We recently held a Twitter Spaces with Barney Mannerings, one of the co-founders of Vega which is one of the most advanced decentralized exchanges due mostly to its focus on being uncompromisingly decentralized and purpose built for trading derivatives. Below are some highlights from the session, the replay of which can be listened to here.
Barney met his co-founder Ramsey Khoury and they started diving in on derivatives and more complex products that he had already spent a lot of his career on. They brought researchers into the conversation and thought long and hard about what “state of the art” derivatives trading would look like and what was possible with app chains and proof-of-stake. This led them to tackle the challenge of fully decentralizing an exchange to provide all the benefits of a centralized exchange, but with full decentralization to reinvent blockchain-based finance.
Takes on Decentralization
Barney Mannerings (@barnabee):
“What I see when I think of decentralization for crypto and finances is the same sort of thing is building that layer that anyone can participate and no one can be prevented from participating because someone has to check their ID or someone needs to check the rules or someone has control over who can access the network. It’s basically creating that base layer which is open and free for everyone globally. For money and value in the same way that that layer exists on the internet.”
Bhavik Patel (@cryptobhavik):
“I think most people who trade crypto are quite comfortable with how a centralized exchange works and they don’t necessarily understand which bits have human components. In the traditional asset space and you looked at an exchange, it would do a lot less functions than a crypto centralized exchange does. A crypto centralized exchange currently probably acts as your custodian. It acts as your matching engine which would be just your exchange in the traditional world. And it also acts as your broker because it matches it manages your margin for you. As crypto has evolved, we’ve kind of seen different bits break off and people are a bit more aware of the different types of risks. For me, a decentralized exchange means trying to reduce that component where a single entity or a single individual can have a big say and it could be across any of these functions.”
Michael Arrington (@arrington):
“You’ve got all the different parts of the process that the exchange handles, but you have a risk with every piece of that. You have the risk that you’re not gonna be allowed to trade there because the laws of your country prohibit it, so you’re just immediately crossed off the list of people who can participate there. You have the counterparty risk in counterparty risk. Anybody who has traded understands it especially after last year. Counterparty risk is the risk that not that your investment does well or poorly, but that your investment disappears because some third party that you may or may not know about, has either stolen your money or gone bankrupt and it’s just gone. Counterparty risk mitigation is exceptionally important, particularly in an under regulated market like crypto. Decentralized exchanges need to solve all of these problems and then they need to start to handle the convenience part that centralized exchanges can handle. I think Vega touches on all of these in a really interesting way.”
Vega vs Centralized Exchanges: Architectural Overview
Vega is a kind of an app chain which means it’s a kind of effectively a layer one Blockchain, but it’s a Blockchain which is built to service a specific type of application – in Vega’s case, that’s the trading application. A few things have been prioritized that wouldn’t be possible if building on other chains:
Latency: Less than one second block time, which is why when you look at your markets on Vega, the order books are alive and they’re updating in a way that you wouldn’t see on other slower blockchains.
Trading Fee Optimization: Whereas on Ethereum, you kind of have this kind of fee auction for block space where you’re kind of competing with money, Vega has a different model for preventing spam and allocating block space. This enables placing orders to be free of charge just like it is in a centralized exchange and traders who take liquidity to pay the fees. This fee model is much more appropriate for trading
All On Chain: Vega is a proof-of-stake chain run by a number of decentralized nodes that all run the application, which means the entire order book and everything else are on chain. So effectively, the same trust assumptions you make around the security of the Vega chain itself, also secure the bridge cut smart contracts. There’s not a separate set of actors or a separate bridge controlled by someone else to minimize security risk
Indexer Service: The data node connects to the nodes of the Blockchain and they can be non-validator nodes that participate in the network and anyone can run these, anyone can run a validator node, anyone can run a non-validator node. And when you participate as a non-validator with this sort of indexer called data node, what effectively that does is it builds a database just like would exist on a centralized exchange.
Vega Wallet: To interact with the Vega chain.
Getting More Involved
There was a deep chat about how this would play out in live trading and getting started within the growing Vega community. Barney gave listeners some insights on how he thinks about the strong and secure base that has been built – a base that could drive a very robust infrastructure over the next 18 months. Coming soon are bug bounties, transparency on testing and more.
Vega is open – no IP addresses are excluded. Both retail and institutional traders can benefit from the work that Vega has done.
Listen to the full Twitter Spaces here.
Learn more about Vega: