Vega Protocol launching decentralized options and derivatives trading

0:01I'm Ashton Addison from Block West capital for investment pitch media and today on the Crypto Coin Show we have Barney manorings the founder of Vega protocol back once again thank you so much Barney for taking the time to come on the show thanks for having me Ashton you're very welcome a lot has happened since we last spoke with Vega protocol in the midst

0:22of the Bitcoin all-time high in 2021 and 2022 she's been a year of its own in cryptocurrency you know could be a decade worth of news so I'm glad to see that you know Vega is still doing well I'm excited to hear a little bit about you know what happened throughout 2022 and your team's developments and now moving into 2023 what are the narratives where is

0:43the protocol at how are you looking at bringing more Innovation into the blockchain space and all of the things moving forward for the next stages for Vega protocol I would love to just kick off our conversation with those who aren't familiar with the protocol she's getting a high level on what is Vega protocol how is it driving innovation in web 3 and in finance and

1:05then we'll dive into all the details yeah absolutely the simple sort of high-level answer Vega protocols decentralized exchange so Dex it's designed for trading sort of derivatives and margin products as well as spot and it's designed to be a kind of sort of I guess next Generation deck that means it's order book based it's got a sort of innovative new liquidity

1:28protocol and it's sort of designed to compete more directly with the kind of feature sets and performance that you'd expect from a centralized exchange so really the goal of Vega is to enable people in crypto to stop having to trust third parties in exchanges like FTX and finance with their money but still to be able to you know do the trading and

1:49get engaged with the markets and have access to all of the things that they want to access but in a much more completely decentralized way and it achieves this by being kind of an app chain like an app specific blockchain so it's a proof of State chain there's a chain that's designed entirely for this trading use case and it integrates initially With ethereum viral Bridge so

2:06you trade erc20s but you basically Bridge them onto the Vega chain to do the trading great intro Bernie and yeah you know 2022 just had so many lessons for those people who kept a lot of their funds on centralized exchanges you know I think FTX might have been the nail in the coffin but I think that there could still be more things you know every few

2:27years we still see a hack or an exploit in a centralized exchange and I feel like decentralized exchanges and indexes they're growing and you know they started out not being interoperable between blockchains and you know there's it's hard to bring the same user experience as they had on something like FTX or binance where it can be fast and easy and you can trade conveniently

2:51but you have to give up your private keys so where do you sort of see decentralized exchanges right now in terms of the popularity and you know with what happened in Q4 with FTX you know are you seeing a movement towards people really wanting to use is decentralized exchanges as their main trading tools I think yeah we're definitely seeing a lot of noise in that direction I mean

3:15you know you sort of every week it seems these days there's more comments about how much money's flowed out to say binance and you know CZ saying it's not a big deal but it's still you know large amounts of money moving away from those exchanges and obviously I think this trend probably started yeah we had probably some missteps with centralized with decentralized exchanges early on

3:33things that like ether Delta that just weren't really weren't good enough user experience and didn't didn't really get much traction and then uni Swap and others came in and sort of started the process for spot training but it's much harder and as you said like it's hard to get the ux right it's hard to get the speed of the experience and all of these things you know a bit

3:52like with blockchains themselves and with wallets you know it's much easier to build a login with an email address and a password than it is to build an easy to use wallet with crypto and so these things take a little bit longer and I think we're sort of finally between the ux improvements we've seen between much higher performance proof of stake chains and things like Vega

4:09doing the app chain stuff and then with probably the push that recent events have given to people to want to get off those centralized exchanges I think we're sort of finally reaching the point where now it's gonna it's gonna hit a Tipping Point and we're gonna find more and more stuff in the community moves to The decentralized Exchange model

4:26I agree and you mentioned there at the beginning about you know spot trading obviously on decentralized exchanges but also options and derivatives which and I have great interest in because I know that the size of the derivatives markets in traditional equities is humongous you know multiple multitudes larger than the total market cap of cryptocurrencies and

4:49as the financial system becomes tokenized moving some of those assets onto the blockchain I feel like is the natural Next Step I'm curious on you know what's the balance for Vega in promoting spot trading and you know basic cryptos on a DEX and looking at these new markets of decentralized options and derivatives yeah I feel the same way I mean it's

5:14certainly some of the most exciting things that we're doing are looking towards that you know the decentralization of the financial system looking towards opening up things that are currently held within the sort of Halls of investment Banks and exchanges where no one has access no one can innovate the same players just make money hand over fist again and again and

5:32again opening that up and enabling all that Innovation to happen in the open and enabling anyone to create products and markets has been always our sort of raise on Detra for Vega from day one so that's actually the most exciting stuff but then when they actually look at what we're doing right now and we're sort of saying actually you know building things is complicated getting

