Vega Protocol (ETH: $VEGA), a crypto protocol built specifically for handling derivatives trading on a fully decentralized network, has officially launched its mainnet on May 10, 2023.
The project’s developers felt that building their product on top of an existing blockchain, like Ethereum would lead to mass inefficiencies. As a result, the Vega Protocol was built from the ground up with high-performance purpose-built smart contracts with zero fees.
How the Vega Protocol Works
Unlike centralized platforms, $VEGA runs on nodes distributed globally. The nodes receive market orders via an API or trading terminals and form blocks. The order matching engine then processes the confirmed blocks, executing those trades based on price and time priority. The consensus algorithm that creates the blocks is open to the public, which ensures a transparent and auditable trading experience.
The platform calculates traders’ margin requirements for each new order added to the book to ensure financial viability. The protocol only requires a crypto wallet and collateral deposited in the smart contract to receive orders.
How Default Risk is Calculated
The default risk is addressed by continuously recalculating the margin requirement after every market price move. Because margin calculations run on each node after the market price reactions, they must be fast and uniform across all nodes.
The quantitative team, led by David Siska, Ph.D., a lecturer at Edinburgh University, is working on innovative approaches for risk calculations. These risk calculation methods include using machine learning techniques, such as neural networks.
Governance Model
Governance on $VEGA is via a decentralized model without human intervention. The on-chain governance is intended for key functions to maintain a high-quality, functioning market in a decentralized environment.
The main governance mechanism is via stake-weighted voting. If proposers do not meet the minimum participation threshold, they will forfeit some staking assets. The voting mechanism is in place to prevent proposal spamming. $VEGA also may consider introduce a secret ballot to prevent voter bribery.
$VEGA Token Details
The $VEGA token is currently running on the Ethereum network. According to CoinMarketCap, it has a market cap of around $47.5 million with a fully diluted market cap of $58.41 million. There is a maximum supply of 64,999,723 $VEGA, with 52,679,139 in circulation, representing 81.05% of the total supply.
After the $VEGA mainnet launch in May, the tokens almost doubled in price, bringing the market cap to $100.7 million in July 2023. While they have since depreciated in price, $VEGA tokens remain quite popular. For instance, Vega Protocol has over 31.5K followers on Twitter with a daily trading volume of more than $400K.
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$VEGA Is Building the Future of Decentralized Derivatives Trading
The Vega protocol seeks to reinvent how the derivatives trading industry works. With the global derivatives industry estimated to be around $18 trillion, $VEGA could become one of the biggest platforms in the crypto sector if it gets even a small fraction of that market. Given how big the Vega Protocol could grow, getting your hands on some $VEGA token could pay off big-time in the future.
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