best way is we've got our blog at blog vega dot x y z there xyz is our homepage which is undergoing a bit of you know renovation

16:31it has it's probably a little bit out of date and a little bit in need of some work but that's happening over the next few months but the blog is bloggers this is a really big hive of activity and then discord we have a very active discord server where i really encourage people to come in and ask questions about the protocol the tech whatever they want and

16:46we'll come and try and answer them as best we can sounds great bernie i will leave all those links in the description box below as well all the best leading up to the main launch i'm excited for that as well and let's follow up in the near future awesome great chatting you