5:51getting adoption is complicated all these things that they take time so we're really focused actually this year on demonstrating that Vega can work in the live Alpha main Network demonstrating that it can be robust and secure and that you know the first few months of teething problems we'll hopefully go by without anything majorly horrible happening and then we can

6:08sort of look to sort of establish a position on the simple stuff so we really want to show that we've nailed the overall chain the overall sort of execution environment for these sort of on-chain derivatives and then once we demonstrate that with your futures and perps and spot like the simple products then probably there'll be like a V2 upgrade where we will start to sort of

6:29save the community here go nuts and build your own products but actually you know let's do these things step by step let's just demonstrate that we can be as good or better than a centralized exchange and we can do that with you know good Capital efficiency good fee structures fairness for all the Traders and a truly open source protocol let's just prove that we can do that

6:47this year and then you know as we get towards the end of the year and into next year we'll probably start start opening up the floor to some of the more crazy stuff and I think that's a great approach and from from what I understood throughout 2022 there was a restricted main net I'm curious on you know what that means and you know are there were

7:06there people already trading decentralized options and are they just testing it out or you know can people use it right now yes they're restricted main the easiest way to think of it is like the ethereum merch you know pre-merge there was a blockchain there were validators there was staking but no one was running like actual apps on ethereum on the

7:26on the proof of stake chain and that's where we are with the restricted maintenance we have a network we have validators running it we've been through a couple of upgrade cycles and we've taken all the feedback from how it runs how it performs things that are you know not not as robust as we like things that need to be fixed before we can really invite people to come and use it use it

7:43more completely and we ran the restricted mainnet in that kind of pre-merge model plus the incentivized testnet where people could trade you know test test coins but they could trade you know trade on real markets on the network but with fake money we ran those things in parallel for the last year or so learned a lot about both also spent time with you the more

8:04closer to launch that we've got in terms of trading features the more sort of professional market makers and professional Traders have engaged and given us their feedback and it was now got to a point I think there's like I think it's less than 10 issues on the GitHub issue tracker left now before the release for trading so you know depending on when this interview

8:22actually goes out it could be that the trading is actually live on the network by then I'm hoping it'll be pretty soon anyway so yeah really really getting close now and we've taken on board lots of feedback iterated things to try and make sure it's as good as it can be and it's going to give people what they want in the first instance so that's a really

8:39exciting Milestone coming up yeah but it's a lot of FFL upgrading the network using something new building and integration and we want to make sure that effort will be rewarded with an experience that's worthwhile in the first few months and you know then from there we can we can improve it even further and once this release goes out we also have a sort of asynchronous

8:58upgrade feature so we should be able to drop new features and new code you know every one to two months rather than rather than like every six months so that'll be really exciting too that's very exciting Barney and on the on the app chain and sort of the infrastructure side of the exchange is there specific advantages into how you built the technology to be this

9:21proof of stake app chain and you know what is how does that like in turn make a better functionality and usability for the end users that are trading yeah there are a few really specific advantages actually and yeah at a high level it's kind of like in anything you trade off like using general purpose tools which are maybe cheaper to get started with have you know economies of

9:46scale because many people use those tools and using very specific tools you know it's like some businesses are run basically on Excel and you can do you can do everything in Excel you can have a full accounting system but at a certain point your business gets too complicated to just keep doing it all in Excel and you need to build a more bespoke accounting system maybe you get

10:01one off the shelf or if you're a really big business you actually code up your own and it's kind of the same with trading systems you know you could take something like ethereum off the shelf but it doesn't provide you with any trading specific features like doesn't know about order books doesn't know about amm curves doesn't know about settlement even erc20 tokens are coded

10:17up in solidity and so different tokens have different features some of them have bugs some of them are not compatible with each other you know so you get you've got to do a lot of a lot of heavy lifting for ethereum and those things happen in the you know in the solidity evm which is also quite slow so what we've done is basically said there are a bunch of things that every trading

10:34system needs to do especially with things like derivatives like manage risk manage margin determine prices have orders have position management all of those things we'll build them once and we'll build them like really really fast into the core node so everyone can take advantage of that and then that's how you get the performance and that's how you get things like the same

10:52amount of Leverage on a decentralized exchange you would be able to get on a centralized exchange also lets us do cool things with fees so fees are the other big problem on dexes like you do a trade on uni Swap and the market and the fee Market is not good your fees can be more than the value of the trades like if I buy a thousand dollars worth of tokens and pay 800 worth of fees come on

11:10so yeah again when you've designed the blockchain just for trading you can do the same thing with fees as you do on a normal exchange and just say well the fees are a percentage of the trade size so I always know fees 0.5 whatever it is 0.1 percent my fees are never going to be 80 of the size of the trade because you know for fees 80 on the side of the

11:28trade the thing has to double in price for you not to lose money yeah yeah so and that allows us to optimize these things and in some part it's about making the fees cheaper we want them to be as low as possible it's actually free to place orders on Vega it's only when you order trades that you pay the fee so in some in some cases about cheapness

11:44in other cases it's about predictability so it's just as bad to think I've opened a position it cost me twenty dollars to open it but when I come to close it when I want to get out what if it might cost me 300 you know I'm up 200 but whoops the next nft drop has happened now the fees are 10x and so now closing my position that should be profitable cost

12:03me more than the profit like it's very very difficult to tell people they should move trading to that environment like people are sat there in the London Stock Exchange with one microsecond latency and basically all close to zero fee trying to persuade them that the sort of ethereum execution environment makes sense for professional trading is this is a non-starter so you know

12:22those kind of reasons are why we eventually concluded that despite the fact it's a lot more effort we needed to build an app specific chain and the good thing is once you've taken that like initial leap now you've got this like customized system that's highly optimized and that you can continue to iterate only worrying about that use case like we don't need to worry about

12:39nfts and we don't need to worry about other users of ethereum we just worry about trading because that's the only thing that happens on Vegas so you know in the long term it should pay off in the short term you have a sort of high barrier to entry and a lot of upfront costs to build the system great perspective and yeah I think making sure that the infrastructure is

13:01proper and obviously the fees especially for getting traders in that are using smaller amounts is like the difference between winning or losing a trade and actually using the platform you know if the fees are are even remotely above 10 20 like it can make a huge difference for small Traders so I appreciate you taking the time to make sure that's proper

13:24now Barney I'm curious sort of on the assets and you know what you see as sort of the first steps and as you continue to grow out as well maybe we could start with you know the digital assets and on the spot Market mentioned at the beginning about uniswap and you know one of the things about uniswap is that you're really just trading erc20 tokens but now they're

13:43also you know Visions for dexas in the future being multi-block chain or being able to incorporate different assets where are you starting with that on Vega and where do you expect to go as it continues to grow out exactly the same so erc20s I think you know luckily this was true when we started building vegan I think it's still true now that you know the erc20

14:06token ethereum is like the de facto issuance venue for new assets so if someone's creating a new digital asset there's going to be an ethereum erc20 you know they might issue they might issue on multiple chains as well as some of the assets especially stable coins you end up with a version of multiple chains but there's always going to be an erc20 on ethereum it's kind of the de

14:23facto standard and that's good because it sort of means a lot of the a lot of the assets in the space are available there even things like route Bitcoin exists so if you want to trade some so Bitcoin on Vega you can actually do it for a raptor token even before we do an integration we will integrate with other chains eventually absolutely part of the part of the

14:41interesting thing about being an app change is everything is Bridge so actually you can build multiple and even do cross chain the other cool thing obviously with derivatives is you're much less limited with spot you actually need to integrate with all the chains if someone wants to trade that thing so like if you want to trade a token that's on Avalanche spot you need

14:57a way to get that token to your decks if you just want to speculate on the price or if you just want to hedge against the price of that asset you don't actually need a connection to that chain so if I'm interested in hedging the price of Bitcoin let's say I'm exposed to the Bitcoin price on a mining operation if I want to hedge that Vega's not integrated with Bitcoin but I would

15:16probably just use like usdc and a Futures Contract or you know die or usdt so like you can actually because derivatives can settle anything you know we can do derivatives on the price of gold you can do derivatives on the weather because they can as long as you can get a sort of Oracle Source you can actually have a market even within elc20s because you can have stable coins

15:35and like so key cryptos you can actually then Branch out and build derivatives on pretty much anything so yeah a lot of scope early on I think yeah in terms of second and third blockchain Integrations the thing that's interesting to us is whether we can find a winner in something like IBC and actually say you know because I'd rather we didn't code

15:54like 20 Integrations I think it would be cool if the industry could work out how to do like a standard like IBC and then everyone starts talking the same protocol the same language and now kind of have a general purpose cross-chain solution so I think I'm hopeful we can get there and then we can sort of get Vega onto that ecosystem and have sort of multi-chain cross chain very quickly

16:14yeah I agree the current status quo of bridging assets to different blockchains is clunky and has exploits and I feel like moving towards this multi-chain future where we're able to seamlessly transfer from from Bitcoin to Avalanche to ethereum there's going to be some steps along the way and I feel like derivatives is a great solution for it for that to just make

16:38derivatives and you know if people just want to trade and they don't really care about holding the underlying spot asset then you know go ahead and just trade the derivatives so I'm excited to see where that goes with Vega and now I want to talk about 2023 and the next steps moving forward for the launches you mentioned something about Alpha mainnet so what are the next steps for

17:00launching with Vega and what does that mean for the end users yeah so super super exciting time coming up as I mentioned we are really close to the release that will enable trading very very close right now when that release is kind of has been cut we will first run a couple of sort of extreme versions of the incentivized test net called the mainnet simulations

17:23and the idea there is like what we want to do is have all of the eyes of the whole community on the Vega code that we're thinking is going to go live on Main Network trading and say let's all try and stress test it and break it and actually have you know have professional market makers building building Integrations and they're working in the background doing that now it'll be

17:42announced that on our blog a few months back that we're actually sort of rewarding them thirty thousand dollars at a time to do that integration and to actually Market make on the test on the test net for you know for a week during these simulations we will be rewarding the community as well I think it's I think it's not like 120 000 worth of Rewards or something like that for

18:00the community for coming in and trading and doing the same thing so basically trying to create this like completely realistic stick as realistic as possible where we could be realistic I want to test that let's be honest but as realistic as possible set of trading environment where people are doing as many of the things that they would do on Main net with the new code that means

18:18everyone gets to learn the new code they get to learn how it works and see it all knowing that it's about to go live so everyone gets prepared for the go live and is ready people who want to integrate will get to test those Integrations in a semi-realistic environment also we get to stress test things and you know advise validators on things like performance

18:33settings and node configuration based on what we see so like really important to do this the validation let's be participating so we're going to run three or four of these simulations the final one or two will be on the validated test net so you know every all of this is just building up to make sure everything is running and the whole Community is focused on this launch and

18:49everyone can see see what could go wrong we're already running dry runs right now actually internally we've done a dry run upgrade so we installed the same version of the code that's currently on the mainnet on a network and we've just been running through that dry run and upgraded that Network to the current version of the code and it all seems to be working okay so going through all

19:07of that process that'll be an exciting time lots of you know lots and lots of comms from the team and news and info about what's going on lots of people on hand to help out people who are you know coding up trading Bots and stuff in the community and Discord and then once once we see that stuff all working well and hopefully no big block has appear during

19:24that time we'll kind of announce yeah that release is now final it's there on GitHub all the codes already open anyway but well announce this is the final release ready to go and then then it's over really to the validator group to say you know upgrade your nodes upgrade the network and get us ready for training that work gets upgraded and then there's just a final

19:43step of a couple of governance proposals so veggies on chain governance for a few things including approving assets for use on the bridge so again you know we want to avoid a situation where there's someone going yeah this is totally totally usdc but it's actually like just something they made up you see this all the time on things like uni swap these

19:59like fake markets to add to the bridge on Vega you actually go through governance so a few governance votes to enable trading and to add some new assets to the bridge so people can start trading those will happen over the course for a week or so and then the first markets will get proposed by some of the market makes and the community and people can begin trading begin

20:16feeding back to us how it's going and we'll we'll see we'll see where it goes from there so that's really like the next month or two and then you know after that we're really really excited to get a lot of community feedback and to develop things you know we've been we've been in a darkened room not not that dark we have a community on Discord and everything

20:34but yeah for the most part we've been building designing implementing getting a bit of feedback in Tesla but really really want to see what people's what people like what they don't what they want to change what they want to do with Vega because hey we don't even know what markets are going to be the popular ones we can guess we have some educated guesses but something could come and

20:53surprise us with what takes off first so really excited to see that and then over the course of this next year we've got you know some really really killer features in terms of like adding perps to the to the mix adding so passive amm style liquidity so more people can get involved in liquidity provision and you'll earn rewards for doing that and

21:09whatever you know increasing in better interoperability of ethereum so like allowing ethereum oracles to integrate with Vega directly without any new code and just things like that so lots of cool stuff coming but really Focus now on getting trading live and getting people excited and using Vega in the first few weeks wow it's all going to come really fast

21:29Bernie and it's exciting so thank you for laying this all out for us you mentioned there about the Discord is that the main place that you know the viewers if they're watching and they haven't been involved in the community already can watch for that next version of the launch and potentially you know get involved into the future and all these plans that you're talking about

21:50yeah Discord and Twitter two places some people like to participate and sort of read all the chat and post memes that go if you like that go to Discord if you want to just kind of receive the updates and see the info and less of a less of an active community participator and I know some people Some people prefer that other mode than Twitter is a good place

22:07as well sounds great Britney I can leave both of those and the Vega protocol links in the description box below I appreciate you coming on all the best with the upcoming launch for that Alpha main net and let's follow up in the near future awesome thanks Ashton yeah and let's I'll be I'll be back on here yeah maybe three four five months and see how it's gone sounds great

22:29thanks